Step 6: A case study: register a private limited liability company

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Business Registration

Step-by-Step Guide

This guide provides a structured approach to start the various types of business such as, a branch office, a representative office, a private limited liability company or a company limited by share as a subsidiary, a general partnership, a limited partnership, a sole proprietorship for registration in Taiwan.
Step 1: Decide on a Business Structure
Step 2: Chinese Company Name Approval
Step 3: Finding Premises
Step 4: Registration, Incorporation and Permit
Step 5: Taxation
Step 6: A case study: register a private limited liability company

Steps 6: Case Study
Taiwan Private Limited Liability Company – Registration, Tax and Compliance

The Private Limited Liability Company (LTD) is the most common legal form for business entity of foreign investors in Taiwan, easily established and with a minimum of expenses. The shareholder or director could be foreigner; no Taiwanese citizen is required to hold any equity or be managerial position or director of a LTD.

Registration of the company

A foreign investor must engage a Taiwanese agent, either a Certified Public Accountant (CPA) or a lawyer, to file investment and incorporation on behalf of a foreign investor, either an individual or a legal entity.

In general, there are six government agencies and a bank who will be involved during investment and incorporation procedure:
  • Investment Commission MOEA – Foreigner Investment Approval
  • A bank account for the registered paid in capital
  • Ministry of Economic Affairs (MOEA) – Incorporation filing
  • Bureau of Foreign Trade – Import and Export License
  • National Taxation Bureau – Company Business Registration and Tax ID Number
  • Bureau of Labor Insurance – Company Labor Insurance and Pension Account
  • National Health Insurance Administration - Company National Health Insurance (NHI) and 2nd. NHI Account

Upon completion of its incorporation, the newly set-up company can start doing business, but the Value Added Tax officer of the jurisdiction where the company is registered will require to meet and verify the identity of responsible person or his/her legal representative.

After verification is done, VAT officer will issue an approval for the company to purchase Government Uniform Invoice (GUI), a pre-numbered VAT Invoice, which is the “official invoice” that a business entity issues to its customer for any transaction in Taiwan.

Tax Compliance

To keep competitiveness and optimize net profit, one of the key tasks of a foreign investor is to be able to estimate more precisely on the tax burden of a company in Taiwan.

In general Taiwan Tax Laws and Tax Rate, either Income Tax or VAT (GST), are reasonable and friendly, but Taiwan is still a developing country, in many different aspects. Tax is one of them, in many cases, tax litigation arising from the situation that has not been clearly defined by tax law, and this is always a red tape when a company applies the tax law to a transaction, without consulting a reliable tax advisor.

For international transaction, a company must evaluate tax compliance from the point of view of Taiwan tax law, tax incentive scheme, tax treaty and take into account of the proficiency of local tax officer; in your jurisdiction, about cross boarder transaction.

In order to avoid or at least to reduce the tax risks of a foreign investment, a foreign investor or his/ her tax agent should always maintain a smooth relationship and communication channel with the local tax authorities, either in Ministry level or at city level.

Following are the taxes generally applicable to a Taiwan Private Limited Liability Company and the tax compliance requirements which a Taiwan company needs to adhere to in order to comply with Taiwan tax laws and regulations.

Tax Overview
Corporate (Business) income tax

The earnings, accrual basis, of a Taiwan LTD are subject to:
  • Corporate (Business) income tax. The currently applicable corporate income tax rate is a flat rate, 17%. If the annual net profit before income tax is less than TWD120,000 ( Approx. EUR3,000), the net profit is tax free.
  • No other surcharge, such as, in some European countries, solidarity surcharge of 5.5% of the amount of corporate income tax
  • No Trade Tax, such as, in some European countries, Trade tax, which is part of the overall taxes on a company’s profits, for example in Dusseldorf, Germany the trade tax could be Trade tax rate 3.5% X annual taxable income of your company X municipal multiplier of 440%.

The taxable income is usually higher than the profit calculated according to Taiwan or international reporting standards, due to non-deductible expenses or differences in valuation of assets and liabilities. Generally, if could be said that the total tax burden of a LTD amounts is more than 17% of the profit before taxes but not too far.

Corporate Income Tax return filing and Provisional Income Tax Filing (Tax Advance Payments)

Corporate income tax is filed and assessed annually, based on the LTD’s result of the year. Nevertheless, the tax authorities require Provisional Income Tax for current year paid in advance based on the income tax paid for the previous year. The advances have to be paid, but not like in Germany, quarterly at legally fixed dates.

  • Corporate annual income tax is filed and paid from May 1 to May 31, no extension is allowed.
  • Provisional Income Tax is filed and paid from September 1 to September 30, no extension is allowed.
  • No Trade tax
In general, the Taiwan tax year is the calendar year, but subject to advance approval, a business entity is allowed to adopt special accounting year.

Value-added tax (VAT) - Goods and Services Tax

Value-added tax (VAT) applies to all business transactions in Taiwan, i.e. goods delivered and services provided in Taiwan. The normal VAT rate is 5%. There is a reduced VAT rate of 2% or exemption applicable to certain daily goods and services, such as raw agriculture food, newspapers or social welfare service. Exports goods or service enjoy “0” rate VAT and VAT input refund.

Monthly or Bi-monthly Value-Added Tax (VAT) Returns

In Taiwan, a newly established company is obliged to file monthly or bi-monthly VAT returns (Form 401) and to pay the computed VAT to the tax office at the same time. The deadline is the 15th day of the following month. No extension is allowed for delay the filing. A business entity must declare its expense and revenue of the month or two months accordingly, even there is no sale being made or no expense incurred.

Taiwan does not adopt preliminary VAT return system. For example, in Germany, after two years of incorporation, the filing period for preliminary VAT returns will depend on the amount of o VAT accrued for the previous year. If the amount is lower than 7,500 Euro, the VAT returns can be filed quarterly. In Taiwan, all the business entities must file VAT return, monthly or bi-monthly from day the days the company’s Tax ID number is assigned.

Withholding Tax Statement

The distribution of dividends, salary, service fee to professional, royalty, interest by a Taiwan business entity is subject to a withholding tax. And withholding must be filed and paid in time, in 10 days after withholding, in the following month, and annually.

The following are the withholding rate for dividends, royalty and interest:
Countries Dividends Interest Royalties
Non-treaty Countries 20 15,20 20
Australia 10,15 10 12.5
Austria 10 10 10
Belgium 10 10 10
Denmark 10 10 10
France 10 10 10
Gambia 10 10 10
Germany 10 10,15 10
Hungary 10 10 10
India 12.5 10 10
Indonesia 10 10 10
Israel 10 7,10 10
Kiribati 10 10 10
Luxembourg 10,15 10,15 10
Macedonia 10 10 10
Malaysia 12.5 10 10
New Zealand 15 10 10
Netherlands 10 10 10
Paraguay 5 10 10
Senegal 10 15 12.5
Singapore 40* NA 15
Slovakia 10 10 5,10
South Africa 5,15 10 10
Swaziland 10 10 10
Sweden 10 10 10
Switzerland 10,15 10 10
Thailand (Thai text) 5,10 10,15 10
UK 10 10 10
Vietnam 15 10 15 15 10 15

Transfer Pricing Documentation

In due course, a transfer pricing report has to be prepared. This report will be required latest in a field tax audit of the local tax office. Upon request by the tax authorities, it has to be presented within 30 days. According to Taiwan tax laws and international tax principles any transaction conducted between related parties in a cross-border relationship has to be consistent with the “arm’s length” principle. Compliance with this principle has to be documented in the report.

Business relations between foreign parent and affiliated companies and the local company should be based right from the beginning on proper agreements (in written form) and the participants should execute business in accordance with such agreements.

The question of transfer pricing bears considerable tax risks. However, solutions are by far less complicated if legal constructions are discussed in advance and customized to your individual requirements.

Accounting principle

Taiwan business entity follows Taiwan Generally Accepted Accounting Principles, which is similar to US GAAP. However, since 2008, Taiwan has started amending Taiwan GAAP, according to International Financial Report Standards (IFRS). From 2015, all the business entity shall follow IFRS.

Salary Tax and Employee Social Security

A Taiwan LTD, as any employer, is responsible for timely and correct calculation of salary tax and social security contributions, which include NHI, 2nd NHI, Labor Insurance and Pension of its employee and the monthly payment of the withheld amounts to the tax office and the insurance company. Salary tax is on cash basis.

In general, the employer contribution to an employee social security is about 15% to 20% of the monthly salary paid to employee.

For a foreign employee or manager, the withholding rate and filing procedure are different from local employees.

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