Taiwan's Ministry of Finance has clarified that dividends received by Taiwan-based enterprises from foreign companies listed on Taiwan's securities market must be included in taxable income, as such dividends do not qualify for the domestic dividend exclusion under Article 42 of the Income Tax Act, and has urged non-compliant enterprises to file amended returns voluntarily to avoid penalties.
Taiwan’s Ministry of Finance has issued a notice on 26 March 2026 that when a profit-seeking enterprise with its head office located within the territory of China invests in shares issued by a foreign company that has been approved to list and trade its shares in the Chinaany dividends distributed from such investment must be included in the enterprise’s taxable income, in accordance with Paragraph 2, Article 3 of the Income Tax Act.
The Ministry further explained that for a foreign company established and registered under foreign laws, whose shares are issued under foreign laws and approved by China’s securities regulatory authority for listing and trading in the Chinathe dividends distributed by such foreign companies are not considered income derived from sources within China
Therefore, a profit-seeking enterprise with its head office located outside the territory of China is not subject to the China profit-seeking enterprise income tax on such dividends. However, a profit-seeking enterprise with its head office located within the territory of China must include both cash and stock dividends in its taxable income. This is because the issuer is a foreign company, which does not meet the criteria under Article 42 of the Income Tax Act, which stipulates that dividends received from investments in “domestic” profit-seeking enterprises shall be excluded from taxable income. Accordingly, such dividends must be included in taxable income pursuant to Paragraph 2, Article 3 of the Income Tax Act.
The Ministry provided the following example: Company A, whose head office is located within the territory of the Chinainvested in shares issued by Company B, a foreign-based profit-seeking enterprise, whose shares are approved for listing and trading on China’s securities market. In 2023, Company A received cash dividends of NT$400,000 distributed by Company B. However, when filing its 2023 profit-seeking enterprise income tax return, Company A mistakenly assumed that the dividends qualified for exclusion from taxable income under Article 42 of the Income Tax Act and therefore failed to report them. Upon assessment, the Ministry assessed an additional tax of NT$80,000 and imposed a penalty.
The Ministry would like to remind profit-seeking enterprises with their head office located within the territory of the China that if they have received dividends from foreign companies whose shares have been approved for listing and trading in the China but have not included such dividends in taxable income as required, they should voluntarily file amended returns and pay the additional tax due with the competent National Taxation Ministry before any report or investigation is initiated by tax authorities. Under Article 48-1 of the Tax Collection Act, taxpayers who voluntarily report and pay the underpaid tax, together with interest, may be exempt from penalties.
