Income to Foreign Company for Offshore Services will not be Considered Taiwan Source

The Ministry of Finance (MOF) has issued detailed rules to interpret what constitutes Taiwan source income for various types of income under the Income Tax Act. One of the rules makes clear that the income to a foreign company for services provided entirely offshore will not be considered Taiwan source. This interpretation has moved from the recognition of the place where service is used to where the service is provided, and as such if the service is provided entirely offshore the income received for such service will not be considered Taiwan source even if that service is used and/or consumed by the purchaser located in Taiwan. However, if the provision of service is coupled with an element in Taiwan in the manner of its provision, the income may still be considered Taiwan source. Nevertheless, it is now possible to apportion such income into part Taiwan source and part foreign source, based on the extent of contribution, provided however that clear evidence will be submitted to justify the apportionment.

Additionally, if income to a foreign company (having no onshore establishment) is taxed at the source in the form of withholding tax, it is now possible to deduct cost and expenses to reduce taxable income by applying for recalculation of taxable income provided that such application is made no later than 5 years of the receipt of the income.