Taiwan’s Ministry of Finance (MOF) has issued guidance allowing foreign companies to apply in advance for approval of the net profit ratio and domestic profit contribution ratio on 26 February 2025.

This enables withholding tax to be calculated at the time of payment, simplifying tax refund procedures for both authorities and taxpayers while easing capital constraints from excess withholding.

Foreign profit-seeking enterprises without fixed places of business or business agents in Taiwan, receiving service remuneration or business profits under Paragraphs 3 and 9 of Article 8 of the Income Tax Act and subject to withholding under Article 88 of the Income Tax Act, must have taxes withheld by the withholding agent at the time of payment according to prescribed withholding rates.

The National Taxation Bureau of Kaohsiung, Ministry of Finance explains that to reduce tax refund procedures for both tax authorities and taxpayers and alleviate tied-up capital issues caused by excess withholding, the Ministry of Finance allows foreign profit-seeking enterprises without fixed places of business or business agents in Taiwan to apply for approval of applicable net profit ratio and domestic profit contribution ratio （hereinafter referred to as net profit ratio and contribution ratio） before receiving income. This application can be made by submitting relevant contracts, business content, and descriptions of domestic and foreign transaction processes to the National Taxation Bureau. The income amount should then be calculated based on the approved net profit ratio and contribution ratio, and the withholding agent should withhold tax at the prescribed rate when the payment is made.

The Bureau provides the following example: if Foreign Profit-seeking Enterprise A signs a machinery maintenance and installation service contract with Domestic Profit-seeking Enterprise B for TWD 1 million, Foreign Profit-seeking Enterprise A can apply to the National Taxation Bureau for the net profit ratio and contribution ratio approval before receiving the income.

After review of the contract documents and determination that the income is indeed service remuneration, Foreign Profit-seeking Enterprise A sent personnel to Domestic Profit-seeking Enterprise B to provide services, and the service is entirely performed and completed in Taiwan. Therefore, the net profit ratio of 10% and the contribution ratio of 100% applicable to the industry are used to calculate the income.

When Domestic Profit-seeking Enterprise B pays Foreign Profit-seeking Enterprise A the service remuneration, it calculates the tax to be withheld of TWD 20,000 （TWD 1 million × 10% × 100% × 20%） based on the aforementioned net profit ratio of 10%, contribution ratio of 100% and withholding rate of 20%. This is a significant reduction compared to the withheld tax of TWD 200,000 （TWD 1 million × 20%） before the application was made, thus reducing the tied-up capital of Foreign Profit-seeking Enterprise A and improving the administrative efficiency of both the tax authorities and taxpayers.

The Bureau would like to remind foreign profit-seeking enterprises seeking to apply for determination of net profit ratio and contribution ratio to go to the Bureau’s website（URL: https://www.ntbk.gov.tw “Form Download/ Profit-seeking Enterprise Income Tax /Application for Foreign Profit-seeking Enterprises Applying for Issuance of Assessment Permission of Applicable Net Profit Ratio and Domestic Profit Contribution Ratio for Calculation of Income from Sources in the Republic of China” to download the application form and attach supporting documents to apply to the National Taxation Bureau before obtaining income.