[Investment] Compensation for Services Provided Abroad Exempt from Income Tax

The Ministry of Finance (MOF) recently promulgated the “Principles for the Determination of Income Earned in the ROC as Provided in Article 8 of the Income Tax Act,” providing that remuneration earned by companies without bases or agents in Taiwan, and remuneration for which proof can be submitted that the service was provided overseas, need not be included in income from sources in the ROC for tax purposes. The same principle applies to individuals, juristic persons, groups, and other organizations from mainland China that derive remuneration in Taiwan. The MOF indicates that in the past, the standard used in the determination of ROC-sourced income was the “place of use” of services; under the new principle of determination, the standard is the “place of provision.” That is to say, if a foreign company has no fixed place of business or agent in Taiwan, then the source of the remuneration it earns is not the ROC; if the company has an agent in the ROC but that agent does not serve as agent for the business in question, or if it has a place of business in Taiwan but does not participate in or assist with the business in question, then the remuneration earned is not listed as ROC-sourced income for tax purposes. For a service that is performed within and outside of Taiwan at the same time, or that requires the participation and assistance of Taiwan residents or profit-seeking enterprises, the remuneration derived from it is determined as having been derived from services provided within Taiwan. However, if a business can prove the relative amounts of internal and external contribution, then it can calculate the separate shares and determine how much was derived from Taiwan. In addition, foreign profit-seeking enterprises with no base or agent in Taiwan that receive remuneration for services, lease income, business profits, or other income as provided in Article 8 of the “Income Tax Act” may, within five years of receiving that income, commission an agent within Taiwan to apply to the tax agency to deduct the costs and expenses related to that income and recalculate the amount of taxable income, and claim a refund of any excess tax payment.