Dividend tax is a crucial consideration for businesses and shareholders in Taiwan, especially for those managing profits and structuring ownership across domestic and international entities. This guide explains Taiwan’s dividend tax regulations, the impact of residency status, how company law shapes dividend distribution, and key factors to consider when selecting shareholders for a Taiwan-based company.
1. Dividend distribution and legal framework
Before discussing taxation, it is important to understand how dividends can be distributed under Taiwan’s Company Act:
- Article 232: A company must first make up past losses and set aside 10% of annual profits as a legal reserve before distributing dividends.
- Article 237: If the legal reserve has reached the company’s paid-in capital, the 10% reserve requirement may be waived.
Distributable earnings = last year’s undistributed earnings + current year after-tax profit − legal reserves
This means companies cannot freely distribute profits; distributions must follow these statutory requirements.
2. Overview of dividend tax in Taiwan
Dividends distributed by a Taiwan company to its shareholders are subject to taxation. The tax liability depends on the shareholder’s residency and tax status, as well as applicable tax treaties.
2.1 Taxation for Taiwanese residents
Taiwan uses a partially integrated income tax system:
- Dividends received by individual residents are included in their taxable income and taxed at progressive income tax rates.
- Individual taxpayers can claim a dividend tax credit equal to 8.5% of total dividends received, capped at NTD 80,000 per year per household.
- Alternatively, the household can elect to tax all dividends separately at a flat 28% (without the 8.5% credit). Taxpayers can choose whichever method results in less tax.
2.2 Taxation for non-residents
Non-residents are taxed via withholding. A flat withholding tax applies to dividends paid to non-residents, and tax treaties may reduce this rate, typically to 10%–15%.
Claiming the treaty rate. No advance application is needed. If the foreign shareholder provides the Taiwan company with a tax residency certificate issued by its home tax authority and proof that it is the beneficial owner of the dividend before payment, the company can withhold at the treaty rate directly. If 21% has already been withheld, the shareholder or the company can apply for a refund of the excess within 10 years from the date the tax was paid. See how to reduce dividend withholding tax under a tax treaty.
3. Dividend tax scenarios for different shareholder profiles
The shareholder’s residency and tax status significantly influence the dividend tax rate. Below is a comparison of scenarios involving Michael, a British citizen who owns a UK company, “Acme Company.” He is considering establishing an IT consulting company in Taiwan and is evaluating whether it would be more tax-efficient for him or his UK company to act as the shareholder.
3.1 Michael as the shareholder (individual)
Scenario 1 — Michael stays in Taiwan for less than 183 days, is a UK tax resident for the year, and can obtain a tax residency certificate from HMRC.
- Who pays the dividend tax: Michael
- Tax rate: 10%
- Why: the lower treaty rate applies under the Taiwan–UK tax treaty when Michael provides a valid UK tax residency certificate.
Scenario 2 — Michael stays in Taiwan for less than 183 days and travels globally. He is not a UK tax resident.
- Who pays the dividend tax: Michael
- Tax rate: 21%
- Why: without a valid UK tax residency certificate, Michael cannot use the Taiwan–UK treaty and is taxed at the non-resident withholding rate.
Scenario 3 — Michael has been in Taiwan for 183 days or more and has become a Taiwan tax resident.
- Who pays the dividend tax: Michael
- Tax rate: progressive 5% to 40% with an 8.5% dividend tax credit (capped at NTD 80,000), or a flat 28% if he elects separate taxation
- Why: as a Taiwan tax resident, his dividend income is subject to Taiwan’s individual income tax rates.
Tax Payable = Net Taxable Income × Tax Rate − Progressive Difference
3.2 Acme Company as the shareholder (corporate)
Scenario 4 — Acme Company, a British company, is the shareholder of the Taiwan company.
- Who pays the dividend tax: the company
- Tax rate: standard non-resident rate, reduced to 10% where Acme Company is a UK tax resident
- Why: the corporate shareholder benefits from the reduced treaty rate when providing a valid tax residency certificate.
When the tax is withheld and paid. The Taiwan company withholds the tax when it pays the dividend and must pay it to the National Treasury and file the withholding statement within 10 days. A dividend that has been declared but is still unpaid 6 months after the shareholders’ (or board) resolution is treated as paid, so withholding applies even if the cash has not been remitted.
4. Distribution policy: distribute or retain?
In addition to shareholder residency, Taiwan companies must also decide whether to distribute dividends or retain earnings.
If the company distributes dividends, shareholders pay dividend tax according to their residency status.
If the company does not distribute dividends, the company is subject to a 5% undistributed earnings tax (Income Tax Act §66-9). This applies to all Taiwan companies, including subsidiaries of foreign companies. A Taiwan branch of a foreign company is not subject to it, and a branch can remit its after-tax profits to head office without withholding tax.
Example. A company earns NTD 2,000,000 after tax in 2024, sets aside 10% (NTD 200,000) as legal reserve, and chooses not to distribute the remaining NTD 1,800,000. It must pay NTD 90,000 (5%) as undistributed earnings tax in 2026.
5. Factors to consider when structuring shareholder ownership
Residency and tax treaties. Determine whether the shareholder can provide a tax residency certificate from their home country, and review applicable treaties to confirm eligibility for reduced withholding rates.
Duration of stay in Taiwan. For individual shareholders, the number of days spent in Taiwan determines tax residency status and affects tax rates.
Corporate vs individual ownership. Corporate shareholders may benefit from more favorable tax treatment, especially when holding valid residency certificates.
Future business goals. Assess long-term objectives, such as company growth, ownership transfer, or cross-border tax compliance.
6. Strategic considerations based on tax brackets and business goals
Low tax bracket shareholders (≤20%). Distributing dividends is often more tax-efficient and may even result in tax refunds (in the 5% and 12% brackets) due to the 8.5% dividend tax credit.
Middle tax bracket shareholders (20%–30%). The decision depends on additional costs, such as the second-generation NHI surcharge. In some cases, retaining earnings is more beneficial. Companies with future financing or subsidy applications may also prefer to retain earnings for conversion into capital. The NHI supplementary premium is 2.11% of each dividend payment of NTD 20,000 or more (capped at NTD 10 million per payment). It applies only to individuals enrolled in Taiwan’s National Health Insurance; corporate shareholders and foreign shareholders not enrolled in NHI are not charged.
High tax bracket shareholders (≥30%). Retaining a portion of earnings is usually more efficient to avoid excessive personal tax burdens. However, distributing some dividends is still advisable — this prevents overly high retained earnings that could complicate future liquidation, since all retained earnings must be distributed upon liquidation.
7. Conclusion
Dividend taxation in Taiwan is influenced not only by shareholder residency and tax treaties but also by company law restrictions and the choice between distribution and retention.
- Distribute dividends → shareholders bear the tax burden.
- Retain earnings → the company pays 5% undistributed earnings tax.
A balanced strategy — considering shareholder tax brackets, company growth plans, and cross-border compliance — often yields the most favorable outcome.