In the event that a profit-seeking enterprise filing income from abroad has paid the income tax of the source country, it may, to the extent that such deduction shall not exceed the limitation, deduct
National Taxation Bureau of Taipei, Ministry of Finance expressed that, according to Article 3 of the Income Tax Act, any profit-seeking enterprise having its head office within the territory of the Republic of China shall have its profit-seeking enterprise income tax levied on its total profit-seeking enterprise income derived within or without the territory of the Republic of China. In the case that income tax has been paid on income from abroad in accordance with the tax act of the source country of that income, such tax paid may be deducted from the amount of tax payable by the taxpayer at the time of filing final returns on the total profit-seeking enterprise income, to the extent that such deduction shall not exceed the amount of tax which, computed at the applicable domestic tax rate, is increased in consequence of inclusion of its income from abroad.
The Bureau explained that, as prescribed in Article 2 of the Enforcement Rules of the Income Tax Act, the calculation equation for profit-seeking enterprises that have an increased amount of tax, which is computed at the applicable domestic tax rate, in consequence of inclusion of income from abroad is: the amount of tax which, computed at the applicable domestic tax rate, is from domestic income and income from abroad - the amount of tax which, computed at the applicable domestic tax rate, is from domestic income. Nevertheless, when calculating the amount of tax credited, it is necessary to note that income from abroad refers to the balance of foreign revenue after deducting its corresponding costs and expenses.
The Bureau further explained with an example: the amount of total profit-seeking income tax return filed by Enterprise A for year 2020 was NT$9,000,000, consisting of NT$5,000,000 of domestic income and NT$4,000,000 of income from abroad (revenue generated from abroad NT$6,000,000－relevant costs and expenses totaled NT$2,000,000). Enterprise A already paid NT$840,000 as the offshore income tax. Nevertheless, as the amount of tax increased in consequence of inclusion of its income from abroad is NT$800,000 (the amount of total profit-seeking income NT$9,000,000 × tax rate of 20%－domestic income NT$5,000,000 × tax rate of 20%), Enterprise A is eligible to file NT$800,000 as foreign tax credit.
The Bureau would like to remind profit-seeking enterprises that, when filing foreign tax credit, the enterprise having its head office within the territory of the Republic of China shall ensure that the revenue from abroad has been deduced with its corresponding costs and expenses. Otherwise, it may be requested to pay an overdue tax which would further damage its rights and interests.
(Contact: Mr. Kuo, Section Head of the First Examination Division; Telephone: 2311-3711 Ext. 1250)
Reference URL：https://www.mof.gov.tw/Eng/singlehtml/f48d641f159a4866b1d31c0916fbcc71?cntId=31c07995afbc40b09ced7e833215fed6