FINI investors who wish to apply for pre-approval for the preferential tax treaty rates on dividends or interest are advised to submit their applications by the end of February.
Date:2025-01-16
The Taipei National Taxation Bureau of the Ministry of Finance stated that foreign institutional investors (hereinafter referred to as “FINIs”) investing in domestic stocks or bonds and earning dividends or interest income sourced from the Republic of China (Taiwan) may apply in advance for pre-approval of the applicable preferential tax rates stipulated in tax treaties for dividends or interest. Once such approval is obtained, the withholding tax on dividends or interest payments made by the investee company can be applied at the preferential tax rate, eliminating the need for post-payment tax refund applications and preventing the tying-up of funds. The Bureau explained that, in order to enhance the efficiency of reviewing FINI applications for pre-approval of preferential tax rates under tax treaties and to implement the tax benefits granted by such treaties, the Ministry of Finance issued Directive Tai-Cai-Ji No. 10800577770 on June 24, 2019. According to the directive, FINIs structured as funds or trusts that are required under applicable tax treaties to provide beneficial ownership certification may, unless otherwise specified in the respective treaty, submit a beneficiary owner letter stating that the fund or trust is the beneficial owner of the relevant income. This beneficiary owner letter serves as sufficient proof, and the applicants are exempted from submitting documents required under Article 25, Paragraph 5 of the Regulations Governing the Application of Tax Agreements. Such documents include beneficiary lists of the fund or trust, Certificate of Residency for each individual beneficiary, or documents detailing the beneficiary proportions held by residents of the contracting country. The Bureau also pointed out that, according to Article 228-1, Paragraph 1 of the Company Act, a company’s Articles of Incorporation may provide for the distribution of earnings or offsetting of losses on a quarterly or semi-annual basis, meaning that domestic companies may distribute dividends quarterly or semi-annually. To enable FINIs to obtain pre-approval of the applicable tax treaty rates for dividends or interest in a timely manner before dividend distributions, so that the investee companies can apply the preferential tax rates at the time of payment, the Bureau encourages FINIs to submit their application documents by the end of February each year. This allows the tax authority to issue the approval letter before March 31 of the same year. Additionally, for applications where approval letters were issued within the past three years, considering that these cases have already undergone review and approval and that the applicants have shown a continued intent to invest in Taiwan, the tax authority may extend the approval period for up to 24 months, provided that a review of documents such as the FINI’s Certificate of Residency, letter of authorization, and beneficiary owner letter reveals no major irregularities.
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