Withholding tax reduction application

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Withholding Tax Reduction Application for Foreign Companies Providing Services to Taiwan

Overview

When a Taiwan company pays service fees to a foreign company, those fees are subject to a 20% withholding tax (WHT) as the service fees are considered Taiwan-source income. In practice, your clients in Taiwan deduct 20% tax from service fees and pay it to Taiwan's tax authorities, meaning only 80% of your service fee is paid to your business.

Possible way to reduce withholding tax

1. Withholding Tax Reduction Application for Technical Services ( from 20% to 3% )

If your services qualify as technical services and most of the related costs and expenses are incurred outside Taiwan, you may apply for a Withholding Tax Reduction under Article 25 of the Taiwan Income Tax Act. In this case, only 15% of your total service fees will be treated as taxable profit for services provided to clients in Taiwan.

Once approved by the tax authorities, only this 15% portion will be subject to the 20% withholding tax — effectively reducing your overall tax burden from 20% to 3%.

Example Scenario:
A U.S. company provides technical services to a Taiwan client, and most costs occur abroad. Total fee: USD100,000

Before the application:

Entire fee subject to 20% WHT → USD 20,000 withheld

After the approval of the application:

Deemed Taiwan-source income = 15% × 100,000 = USD 15,000
20% WHT applied = USD 3,000
Effective tax rate: 3%

Eligible Services & Scope

In addition to the technical services, International transport, Construction contracting, and Equipment leasing are also qualified for withholding tax deduction application. Technical services are the most common and most likely to qualify for this deduction.
Different services have different reduced tax rates if approved; see the table below.

The nature of the services

Not all the services rendered in Taiwan can apply for the withholding tax deduction. The tax officer may reject the application if the nature of the business is receiving royalties, interests or authorization fees from a Taiwan company. In addition to the necessary documents, the tax officer may request other supporting documents.

Successful cases:

1. A German company provides the construction parts mapping services to its Taiwan client.

2. A foreign company provides an anti-money laundering system to reduce trade money laundering.

3. A US company helps its Taiwan client to sell products in the US market.

What Services are not considered Technical Services

1. Manpower dispatch services

Manpower dispatch services do not seem to provide technical services and are subject to withholding tax 20%. Whether it is a manpower dispatch service or technical service, the Taiwan Tax Authority announces its comprehensive considerations:

1. The dispatched person is mainly subject to the command, supervision or performance appraisal of the Taiwan company.

2. A foreign company does not bear the liability for damages caused by the designated person.

3. The agreement is not clear about the content, objectives, and deliverables of the service.

4. The dispatched person must be approved by the Taiwan company.

5. The foreign company only plays the role of administrative affairs coordination in the consultancy process and does not provide technical assistance.

Ministry of Finance Tax Explanation No. 09504530470

2. Authorizing the use of patents, licenses, logos, marks, etc.

3. Loyalty income

Additional Requirements & Notes

1. Company Eligibility: Only a formally registered foreign company may apply—not partnerships—since partnerships don’t directly pay income tax.

2. Tax Treaty Irrelevant: All foreign companies can apply the application as long as the nature of the service fulfills the qualification, even if the country where the company is registered does not sign the tax treaty with Taiwan.

3. Extension of contract: If the foreign company has submitted the withholding tax deduction application in accordance with Article 25 of the Income Tax Act and obtained approval, and both parties agree to extend the term of the contract due to the expiration of the contract period. The foreign company is still required to submit the application for the extension.

FAQ:

We are a UK-based company with a subsidiary in Taiwan. Can we still apply for the application?

Answer: yes

2. Deemed Profit and Domestic Profit Contribution Withholding Tax Deduction Application (from 20% to 3%~6%)

In addition to the technical services withholding tax deduction application, the foreign company can apply for a reduction based on the deemed profit rate and the domestic profit contribution rate. For example, assuming you're a US company providing marketing consultancy to your client. You apply for the application and the approved deemed profit rate of 30% for marketing services and an approved domestic profit contribution rate of 50% If the contract value is TWD 10,000,000, the calculation would be as follows:

Deemed Profit: TWD 10,000,000 x 30% x 50% = TWD 1,500,000
Withholding Tax: TWD 1,500,000 x 20% = TWD 300,000

The application is contract-specific, meaning that if there are any changes to the contract, the company must submit a new application.

3. Business Profit Provision under Double Tax Agreements (DTA)

As of today, Taiwan has concluded 34 effective double tax agreements (DTAs) with various countries. These treaties generally provide that if a resident company of a treaty country earns business profits from Taiwan and does not maintain a permanent establishment (PE) in Taiwan, such profits should be taxable only in the country of residence.

In practice, the foreign company must file an application with the Taiwan tax authorities to obtain approval before Taiwan-source payments can be made without withholding tax.

When preparing such an application, it is crucial to conduct a meticulous review of:

The specific provisions of the applicable treaty
The substance of the transaction
The proper classification of income, especially distinguishing business profits from royalties

This careful assessment ensures compliance and strengthens the likelihood of securing treaty benefits.