The Agreement between the Taipei Economic and Cultural Representative Office in the Kingdom of Saudi Arabia and the Council for Saudi Chambers of Commerce and Industry for the Avoidance of Double Taxation with Respect to Taxes on Income and the Prevention of Tax Evasion entered into force on November 1st, 2021 and will be applicable on January 1st, 2022
Date:2021-11-19 Read
The Ministry of Finance states that the Agreement between the Taipei Economic and Cultural Representative Office in the Kingdom of Saudi Arabia and the Council for Saudi Chambers of Commerce and Industry for the Avoidance of Double Taxation with Respect to Taxes on Income and the Prevention of Tax Evasion (hereinafter referred to as the Income Tax Agreement between Taiwan and Saudi Arabia) was signed on December 2nd, 2020. After both sides completed the notifying procedures necessary for entering into force of this Income Tax Agreement, it entered into force on November 1st, 2021 and will be applicable on January 1st, 2022, making it the thirty-fourth comprehensive Income Tax Agreement for Taiwan. The Income Tax Agreement between Taiwan and Saudi Arabia will reduce barriers to cross-border trade and investment and will provide a more friendly tax environment for the carrying out of the trade and investment, industrial cooperation, and technical exchange between the two sides. The Income Tax Agreement between Taiwan and Saudi Arabia includes 28 Articles. Its main objectives are to ensure that the income derived by a resident of a territory (e.g., Taiwan) is taxed with a reduced tax rate or is exempted from taxation in the other territory (e.g., Saudi Arabia) for eliminating double taxation and providing a dispute resolution mechanism so as to prevent or resolve disputes resulting from cross-border taxation. The contents of this Income Tax Agreement are summarized as follows: a. Persons Covered: Residents, as those persons defined in accordance with domestic tax laws of Taiwan or Saudi Arabia, including individuals and enterprises. b. Taxes Covered: Income tax, the taxes covered by this Income Tax Agreement also includes the Zakat of Saudi Arabia. c. Main measures of tax exemption or reduction for Business Profits: If an enterprise of Taiwan or Saudi Arabia carries on business in the other territory without constituting a permanent establishment (hereinafter referred to as PE) therein, business profits of that enterprise are exempted from taxation in that other territory. The term PE includes: 1. Physical PE: e.g., a place of management, a branch, an office. 2. Project PE: a project that continues to exist for a period of more than six months. 3. Service PE: the furnishing of services for a period or periods exceeding in the aggregate six months within any twelve-month period. 4. Agency PE: a person acting on behalf of an enterprise of a territory and habitually exercising an authority to conclude contracts in the name of that enterprise in the other territory. However, an enterprise shall be deemed as not to have a PE if its maintenance of a fixed place of business (e.g., logistic warehouse) in the other territory is solely for the purposes of storage, display, or delivery of goods or merchandise, for purchasing goods or merchandise, or for collecting information etc. as long as these activities are of a preparatory or auxiliary character. d. Main measures of tax exemption or reduction for Income from Investment: Dividends: the tax charged is not to exceed 12.5% of the gross amount of the dividends. Income from Debt-Claims (Interest): the tax charged is not to exceed 10% of the gross amount of the interest; certain interest is exempted from taxation. Royalties: 4% of the gross amount of the royalties as a maximum is applied to the payment for the use of, or the right to use industrial, commercial, or scientific equipment; 10% of the gross amount of the royalties as a maximum is applied to the payment for the use of, or the right to use intangible assets, or for other royalty cases. e. Main measures of tax exemption or reduction for Capital Gains: Gains from the alienation of shares of a resident of a territory shall, in principle, be exempted from taxation in the other territory except for such shares owned by that resident amounting to at least 25% of the total issued shares of the issuing company which is a resident of the other territory at any time during the seven-year period immediately preceding the alienation of such shares. f. Dispute Resolution - Mutual Agreement Procedure: Residents of either territory may, within the stipulated duration, present their cases to the competent authority of either territory and ask to open a mutual agreement procedure in order to resolve or prevent disputes resulting from cross-border taxation where the following circumstances occur: 1. Disputes on the application of the Income Tax Agreement between Taiwan and Saudi Arabia; 2. Disputes on the corresponding adjustments for transfer pricing cases; 3. Efforts to conclude Bilateral Advance Pricing Agreements, to minimize risks that affiliated enterprises would be facing in the future under transfer pricing auditing, so as to increase tax certainty. The Ministry of Finance notes that Saudi Arabia ranks fifteenth among Taiwan’s global trade partners, and Taiwan was Saudi Arabia's eleventh-largest export market in 2020 according to statistics provided by the Ministry of Economic Affairs. The trade relationship between Taiwan and Saudi Arabia is close. The entry into force of the Income Tax Agreement between Taiwan and Saudi Arabia may be useful for reducing the tax burden of Taiwanese companies who carry on business in Saudi Arabia. Where a Taiwanese company furnishes technical service to a Saudi company without establishing a fixed place of business in Saudi Arabia and the period during which the Taiwanese company maintains its employees or other personnel in Saudi Arabia for furnishing such service is no more than six months within any twelve-month period, the tax rate on the service income will be zero if the relevant provisions of the Income Tax Agreement between Taiwan and Saudi Arabia are met (where the withholding tax of 15% would otherwise be applied to that case in Saudi Arabia in the absence of this Income Tax Agreement). In addition, the Income Tax Agreement between Taiwan and Saudi Arabia will apply equally and reciprocally to both sides’ residents. Saudi Arabia’s companies carrying on businesses similar to the above-mentioned will enjoy the same preferential tax treatment in Taiwan. Furthermore, since Saudi Arabia provides no unilateral tax relief under its domestic tax laws to eliminate double taxation, through the Income Tax Agreement between Taiwan and Saudi Arabia which provides Saudi Arabia’s companies with a mechanism to resolve their double taxation, this mechanism can greatly reduce the tax burden of Saudi Arabia’s companies, increase their willingness to invest in Taiwan, and deepen the cooperative relationship for both sides’ investment and trade. The Ministry of Finance emphasizes that the Income Tax Agreement between Taiwan and Saudi Arabia is the first comprehensive Income Tax Agreement that entered into force between Taiwan and the Islamic countries in the Middle East and sets up a meaningful benchmark among Taiwan’s Income Tax Agreements. In recent years, Saudi Arabia has promoted an important economic policy “Saudi Vision 2030,” actively expanding infrastructure, enhancing inbound investment shares from foreign investors, and increasing fiscal revenues from non-oil sectors. The entry into force and application of this Income Tax Agreement enables Taiwanese companies to enjoy reasonable and stable taxation when entering markets in the Middle East, to resolve or prevent double taxation disputes, and to remove tax obstacles from carrying out cross-border economic activities. All of these may assist these Taiwanese companies to isolate tax considerations from their decisions regarding where to carry on their cross-border economic activities, so that the decisions on the development and business structures of these companies may be based on the considerations such as economic resources allocations or market mechanisms. The Ministry of Finance will based on equality and the principle of reciprocity, continue to promote the conclusion of Income Tax Agreements with countries of close economic and trade relations with Taiwan as well as New Southbound policy countries and countries in the Indo-Pacific region who share the same interests with Taiwan so as to provide Taiwanese companies with better protection of their taxation under their global investment arrangements. Resources: MOF, R.O.C.
Revised property tax to start on July 1
Date:2021-04-10 Read
Lawmakers across party lines yesterday agreed to July 1 as the provisional date on which a draft amendment to the Income Tax Act (所得稅法) is to come into effect, with the aim of curbing real-estate speculation. Under the changes, the tax on individuals and businesses would be set at 45 percent on gains from the sale of property within two years of purchase and 35 percent on gains from properties sold within two to five years of purchase. Currently, the 45 percent rate applies only to gains on property sales within the first year of purchase, while the 35 percent rate applies only on sales made within one to two years of purchase. Those rates only apply to individuals. Businesses pay an across-the-board rate of 20 percent on such gains under corporate income tax rules. By imposing the same tax rate on individuals and businesses, the bill aims to prevent individuals from setting up companies to trade property and pay only 20 percent on their gains. For people and companies buying property from outside Taiwan, the 45 percent tax would apply to gains on property sales within two years of purchase, up from one year, after which the rate would remain at a flat 35 percent, according to the bill. The tax on individuals for gains on properties sold five to 10 years after purchase would be 20 percent, and 15 percent thereafter. For companies, the rate would return to 20 percent after five years. The revisions also widen the scope of properties to which the tax applies. While the tax previously only applied to transactions of existing residential properties not considered to be for “self-use,” under the amended version it would apply to the sale of presale homes, above-ground use of land rights and special shareholdings. The measures would apply retroactively to transactions dating back to 2016. Reference: Tapei Times CNA
FSC bans short selling to curb losses
Date:2020-03-19 Read
Due to the impact of the coronavirus which causes fluctuations in the securities market, Financial Supervisory Commission (FSC) announces the following measures to take effect to protect investor’s rights and avoid stock prices slump resulting from short-selling transactions 1. For Investors selling short or borrowing securities (from the TWSE lending system, securities dealers, or securities financial institutions) to sell listed stocks and Taiwan Depository Receipts, If the closing price falls by more than 3.5% on the following day, investors are prohibited to sell securities at a price lower than the closing price of the previous trading day. However, if the closing price of the next trading day still falls by more than 3.5%, the short-sales-bans are still in effect. Nevertheless, securities dealers and futures dealers are not restricted to sell/ borrow securities due to the need for hedging. 2. Investors are prohibited to engage in day-trading when the price is lower than the previous trading day and short-selling day. If the reversing transaction hasn’t completed after the sale of the current securities and its selling price is lower than the previous trading day, it is not allowed to change the type of transaction as margin sale or short sale. The FSC did not say how long the short-selling ban would last. They will assess and respond to COVID-19 pandemic situation in due course. Reference: Financial Supervisory Commission (FSC)
Basic Introduction to Tax on Cross-Border Electronic Services
Date:2019-05-31 Read
The Ministry of Finance (hereafter MOF) promulgated a new regulation on the income tax of the cross-border electronic services by a foreign profit-seeking enterprise. According to the annual income tax principle, the income tax regime became effective from the taxable year 2017. The basic introduction is described below: 1. Recognition of revenue sources from the R.O.C. 1. 1. The product produced or manufactured outside of the R.O.C., e.g., stand-alone software, e-book, etc. 1.1.(1) If only through changing the way of presentation of the product, the enterprise transmits and saves the product into a computer or mobile device via the Internet or other electronic means to offer electronic services to buyers within the R.O.C., the sales amounts collected therefrom are not regarded as income from sources in the R.O.C. 1.1.(2) If the product provided with the assistance and involvement of a person or profit-seeking enterprise of the R.O.C., the sales amounts collected therefrom shall be recognized as income from sources in the R.O.C. 1.2. The real-time, interactive, handy and continuing electronic services: Such as online games, streaming series, streaming music, streaming video, online advertisements, etc. offered to domestic buyers within the R.O.C., its sales amounts shall be deemed as income from sources of the R.O.C. 1.3. Electronic services delivered by physical locations: Such as accommodation services, automobile renting services offered via the Internet or other electronic means and if the locations of the service delivering are within the R.O.C., its sales amounts collected regarded as income from sources in the R.O.C.. 1.4. Foreign platform operator If one of the transaction parties of the internet-based platform is a person, profit-seeking enterprise, or entity within the R.O.C., its sales amounts collected from the seller and buyer shall be recognized as income from sources in the R.O.C. 2. Calculation of the taxable income 2.1. Deductible costs and expenses 2.1.(1) Verification: The accounting books and documents are provided, the taxable income amount shall be the verified gross revenue from sources in the R.O.C. after the deduction of related costs and expenses. 2.2.(2) If the accounting books and documents are not available, the taxable income amount shall be calculated as the gross revenue from sources of the R.O.C. multiplied by the net profit ratio of the profit standard of the same trade concerned applicable to the foreign profit-seeking enterprise. Provided that the business type of the foreign profit-seeking enterprise is recognized as the type "offering platform electronic services," the applicable net profit ratio is 30%. 2.2.(3) The net profit ratio of 30% is applied for foreign profit-seeking enterprises not meeting the 2.1.(1) and 2.1.(2) above. 2.1.(4) If the actual net profit ratio verified by the taxation authority is higher than the above ratio, the actual net profit ratio shall be applied. 2.2. The domestic profit contribution ratio shall be determined according to the following: If the whole transaction flow or the electronic service provided is within the territory of the R.O.C. the deemed domestic profit contribution ratio shall be 100%; otherwise, it should be determined as blow. 2.2.(1) Verification: A foreign profit-seeking enterprise should provide documents supporting a clear division of the onshore and offshore transaction flows as well as the ratio of the contribution attributed to the services performed within the territory R.O.C.. The domestic profit contribution ratio shall be determined based on the supporting documents provided. 2.2.(2) The domestic profit contribution ratio set to be 50% when it can’t meet 2.2.(1) above. 2.2.(3) The actual domestic profit contribution ratio shall be applied if such ratio verified by the taxation authority is higher than 50%. 3. Ways of reporting and paying taxes 3.1. For income within the withholding tax scope, the tax withholder shall withhold the tax from the payment source in accordance with the withholding ratio of the "payable amount". However, if a foreign profit-seeking enterprise has applied with the taxation authority in accordance with the above criteria, its payable tax of the income from sources in the R.O.C. shall be calculated and withheld based on the given net profit ratio and domestic profit contribution ratio. 3.2. For income not within the withholding tax scope, the foreign profit-seeking enterprise shall file the income tax return by itself or through a tax agent within the period for the taxable year. 3.3.(1) Where a foreign profit-seeking enterprise is a platform operator, the sales amounts it collects shall be subject to the income tax. 3.3.(2) If a part of the sales amounts it collects will be transferred to a foreign non-platform service provider, e.g. foreign online game software supplier, the platform service fees collected shall be subject to the income tax and tax withholding requirements. It shall settle all the taxes withheld in the previous month for the national treasury within the first ten days of each month, and shall report the calculation information of the withheld and paid taxes regarding the transferred sales amounts to the taxation authority. Reference: Taxation Administration, MOF, R.O.C.
Business Tax on Cross-Border Electronic Services
Date:2019-01-02 Read
An offshore electronic services business entity shall apply for taxation registration in accordance with the Value-Added and Non-Value-Added Business Tax Act (hereinafter referred to as the VAT Act), which came into force on May 1st, 2017. In the event that an offshore electronic services business entity having no fixed place of business within the territory of the R.O.C. sells services to domestic individual purchasers, the Ministry of Finance (MOF) stipulates that such offshore electronic services business entity shall apply for taxation registration and file/pay VAT by itself or appoint a tax-filing agent to complete these matters if its annual sales amounts derived therefrom exceeds NT $480,000. Reference: Ministry of Finance(MOF)