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11 January 2018 Taiwan increases withholding tax rate for nonresident recipients without fixed place of business in Taiwan On 29 December 2017, Taiwan's Ministry of Finance (the MOF) announced that the standard dividend withholding tax rate for nonresident recipients was increased to 21% from 20%. The increase is part of the tax reform proposal announced by the MOF on 1 September 2017.1 The change is effective for dividends received on or after 1 January 2018. Prior to the amendment, dividends received by a nonresident recipient were subject to a 20% withholding tax, resulting in a lower Taiwanese tax burden than the tax burden borne by a resident. The difference may encourage Taiwanese residents to invest in a foreign paper company which in turn invests in Taiwan to qualify for the lower rate. To make the tax gap smaller between resident and nonresident shareholders, the current 20% withholding tax rate is increased to 21% Additionally, to complement Article 23-1 of the Statute for Industrial Innovation under which some of the qualified venture capital limited partnerships can elect to be treated as pass-through entities for income tax purposes, earnings distributed by such venture capital limited partnerships to foreign partners will also be subject to the 21% withholding tax. Other tax reform proposals (such as increase of the income tax rate to 20%, reduction of the undistributed earning tax to 5% and cancellations of retained earning tax credits to foreign shareholders) are still pending. 1. See EY Global Tax Alert, Taiwan announces tax reform proposals, dated 6 September 2017. Document ID: 2018-5118 |
