Taxes in Taiwan for Businesses in 2024: What You Need to Know

Taiwan’s tax system is known for its stability and alignment with international standards, providing a favorable environment for both local and foreign enterprises. The government has introduced several updates in 2024, focusing on digital services taxation, VAT reforms, and additional incentives for investments in green technologies and R&D. This article provides an in-depth overview of Taiwan’s business tax system, compliance obligations, and strategic considerations for companies operating in or looking to expand into Taiwan.

Current Structure of the Corporate Tax System in Taiwan

The corporate tax system in Taiwan is designed to encourage business growth while ensuring compliance with international regulations. Key elements include:

• Corporate Income Tax (CIT):
  The standard CIT rate in Taiwan is 20%, applicable to all resident companies. Non-resident companies with no fixed place of business in Taiwan are subject to a withholding tax on their Taiwan-sourced income at varying rates, depending on the type of income. The government has not introduced any significant changes to the CIT rate for 2024, maintaining its position as one of the more competitive rates in the Asia-Pacific region​(eTax).
  • Deductions and Credits:
    Companies can claim deductions for R&D expenditures and investments in energy-saving equipment. A new tax credit has been introduced for digital transformation projects, which can offset up to 20% of the qualifying expenses​(National Legal Database)​(Department of Taxation Affairs).
• Minimum Tax System (MTS):
  The MTS applies to businesses with low or zero taxable income to ensure they contribute a minimum level of tax. This system uses a basic tax rate of 12% on adjusted income, calculated by adding back certain deductions and exemptions​n (Department of Taxation Affairs).

Value Added Tax (VAT) and Compliance Requirements

The VAT system in Taiwan is known as the Business Tax, which includes both value-added and non-value-added components:

• Standard VAT Rate:
  The standard VAT rate in Taiwan is 5%, which applies to most goods and services. This rate is relatively low compared to other countries in the region, making Taiwan an attractive location for manufacturing and trade​(National Legal Database).
• Special VAT Rates for Specific Sectors:
  Certain industries, such as banking and insurance, are subject to a reduced VAT rate of 2% on core business revenues. Nightclubs, restaurants with entertainment programs, and certain hospitality services are subject to higher rates ranging from 15% to 25%​ (National Legal Database).
• Compliance Requirements:
  Businesses must file VAT returns monthly or quarterly, depending on their turnover and the nature of their business activities. Non-compliance with VAT regulations can result in significant fines and interest charges​(eTax).

Taxation of Digital Services and International Compliance

Taiwan has introduced new rules for the taxation of cross-border digital services to ensure fair taxation of non-resident digital service providers:

• Digital Services Tax (DST):
  Non-resident digital service providers that supply electronic services to Taiwanese consumers and exceed an annual sales threshold of NTD 480,000 (approximately USD 16,000) must register for VAT and comply with local tax regulations​ (eTax)​(National Taxation Bureau).
• Transfer Pricing and Anti-Tax Avoidance Measures:
  Taiwan’s transfer pricing rules are aligned with OECD guidelines and apply to transactions between related parties. Companies must maintain detailed documentation to demonstrate that intercompany transactions are conducted at arm’s length​ (Department of Taxation Affairs).

Strategic Considerations for Businesses

To optimize tax efficiency and ensure compliance in Taiwan, businesses should consider the following strategies:

1. Leverage Tax Incentives for R&D and Green Investments:
   Companies engaged in R&D or investing in energy-saving technologies should explore available tax credits and deductions to reduce their overall tax burden.
2. Comply with Digital Services Tax Regulations:
   Digital service providers should assess whether they are required to register for VAT in Taiwan and comply with new reporting requirements to avoid penalties.
3. Plan for the Minimum Tax System (MTS):
   Businesses with low taxable income should evaluate their exposure to the MTS and consider strategies to optimize their tax position under this system.

Conclusion

Taiwan’s tax system provides numerous opportunities for businesses, particularly those engaged in digital services and green investments. Companies must stay informed about recent developments, strategically leverage available incentives, and ensure compliance to optimize their tax position and support long-term growth.