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What should you know before opening a restaurant in Taiwan?
Opening a restaurant is a dream for many people, but before you embark on this adventure, there are some important things you need to consider to avoid potential risks. As an accountant who has helped many clients set up their restaurants, I can share some essential tips that you should keep in mind when opening your dream restaurant in Taiwan.
1. Location legality
When searching for a location for your restaurant, make sure to check whether the site is legal to run a restaurant. Each city in Taiwan has its own "land use standard" 土地使用分區, which you can use to check whether the location is appropriate for a restaurant. For instance, if you're in Taipei city, you should follow the Taipei City land use standard (臺北市土地使用分區附條件允許使用核准標準). Consult your real estate agent to check if the location is legal for restaurant use. Don't rely on your landlord for this information, as they may not know the rules. In recent years, the Taipei mayor has cracked down on illegal structures in the city, and if your restaurant is found to be in an unlawful structure that needs to be closed and demolished, you may need to relocate to a new location at your own expense.
Taipei mayor vows to end construction of new illegal structures (Formosa News 2015/04/01)
2. Reporting Rent Income
Some landlords may refuse to issue a uniform invoice for rent payment, telling you that you must agree not to report the income if you want to become their tenant. This is illegal. If you pay rent, you can still use the lease and proof of payment, such as a bank remittance receipt, to account for the expense. However, you won't be able to deduct the expense from your company income tax. If your landlord is unwilling to report their rent income, explain that the tax burden for the rent is sometimes less than they think. If they're an individual, let them know that only 57% of the rent income becomes taxable income. You can also help them estimate their tax after including the rent. If your landlord insists on you paying their 10% of leasing tax, remember that the company income tax rate is 20%, and you can deduct the rent expense.
Q: How should I account for the rent payment for my company if I don't receive a uniform invoice from the landlord?
A: Even if the landlord does not issue you the uniform invoice, you still can use the (1) lease and (2)the proof of payment such as a bank remittance receipt to account for the expense since your company has paid the rent. However, it's important to note that your landlord may receive a notice from the tax authority to pay a penalty for failing to report the rental income.
Q: If my landlord is unwilling to report their rent income, what options do I have?
A: One option is to educate your landlord about their tax burden. Many landlords may not realize that only 57% of their rent income is taxable if they are an individual. You can offer to help estimate their taxes after including the rent. Some landlords may ask the tenant to pay their 10% of leasing tax, which becomes the burden of the tenant. It's important to note that the company income tax rate is 20%, and you can deduct the rent expense. Ultimately, it is your choice whether to take the offer or not.
3. Withholding tax for Franchising fee
If you're signing a franchising contract with a foreign company, be aware that the franchising fee paid to the foreign company is subject to a 20% withholding tax, as it's considered Taiwan source income. As a franchisee, you're responsible for withholding the equivalent of 20% from the amounts paid as franchise fees. Some franchising contracts may state that the franchisee pays this 20% withholding tax, meaning you'll need to pay not only the 100% franchising fee to the foreign company but also an extra 20% withholding fee to the Taiwan tax authority.
4. Rent a premise at a department store
If you're renting a space in a department store, be sure to read the lease carefully. Most contracts with department stores charge a fixed amount of rent plus a promising rate of monthly sales turnover. You may also be charged additional fees, such as monthly management fees, seasonal decoration fees, advertisement fees, and cleaning fees. Pay attention to the termination clause in the lease, as some department stores may impose a significant penalty for early termination.
5. HR issues
One of the critical areas that require attention is human resources (HR). Here are some key HR issues to keep in mind:
Budget for Extra Expenses: The company is required to contribute nearly 18% of monthly salary for labor insurance, health insurance, and pension for each employee. Therefore, it is essential to factor in these additional expenses when creating a budget.
Overtime Rates: The overtime rate in Taiwan can be up to 133% to 200% of the regular salary rate. It's necessary to consider this when planning work schedules and pay.
Work Shifts: It can be challenging to find employees willing to work split shifts like AM10:30 to AM2:30 for four hours, then PM5:00 to PM9:00 for four hours.
Work Permit Requirements: Foreign chefs may not meet the requirements to apply for a work permit in Taiwan. Therefore, it is essential to understand the regulations and plan accordingly.
Language Barrier: Communicating with employees and customers can be difficult for foreigners who cannot speak Mandarin or any of the local languages fluently. Hiring a bilingual employee can help ease communication challenges.
Compliance with Labor Laws: Taiwan has strict labor laws governing employee rights, working hours, and benefits. Non-compliance can result in fines or legal action.
Labor Shortage: The hospitality industry in Taiwan has faced labor shortages in recent years. Finding skilled workers, particularly during peak seasons, can be challenging.
6. Food Establishment Permit:
You will need to obtain a food establishment permit from the local health department. This permit requires an inspection of your restaurant to ensure that it meets health and safety standards.
7. Fire Safety Permit: You must also obtain a fire safety permit from the local fire department. This permit requires an inspection of your restaurant to ensure that it meets fire safety standards.
8. Alcohol License: If you plan to sell alcohol, you must obtain an alcohol license from the local government.
9. Labor Laws: Be sure to comply with all labor laws, including minimum wage requirements and regulations related to hiring and firing employees.
10. Business Insurance: It is recommended that you obtain business insurance to protect your restaurant from liability and property damage.
Challenge and competition for running a restaurant in Taiwan
Taiwan is known for its vibrant food scene, which means that competition can be fierce. Before opening a restaurant, it's important to research the local market and see what types of cuisine are already popular.
Rising Rent: As the cost of living in Taiwan continues to rise, so does the cost of rent. It can be challenging to find a location that is affordable yet still in a good location with high foot traffic. Make sure to factor in the cost of rent when creating a budget for your restaurant.
Increasing Labor Costs: In addition to the cost of labor insurance, health insurance, and pensions, the minimum wage in Taiwan has been increasing in recent years. This can impact your bottom line, especially if you have a large staff. It's important to factor in these costs when creating a budget and pricing your menu.
Meeting Customer Expectations: Customers in Taiwan have high expectations when it comes to food quality, service, and atmosphere. Make sure to do your research and offer a dining experience that meets or exceeds these expectations. This may include offering high-quality ingredients, hiring skilled chefs, and creating a comfortable and inviting atmosphere.
Regulatory Compliance: Taiwan has strict regulations when it comes to food safety and hygiene. Make sure to stay up-to-date on the latest regulations and follow them closely to avoid fines or legal action. This includes maintaining a clean kitchen, properly storing and handling food, and obtaining the necessary licenses and permits.
Marketing and Branding: In order to stand out in the competitive restaurant industry in Taiwan, it's important to have a strong brand and marketing strategy. This includes creating a unique brand identity, developing a strong online presence, and promoting your restaurant through various channels such as social media, food blogs, and local publications.
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