A Tax Withholder Paying Compensation to Foreign Profit-Seeking Enterprises for Cross-Border Sales of Electronic Services May Apply for Applicable Net Profit Ratio and Domestic Profit Contribution Rati
According to the National Taxation Bureau of Taipei, Ministry of Finance, a domestic profit-seeking enterprise buyer, i.e., withholding agency, paying compensation to foreign profit-seeking enterprises for cross-border sales of electronic services and actually bearing the tax withheld from the income sources from R.O.C., can submit the supporting documents to prove that it actually bears the withholding tax from the income sources from R.O.C., to apply to the National Taxation Bureau at the location for calculating the taxable income based on the given applicable net profit ratio and domestic profit contribution ratio, and withhold the tax in accordance with the applicable withholding rate.
The Bureau explained that where a foreign profit-seeking enterprise has no fixed place of business or business agent within R.O.C., for the income sources from R.O.C. derived from its cross-border sales of electronic services, if it falls within the withholding tax scope under Article 88 of the Income Tax Act, the tax withholder shall withhold the tax at the time of payment in accordance with the withholding ratio of the payable amount. If the tax withholder actually bears the tax withheld from the income sources from R.O.C., it may, prior to the payment of remuneration for the services of the foreign profit-seeking enterprise, fill out the “Application Form for Net Profit Ratio and Profit Contribution Ratio Applicable to Cross-Border Electronic Services Provided by Foreign Profit-Seeking Enterprise (for use of tax withholder),” attached with the supporting documents that it actually bears the withholding tax on the income sources from R.O.C., relevant contracts, relevant documents of major business items of foreign profit-seeking enterprises, nature of business, descriptions of onshore and offshore transaction flows, and other supporting documents. The tax withholder shall be the applicant and shall apply to the National Taxation Bureau at the location for calculating the taxable income based on the given applicable net profit ratio and domestic profit contribution ratio, and withhold the tax in accordance with the applicable withholding rate, which can significantly reduce the tax burden of domestic profit-seeking enterprise buyers.
For example, Company B residing in R.O.C. sold goods through a website set up by Company A, a foreign platform operator without a fixed place of business or business agent within the territory of R.O.C. Company B collects remunerations directly from buyers and pays a platform service fee of NT$800,000 to Company A. The contract stipulates that Company B shall bear the withholding tax from the income. Thus, Company B needs to burden and pay the tax of NT$160,000 (= NT$800,000 × 20% withholding rate) at the time of payment in accordance with the applicable withholding rate (20%) on the “gross service fee”. However, if Company B applies to the National Taxation Bureau at the location prior to paying remuneration to Company A, and thereby is given an applicable net profit ratio of 30% and domestic profit contribution ratio of 50% to calculate the taxable income, the withholding tax payable will be NT$24,000 (= NT$800,000 × 30% × 50% × withholding rate of 20%), which will reduce Company B's tax burden.
The Bureau would like to remind businesses that the relevant application forms can be downloaded from the Ministry of Finance's eTax Portal (https://www.etax.nat.gov.tw) under " Home>Tax on Cross-Border Electronic Services/Profit-seeking Enterprise Income Tax/Download Document and File," or the application can be made and documents can be uploaded online under " Home>Tax on Cross-Border Electronic Services/Profit-seeking Enterprise Income Tax/Application Form for Net Profit Ratio and Profit Contribution Ratio Applicable to Cross-Border Electronic Services Provided by Foreign Profit-Seeking Enterprise.” The public can make more use of it.
(Contact person: Head Lin of Profit-seeking Enterprise Income Tax Division; Telephone: 2311-3711 ext.1365)
Reference URL：https://www.mof.gov.tw/Eng/singlehtml/f48d641f159a4866b1d31c0916fbcc71?cntId=7284da9756b44a688e298db61096096b