Before Obtaining Remuneration for Services or Business Profits from Sources in the R.O.C., Foreign Profit-Seeking Enterprises May Apply for the Adoption of Net Profit Ratio and Domestic Profit Contri
National Taxation Bureau of the Central Area, Ministry of Finance (MOF) stated that according to Point 15-1 of Guidelines for the Determination of Income from Sources in the Republic of China in Accordance with Article 8 of the Income Tax Act, foreign profit-seeking enterprises without a fixed place of business or business agent within the territory of the R.O.C. deriving remuneration for services or business profits from sources in the R.O.C. may apply by themselves, authorize agents to apply or tax withholders may apply on their own in advance to determine the net profit ratio and profit contribution ratio. In that case, the domestic profit-seeking enterprises as buyers (tax withholders) can calculate the taxable income and withholding tax accordingly. The tax withholders need not calculate withholding tax based on the payment amount (income), or the foreign profit-seeking enterprises need not later apply to recalculate the income and refund the overpaid tax. That will reduce the burden of tax refunds for both parties.
The Bureau further explained that in practice, some foreign profit-seeking enterprises stipulate in the contract that the domestic buyers shall bear the withholding tax on the income, but the domestic buyers cannot get authorized by the foreign profit-seeking enterprises to apply for the adoption of net profit ratio and profit contribution ratio, or fail to know the result of the foreign profit-seeking enterprises’ application for verification. The tax withholders would have to withhold tax based on the payment amount at the required withholding rate. Therefore, the first-disclosure Guidelines also regulates that before paying remuneration, if the tax withholder can provide relevant certification documents proving that it actually bears the withholding tax on the income from sources in the R.O.C., it can be the applicant and is exempted from attaching a letter of appointment from the foreign profit-seeking enterprise and applies in accordance with the relevant regulations to determine the net profit ratio and profit contribution ratio. The income will be calculated based on the approved net profit ratio and profit contribution ratio, and tax will be withheld according to the prescribed withholding rate.
The Bureau interpreted with an example that, a foreign profit-seeking enterprise, A Company, provided production management consulting services to a domestic profit-seeking enterprise, B Company, in 2023. The two parties of transaction agreed that the remuneration was NT$1,000,000 which was from sources in the R.O.C., and B Company should bear the withholding tax on the income. In accordance with the first-disclosure Guidelines, B Company had submitted production management consulting contract and other supporting documents to apply in advance for the adoption of net profit ratio and profit contribution ratio which had been approved to be 21%(Standard Industrial Code: 7020-99 Other Management Consultancy Activities) and 100% respectively by National Taxation Bureau. When paying remuneration, B Company would withhold tax to be NT$42,000 at approved net profit ratio, profit contribution ratio and prescribed withholding rate 20%(income from sources in the R.O.C. NT$1,000,000 × net profit ratio 21% × profit contribution ratio 100% × withholding rate 20%).
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Contact person: Profit-seeking Enterprise Income Tax Division, Mr. Yu
Tel: (04)2305-1111 ext. 7131.
Reference URL：https://www.mof.gov.tw/Eng/singlehtml/f48d641f159a4866b1d31c0916fbcc71?cntId=cfbc9f5e9cfe4d3aa7f4de6d00a8fcfc