Set up foreign investment branch in Taiwan
When foreign companies consider setting up a subsidiary or branch in Taiwan, two key factors to evaluate are legal liability and tax implications.
Once approved, a branch office of a foreign company is granted the same rights and obligations as a domestic company under the Taiwan Companies Act and is subject to the same legal framework.
Although a branch can operate independently, it is not recognized as a separate legal entity under the law. This means the foreign head office remains liable for the branch’s assets and liabilities. As an extension of the parent company, a branch cannot engage in reinvestment or go public. However, compared to subsidiaries (such as limited liability companies), branches often offer more flexibility and advantages in terms of taxation.
I. Use and function of foreign branch
According to Article 377 of the Company Act, a company is not permitted to conduct business or engage in any legal acts under its name unless it has completed the incorporation registration process.
For a foreign company to conduct business in Taiwan, it must first establish a branch in Taiwan. A foreign company refers to a legal entity incorporated under the laws of another country. Before doing business in Taiwan, it must be recognized by the Taiwanese government. This means the government must first acknowledge its legal person status under the laws of the Republic of China. Only after this recognition can the foreign company establish a branch in Taiwan, which then allows it to legally carry out business activities within the country.
The branch can conduct the following businesses in Taiwan:Issue business tax invoices in compliance with local tax regulations.
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Sign contracts and receive payments or service fees from customers within Taiwan.
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Legally hire employees under Taiwanese labor laws.
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Conduct import and export activities through the branch in Taiwan.
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Represent the parent company in the purchase of movable and immovable property in Taiwan, subject to applicable laws and regulations.
II. Branch tax and tax rate
- Subsidiary/branch tax and accounting responsibilities
Whether a foreign company establishes a subsidiary or a branch in Taiwan, it is subject to the requirements of the Taiwan Business Accounting Law. According to the regulations, branch offices must maintain accounting records in accordance with Taiwanese accounting standards. These records must be prepared and retained in Chinese and denominated in New Taiwan Dollars (NTD). Additionally, the branch is required to file a corporate income tax return annually and a business tax return every two months. - Basic tax and tax rate:
Value-Added Sales Tax (VAT): Commonly referred to as a consumption tax, this is typically applied as a value-added business tax. Most business transactions are subject to the standard 5% VAT rate.
20% Profit-Seeking Enterprise Income Tax: Foreign investors, including overseas Chinese and foreign nationals, who establish a branch in Taiwan are subject to a 20% profit-seeking enterprise income tax on income generated within the territory of the Republic of China (Taiwan).
0% Withholding Tax on Remitted Profits: When a branch remits its after-tax profits to its foreign head office, the remittance is not considered a distribution of surplus. Therefore, it is exempt from withholding income tax at the source.
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