Note for Profit-seeking enterprises Claiming Foreign Income Tax Credit
The National Taxation Bureau of Taipei, Ministry of Finance (hereinafter “the Bureau”), stated that for any profit-seeking enterprise having its head office within the territory of the Republic of China (hereinafter “the R.O.C.”), profit-seeking enterprise income tax shall be levied on its total profit-seeking enterprise income derived within or without the territory of the R.O.C. in accordance with the provisions of Paragraph 2 of Article 3 of the Income Tax Act. If income tax has been paid on the income derived outside of the territory of the R.O.C. in accordance with the tax act of the source country of that income, for the avoidance of double taxation, such tax paid may, upon presentation by the taxpayer of evidence of tax payment issued by the tax office of said source country for the same business year, 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.
The Bureau explained that the foreign income tax paid on such foreign income according to the tax act of the source country may be credited against the tax payable of the year in which the foreign income is recognized and included in the taxable income in accordance with the Order Tai-Tsai-Shui-Zi No. 09300452930 issued by the Ministry of Finance on September 14, 2004. If the evidence of tax payment issued by the tax office of said source country had not yet been obtained by the profit-seeking enterprise, resulting in the foreign income tax paid not be credited against tax payable at the time of filing returns, the profit-seeking enterprise may apply for correction of foreign income tax credit and requesting refund of overpaid tax upon obtaining the evidence of tax payment in accordance with Article 28 of the Tax Collection Act. However, the deductible amount shall not exceed the amount of tax which, computed at the applicable domestic tax rate, is increased in consequence of inclusion of its foreign income.
The Bureau provided an example: In 2021, Company A reported taxable income of NT$20,000,000 on its profit-seeking enterprise income tax return for year 2020, which included NT$5,000,000 in foreign income from the Philippines. However, since Company A had not yet obtained the evidence of tax payment issued by the Philippine tax office at the time of filing, it paid the full tax amount of NT$4,000,000 (NT$20,000,000*20%). Later, in 2022, Company A obtained evidence of tax payment issued by the Philippine tax office and calculated that the foreign income tax paid in accordance with Philippine tax act, was equivalent to NT$500,000. Company A then applied to the Bureau for correction of its profit-seeking enterprise income tax return for year 2020 to add the foreign income tax credit and request of refund of the overpaid tax of NT$500,000. After reviewing the evidence of tax payment issued by the Philippine tax office and calculating the income tax paid of NT$500,000 did not exceed the amount of tax increased in consequence of inclusion of income from Philippines, which was NT$1,000,000 (NT$5,000,000*20%), the Bureau approved the foreign income tax credit filed by Company A and refunded the overpaid tax amount of NT$500,000.
The Bureau would like to remind profit-seeking enterprises reporting foreign income tax paid to ensure that it is credited against the tax payable of the year in which the foreign income is recognized and included in the taxable income to avoid errors that could result in tax adjustments and additional tax payments. If the evidence of foreign tax payment is not available at the time of filing, profit-seeking enterprises can apply for corrections and refunds upon obtaining it later.
(Contact Person: Mr. Chen, Section Chief from the Profit-Seeking Enterprise Income Tax Division; Tel: 2311-3711 Ext. 1308)
Reference URL：https://www.mof.gov.tw/Eng/singlehtml/f48d641f159a4866b1d31c0916fbcc71?cntId=43e14afd75ef4920818f178254519bcc