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Home >> Tax in Taiwan >> Cost deduction for brokerage fees, commissions, and agency fees paid to foreign companies

Cost deduction for brokerage fees, commissions, and agency fees paid to foreign companies

Our company facilitates product sales to a foreign client (Customer B) through a foreign intermediary agent (Agent A). Pursuant to the commission contract, our company is obliged to remit an additional service fee (commission) equivalent to 5% of the order amount for each transaction to Agent A.

A. In light of the above, what specific documentation is required to substantiate the commission expense for tax deduction purposes?

B. Can commission expenses be included in the cost of goods or expenses?

C. Is withholding tax applicable in this scenario?


A. According to Rule 92 of the "Guidelines for Income Tax Audit of Profit-Making Businesses," specific requirements regarding the expense claim of foreign commissions. The rule emphasizes the importance of providing relevant documentation such as (1) signed contracts, (2) bank remittances for the commission, and (3) evidence of intermediary services to verify the legitimacy of these payments. Failure to furnish such documentation may result in the commissions not being recognized by regulations.

The evidence of intermediary services may include records of communication such as fax transmissions, emails, and documents illustrating the negotiation process, and complete records of inquiries, quotations, orders, and sales contracts are essential to establish the actual provision of intermediary services. Failure to demonstrate the provision of such services, even if contracts or proof of payment of remittances exist, makes it challenging to recognize the foreign commission by tax authorities. 


Additionally, Rule 92 specifies recipients to whom payment of foreign commissions will not be recognized. These include (1) the exporter or its employees, (2) overseas distributors, and (3) foreign customers who directly purchase goods from the exporter. However, overseas agents or overseas distributors, as distinct entities, are not subject to this limitation.

B. The commission payment to Agent A is recommended to be included in the commission expense (unless the commission is the necessary cost of obtaining the raw materials to be included in the purchase of goods).

C. Regarding whether withholding should occur for payment of foreign commissions, it hinges on whether they qualify as income sourced from the Republic of China (Taiwan). If so, a 20% withholding tax applies; otherwise, no withholding is necessary. As per the Ministry of Finance Letter No. 65.8.30.Tai-Cai-Shui No. 35817, commissions disbursed by domestic profit-making entities to foreign counterparts for goods promotion outside Taiwan's borders, provided the services are rendered beyond Taiwan's jurisdiction, the commission income doesn't constitute Taiwanese-sourced income, thus exempting it from tax withholding.

Non-compliance commission declaration cases issued by the National Taxation Bureau 

Case A ( The recognition of commission expenses as a deduction for income tax purposes should be determined by the actual provision of brokerage services by the agent ): 

The Taipei National Taxation Bureau of the Ministry of Finance has reiterated the requirements regarding the cost reduction for the commission expenses paid through intermediaries for the sale of goods or services. The company must substantiate commission expenses with contracts and other relevant documents demonstrating intermediary brokerage services. 

In an illustrative example, Company A reported NT$20 million in commission expenses paid to an overseas Agent B in its fiscal year 2021 income tax return. Despite providing contracts, bank remittance receipts, invoices, and commission calculations, However, Company A was unable to provide further documentary proof of the negotiation process with the intermediary, price inquiry, quotation, and other specific facts of the intermediary, so the Bureau excluded the commission expense that the company was unable to prove the facts of the intermediary and failed to prove that the commissions paid were necessary for the operation of the business.

The Bureau emphasizes that profit-making enterprises should comply with Article 92 of the Guidelines, ensuring they provide the necessary documentation to support commission expenses, thereby protecting their interests.

Case B ( pay commission to the overseas distributors):

Company A filed its 2018 income tax return, it reported commission expenses exceeding 6 million. Upon scrutiny by tax authorities, it was revealed that over 4 million were paid as commissions to Company B. Company B acts as a foreign distributor for Company A, buying goods from them and selling them independently. However, this commission payment didn't comply with Article 92 of the corporate income tax audit criteria. As a result, the bureau excluded this commission expense of 4 million, leading to an additional corporate income tax of 0.8 million.

Case C ( pay commission to the overseas distributors):


Company A, a machinery manufacturing firm, filed its 2008 corporate income tax return and reported commission expenses of over 5 million paid to its affiliate, Company B in the United States, Company A and Company B are subsidiaries of the same international conglomerate.
Company A explained that as Company B transferred Taiwanese clients to them, they paid a commission of 4% of the net sales to Company B and presented commission contracts and payment vouchers as evidence.

However, the Tax Bureau considered that this was only an intra-group transfer of sales to each other, and Company A failed to provide documentation proving Company B's role as an intermediary and did not allow Company A to report the commission expense of more than $5 million. Consequently, the bureau disallowed Company A from reporting commission expenses of 5 million. Despite filing a tax lawsuit against the Tax Bureau, the Supreme Administrative Court upheld the ruling against Company A.

Summary: When the tax authorities investigate issues related to company payments of commission fees, documents should be prepared such as:

1. Whether there is evidence of intermediary involvement in commission payments.

2. Whether the commission payments are genuine, reasonable, and necessary, in line with the perspective of the tax authorities.

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