Where a foreign profit-seeking enterprise does not have a fixed place of business or business agent in the Republic of my country and obtains labor remuneration or business profits as provided for in Paragraphs 3 and 9 of Article 8 of the Income Tax Act and falls within the scope of withholding tax provided for in Article 88 of the Income Tax Act, the withholding agent shall withhold tax at the prescribed withholding rate based on the amount of the payment when the payment is made.
The Ministry of Finance's Kaohsiung National Taxation Bureau explained that in order to reduce the tax refund procedures for both tax authorities and taxpayers and alleviate the situation of capital backlogs caused by over-withholding of taxes by foreign profit-making enterprises, the Ministry of Finance stipulates that foreign profit-making enterprises without fixed business locations and business agents within the Republic of China that obtain labor remuneration or business profits as provided for in Article 8, Paragraphs 3 and 9 of the Income Tax Act may, before obtaining income, submit relevant contracts, business contents, and domestic and foreign transaction process descriptions and other documents to the National Taxation Bureau for determination of the applicable net profit margin and domestic profit contribution (hereinafter referred to as the net profit margin and contribution rate). The income shall be calculated based on the net profit margin and contribution rate, and the withholding agent shall withhold taxes at the prescribed withholding rate when making payment.
The bureau gave an example, in which a foreign profit-making enterprise Company A signed a mechanical equipment maintenance and installation service contract with a domestic profit-making enterprise Company A. The two parties agreed that the contract price was NT$1 million (the same below). Before obtaining the income, Company A applied to the National Tax Bureau for determination of the applicable net profit margin and contribution rate. After reviewing the contract and other supporting documents, it was found that the income obtained was indeed of the nature of labor remuneration, and that the labor was provided by employees sent by Company A to Company A. The provision of the labor was all carried out and completed within the territory of the Republic of China. Therefore, the applicable net profit margin of 10% and the contribution rate of 100% were determined for the industry to calculate the income. When Company A subsequently pays Company A the labor remuneration, it calculates the tax to be withheld of NT$20,000 (NT$1 million × 10% × 100% × 20%) based on the aforementioned net profit margin of 10%, contribution rate of 100% and withholding rate of 20%, which is significantly lower than the withheld tax of NT$200,000 (NT$1 million × 20%) before the application was made, thereby reducing Company A's capital backlog and improving the administrative efficiency of both the tax authorities and taxpayers.
The bureau reminds that if foreign profit-making enterprises wish to apply for determination of net profit margin and contribution rate, they can use the bureau's website (URL: https://www.ntbk.gov.tw) "Form Download/Enterprise Income Tax/Application for Foreign Profit-making Enterprises to Determine the Net Profit Margin and Domestic Profit Contribution Rate Applicable to Income from Sources in the Republic of China" to download the application form and attach supporting documents to apply to the National Tax Bureau before obtaining income. If the public has any questions, they can call the toll-free service number 0800-000-321 for inquiries, or go to the bureau’s website and use the National Tax Smart Customer Service “National Tax Assistant” for online inquiries.
Provided by: Business Tax Group
Contact Person: Chen Suhua, Section Chief Contact Number: (07) 7256600 ext. 7140
Written by: Wang Wanting Contact number: (07) 7256600 ext. 7147
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