Taiwan's Legislative Yuan (Parliament) has enacted the tax reform proposals that were announced on 1 September 2017.¹

Key features of the tax reform include:

1. An increase in the corporate income tax rate from 17% to 20%. Effective for taxable years beginning on or after 1 January 2018
2. A decrease in the undistributed earnings tax rate from 10% to 5%. Effective for taxable years beginning on or after 1 January 2018
3. The undistributed earnings tax paid at the corporate level can no longer be distributed to foreign shareholders as a credit against the dividend withholding tax. Effective for distributions made on or after 1 January 2019

Foreign parents whose Taiwan subsidiaries make large annual dividend distributions should ensure proper treaty relief is obtained, wherever available, and ascertain that the withholding taxes paid in Taiwan are creditable in the foreign recipients' jurisdictions, or alternatively, consider converting the subsidiary into a branch.

Furthermore, if Taiwanese subsidiaries have paid undistributed earnings tax in the past and have not utilized the tax paid as a credit against the dividend withholding tax, the foreign parent should plan to have the subsidiaries distribute dividends during 2018.

Endnote

¹ See EY Global Tax Alert, Taiwan announces tax reform proposals, dated 6 September 2017.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young (Taiwan), Taipei

• Sophie Chou
  sophie.chou@tw.ey.com
• Anna Tsai
  anna.tsai@tw.ey.com
• ChienHua Yang
  chienhua.yang@tw.ey.com
• Vivian Wu
  vivian.wu@tw.ey.com

Ernst & Young LLP, Asia Pacific Business Group, New York

• Chris Finnerty
  chris.finnerty@ey.com
• Kaz Parsch
  kazuyo.parsch@ey.com
• Bee-Khun Yap
  bee-khun.yap@ey.com

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ATTACHMENT

PDF version of this Tax Alert