Withholding Income
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Preface Taiwan has undergone rapid economic growth for more than five decades. Efforts on the part of enterprises and the government continue to sharpen Taiwan’s competitive edge, which is characterized by an extensive manufacturing base, strong research and development capabilities, a high quality human resource base, and an efficient infrastructure that includes sophisticated telecommunications capacity. The implementation of a policy that focuses on economic growth and major reforms has resulted in a more business-friendly investment climate, liberal monetary measures, and a freer market economy. In competitiveness assessments done by prominent international economic institutions, Taiwan ranks high in favorable investment climate and in competitiveness. According to the 2003-2004 Global Competitiveness Report by the WEF (World Economic Forum), Taiwan ranked fifth in growth competitiveness on a global basis and first in Asia, and sixteenth in business competitiveness. In April 2004, BERI (Business Environment Risk Intelligence) of Switzerland rated Taiwan as the fifth best investment climate in the world and third in Asia, and second in a positive government attitude towards foreign investments. The ROC government looks forward to assisting multinational companies in establishing Taiwan operations as gateway to the Asian Pacific market by utilizing the island’s favorable investment environment and competitiveness, its extensive manufacturing base, and its complete supply chains. To that end, the Industrial Development & Investment Center of the Ministry of Economic Affairs commissioned Deloitte Taiwan to compile this “Cost of Investing in Taiwan” handbook. One objective of the handbook is to help with feasibility studies by foreign investors. It contains information on taxation, investment incentives, and rents at major industrial and office sites; and cost information relating to human resources, water and electricity, and communications. The Ministry of Economic Affairs welcomes multinational companies to invest in Taiwan, and sincerely hopes the broad and practical information in the handbook will be useful in assessing the costs of investing in Taiwan, making the assessment stage more economical and enabling more timely realization of investments on the island. The Minister Economic Affairs Ms. Mei- Yueh Ho Contents Chapter I Taxation Overview of ROC Tax System 1 Profit-Seeking Enterprise Income Tax and Investment Structure Planning 2 Profit-Seeking Enterprise Income Tax 2 Major Variances of Accounting and Taxable Income 3 Imputation Income Tax 6 Fiscal Year and Tax Return 7 Withholding Income Tax 8 Transfer Pricing Issue 9 Consideration for Investment Structure 10 Business Tax 12 General Overview 12 Special Business Tax 14 Value-Added Tax 15 Other Indirect Taxes 17 Customs Duty 17 Commodity Tax 20 Stamp Tax 23 Vehicle License Tax 24 Securities Transaction Tax 26 Futures Transaction Tax 26 Real Property Taxes 27 Land Value Tax 27 Land Value Increment Tax 29 Building Tax 31 Deed Tax 33 Tax Treaty 34 Individual Tax 36 Individual Income Tax 36 Taxation of Expatriates 37 Illustration of Income Tax Computation 38 Estate and Gift Tax 39 Chapter II Type of Business Entities Subject to Foreign Investment Business Entity 41 Foreign Investment Approval 44 Currency and Foreign Exchange 44 Major Procedures and Timeframe for Business Entity Registration 45 Information and Documents Required for Business Entity Registration 46 Foreign Exchange Controls 49 Chapter III Investment Incentives Tax Incentive 51 Incentive for New Equipment or Technology 51 Incentive for Research & Development 52 Incentive for Investment in Emerging, Important, and Strategic Industries 53 Investment Tax Credit for Shareholders 53 Five-year Tax Holiday for Companies 54 Incentive for Establishment of Logistics and Distribution Centers 55 Incentive for Operating Headquarters 56 1 Incentive for Personnel Trainings 56 Finance Incentives 57 Indirect Tax Incentives for Since-Based Industrial Park/Economic Processing Zone/Bonded Factory or Warehouse 57 Other Tax Exemption under Income Tax Act 57 Incentive for Investment in Scanty Natural Resouces Areas 58 Non-Tax Incentives 58 Low-Interest Loans 59 Government Participation in Investment 60 Chapter IV Compensation Analysis Economic Situation 61 Unemployment Rate 62 Labor Market Trend 62 Key Economic Indicators and Forecasts Summary 63 Human Resources 63 Salary Increase Trend 63 Guaranteed Pay 63 Variable Pay 64 Employee Benefits 65 Remuneration Analysis 69 Definitions 69 Labor Standards Law 69 Salary Increase 69 Starting Total Guaranteed Annual Pay for Fresh Graduates 70 Survey Process 72 Remuneration Analysis by Industries 73 Benefit Analysis 78 Industrial Relations 84 Employers’ Associations 84 Trade Unions 84 Labor-Management Conference 84 Collective Bargaining 85 Settlement and Medication Proceedings 85 Gender Equality in Employment Law 86 National Health & Labor Insurance 86 National Health Insurance 86 Labor Insurance 88 Other Labor Regulations 89 Pension 92 Severance Payment 94 Registration of Work Rules 94 Employee Welfare 95 Chapter V Real Estate Market Analysis Introduction 96 Special Rule of Foreign Investors 96 Leasing and Purchasing Practices 98 Environment and Market Overview 101 General Overview 101 Industrial Estate Market 103 Northern Region 108 Environment Analysis 109 Office Market 118 2 Industrial Office Building Market 124 North Region Individual Park Overview 129 Central Region 136 Environment Analysis 137 Office Market 143 Central Region Individual Park Overview 145 Southern Region 154 Environment Analysis 155 Office Market 163 Southern Region Individual Park Overview 165 Eastern Region 173 Environment Analysis 174 Office Market 176 Eastern Region Individual Park Overview 177 Science-Based Industrial Parks 179 Background of Establishment 179 Park Administration 179 Brief Introduction for Science-Based Industrial Parks 182 Economic Processing Zone 185 Chapter VI Other Investment Related Costs 191 Utility Costs Water 191 Electricity 193 Oil and Gas 197 Telecommunication 198 Freight Cost 201 204 Logistic Center International Schools 207 Live in Taiwan 208 Transportation 209 Appendix 214 3 Taxation Overview of ROC Tax System Taxes in Taiwan are categorized into national and municipal according to the allocation of tax revenues. Tax Authority Ministry of Finance The Ministry of Finance (MOF) is the supreme executive government agency for taxation. The major functions of MOF on taxation are: To design tax policies, and supervise the collection of taxes and duties at all levels of tax offices To improve the tax structure and the distribution of tax burden To establish an overall sound tax system to meet the needs of economic development; and To prepare tax law drafts for legislative agencies’ review and resolution, and issue tax rulings on tax issues. National Tax Administration The National Tax Administration (NTA) is a subordinate agency of MOF and is responsible for the enforcement of national tax laws (except for the Customs Law). Currently, there are five NTAs; namely, Taipei National Tax Administration; Kaohsiung National Tax Administration; National Tax Administration of Northern Taiwan Province; National Tax Administration of Central Taiwan Province; and National Tax Administration of Southern Taiwan Province. City/County Tax Office The City/County Tax office is a subordinate agency of the city or county government and is established to collect municipal taxes. National Taxes and Local Taxes In Taiwan, each tax is legislated by a specific tax law. For example, income tax is imposed by the Income Tax Law while estate and gift taxes are under the Estate and Gift Tax Law. Other tax laws are Commodity Tax Statute, Value-Added and Non-Value-Added Business Tax Law, Stamp Tax Law, Deed Tax Statute, etc. The classification of taxes according to the competent tax collection authority is listed below: 1 Classification of Taxes by Collection Authority-in-charge NTA City/County Tax Office Income Tax Land Tax Estate and Gift Tax Building Tax Business Tax (VAT and Non-VAT) Deed Tax Commodity Tax Amusement Tax Tobacco and Wine Tax Stamp Tax Securities Transaction Tax Vehicle License Tax Mining Lot Tax Profit-Seeking Enterprise Income Tax and Investment Structure Planning Profit-seeking Enterprise Income Tax General Overview The Income Tax Law was amended on June 2003, covering the taxation of individuals and profit-seeking enterprises. A profit-seeking enterprise is defined as an entity established in the form of sole proprietorship, partnership, company, or in any other form of organization, operating for profit-seeking purposes through a fixed place of business, regardless of whether it is owned by the government, private sector, or jointly by the government and private sector. A profit-seeking enterprise is subject to profit-seeking enterprise income tax. Tax basis A profit-seeking enterprise having its head office within the ROC territory (such as a company incorporated in Taiwan) will be considered a resident enterprise, subject to profit-seeking enterprise income tax for its worldwide income. Income taxes paid in other countries on incomes derived outside the ROC territory may be used as a foreign tax credit to offset its ROC income tax liability, provided that the credit shall not exceed the incremental tax liability that would result if the foreign source incomes were added to the domestic taxable income and the applicable domestic tax rate were applied. A profit-seeking enterprise having its