Proposal to Expand Tax Credit on Investment Income by Taiwanese Subsidiaries in China

Under current Taiwan law, a subsidiary of Taiwanese company operating in China is only allowed to deduct the dividend tax (10%) on the repatriation of profit to Taiwan parent company for Taiwan tax purposes; however, the Taiwan parent company is not allowed to deduct the subsidiary's paid corporate income tax on its corporate income, resulting in some form of double taxation. As a means to encourage repatriation of profit to Taiwan, a proposal has been prepared by the executive branch of the government to allow the paid corporate income as tax credit for the Taiwan parent company. The proposal will be considered by the legislative branch of the government later on before it is passed into law. In contrast, a Taiwanese company having a branch office operating in the PRC has long enjoyed the benefit of having the foregoing tax treatment in the context of the paid corporate income tax of the branch office in China.