Taxation Q&A of Foreign Issuers to List in Taiwan
Q1 What is the applicable securities transaction tax rate on the sale of shares of a foreign issuer listed on the TWSE or GreTai Securities Market ("GTSM")?
Ans. According to the Letter dated September 23, 2008 from the Taxation Agency, Ministry of Finance to the Securities and Futures Bureau ("SFB"), generally, all transactions involving shares of a company is subject to a 0.3% securities transaction tax in accordance with Article 2 of the Regulations Governing the Securities Transaction Tax ("RGSTT"). Given that Article 1 of the RGSTT does not clearly define the term "company" as a company limited by shares and incorporated under our Company Law as what Article 4 of the Securities and Exchange Act has defined, the sale of shares of a foreign issuer shall still be subject to a 0.3% securities transactions tax.
Q2 Are the dividends paid by a foreign issuer considered as an ROC-sourced income?
Ans. According to the letter dated May 31, 2011 from the Tax Agency, Ministry of Finance to the TWSE, taxation principles of dividends paid by a foreign enterprise shall be as follows:
1. Profit-seeking enterprise income tax:
(1) A judicial person whose headquarters is located in Taiwan: Stock dividends from the foreign enterprise shall be deemed investment income and subject to profit-seeking enterprise income tax.
(2) A judicial person whose headquarters is located in another country: Stock dividends from the foreign enterprise are exempted from profit-seeking enterprise income tax.
2. Individual income tax:
stock dividends from a foreign enterprise are exempted from individual income tax. However, the Income Basic Tax Act is applicable.
Q3 What is the capital gain tax on the sale of shares of a foreign issuer?
Ans. According to the Income Tax Act, amended on August 8, 2012:
1. Any gain or loss from the sale of shares of a foreign issuer by an individual shall be subject to the capital gain tax prescribed by the proviso of Article 4-1 of the Income Tax Act since 2013.
2. The capital gain of a profit-seeking enterprise is still subject to alternative minimum tax under the Income Basic Tax Act.
Q4 How to calculate the shareholders' capital gains arising from the disposal of shares of a foreign issuer before listing?
Ans. According to the Letter dated September 23, 2008 from the Taxation Agency, Ministry of Finance to the SFB:
1. Before a foreign issuer makes a public offering, any capital gains from the disposal of shares by the shareholders is not an ROC- sourced income, and hence individual shareholders and profit- seeking enterprise shareholders having its head office outside our territory do not need to pay income tax in this regard. Only shareholders of those profit-seeking enterprise whose headquarters are located within our territory shall include their gain and loss from such transactions when calculating the amount of taxable income; and
2. In addition, from January 1, 2010, an individual's overseas income may be included as a portion of his taxable income to calculate the Income Basic Tax. For the detailed regulations, please refer to the "Directions for the Filing and Investigation of Income Derived from Sources outside the ROC and from Sources in Hong Kong and Macau to be Included in the Amount of Individual Basic Income" published at the website of the Taxation Administration of the Ministry of Finance.
Q5 In what circumstances will a foreign issuer be regarded to have a fixed place of business or a business agent in the territory of the ROC and thus subject to the Income Basic Tax Act?
Ans. According to the Letter dated September 23, 2008 from the
Taxation Agency, Ministry of Finance to the SFB, if a foreign issuer listed on the TWSE (or GTSM) establishes a fixed place of business under Article 10 of the Income Tax Law to handle its equity investment or the matters concerning listing on TWSE or GTSM, the foreign issuer is considered as having a fixed place of business in Taiwan; if a foreign issuer does not establish a fixed business place in Taiwan but conducts any business activities to implement matters concerning its equity investment , the agent handling such matters on its behalf is considered as a business agent under Article 10 of the Income Tax Law. The relevant provisions in the Income Basic Tax Act will become applicable in all of the above circumstances.
Q6 Are the shares of a foreign issuer properties within or outside the ROC?
Ans. According to the Letter dated September 23, 2008 from the Taxation Agency, Ministry of Finance to the SFB, Article 9 of the Estate and Gift Tax Law stipulates that for a property that is a national debt, corporate debt, shareholding or equity investment, the principal business place of the issuer or invested enterprise will govern. Therefore, the shares of a foreign issuer are not properties in the ROC according to the Estate and Gift Tax Law.
