Understanding Dividend Tax in Taiwan: How shareholder structure and distribution policy affect tax 

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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.

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1. Dividend Distribution and Legal Framework

Before discussing taxation, it is important to understand how dividends can be distributed under Taiwan’s Company Act:

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• 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

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This means companies cannot freely distribute profits; distributions must follow these statutory requirements.​

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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.

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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 apply a dividend deduction, allowing for an 8.5% deduction of total dividends received (capped at NTD 80,000 per year per household).
   

2.2 Taxation for Non-Residents

Non-residents are taxed via withholding:

• A flat 20% withholding tax applies to dividends paid to non-residents.

• Tax treaties may reduce this rate, typically to 10%-15%.​​

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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 an individual shareholder, Michael, a British citizen. Michael owns a company registered in the UK, "Acme Company." He is considering establishing an IT consulting company in Taiwan. He is evaluating whether it would be more tax-efficient for him or his UK company to act as the shareholder.

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3.1. Michael as the Shareholder (Individual)

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Scenario 1: Michael stays in Taiwan for Less than 183 days, and he is the tax resident of the UK in 2024 and can get the Tax Residency Certificate from UK HMRC

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• Who Pays the Dividend Tax: Michael.

• Tax Rate: 10%.

• Explanation: The lower tax rate applies under the tax treaty between Taiwan and the UK when Michael provides a valid UK tax residency certificate from HMRC.

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Scenario 2: Michael stays in Taiwan for Less than 183 days and travels globally. He is not the tax resident of the UK.

• Who Pays the Dividend Tax: Michael.

• Tax Rate: 21%.

• Explanation: Without a valid UK tax residency certificate, Michael can't utilize the tax treaty between the UK and Taiwan and is taxed at the non-resident withholding tax rate of 21%.

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Scenario 3: Michael has been in Taiwan for more than 183 days and has become the tax resident of Taiwan.

• Who Pays the Dividend Tax: Michael.

• Tax Rate: Progressive tax rates range from 5% to 40%.

• Explanation: As Michael qualifies as a tax resident of Taiwan, his dividend income is subject to Taiwan’s income tax rates.​​

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