Foreign institutional investors that provide consulting or asset management services to the Taiwan entities or funds which are registered in Taiwan may be eligible for a special tax regime.

Presently, when service fees are paid by the Taiwan entities or funds to the foreign institutional investors, they are subject to a 20% withholding tax having that no tax treaty could be applicable. When it comes to the applicability of the tax treaty, seeking approval from the Taiwan tax authority could be a toilsome and time-costing work. Article 25 of the Taiwan Income Tax Act (“Article 25”), however, provides these foreign institutional investors an alternative to relieve a bit their tax burden.

Per the Article 25, foreign entities with approval obtained from Taiwan Ministry of Finance (“MOF”) that have Taiwan sourced income in nature of international transport, construction contracting, providing technical services, or machinery and equipment leasing, etc., could be allowed to be taxed on its deemed profits when costs or expenses are found difficult to be calculated. Deemed profit rate will be 10% of the whole revenue for the international transportation business, and 15% for businesses of other types mentioned above. Withholding tax, in this regard, could be down from 20% of the whole revenue to 2% (or 3% = 15% * 20%).

While consulting or asset management services rendered by the foreign institutional investors are considered a kind of technical services, MOF holds that local instructions, communication, and other fringe services provided by the Taiwan entities or funds are necessary to the foreign institutional investors to fulfill their job, not 100% of the revenue could be applicable to the Article 25. In terms of the contribution attributed to the local entities, about 70% or 80% of the service revenues could be applied to the Article 25, which more or less helps the foreign institutional investors make the tax saving.