Foreign Electronic Service Providers in Taiwan: Does Establishing a Local Presence Make Tax Sense?

Foreign Electronic Service Providers in Taiwan: Does Establishing a Local Presence Make Tax Sense?

 

Recent Regulatory Developments

Amendments to Taiwan’s Value-Added and Non-Value-Added Business Tax Act (the “Business Tax Act”) have significantly expanded the tax obligations of foreign providers of cross-border electronic services. These changes are accompanied by interpretive regulations issued by the Ministry of Finance (MOF), including the Regulations Governing Profit-Seeking Enterprise Income Tax Filing for Foreign Enterprises Without a Fixed Place of Business in Taiwan.

 

1.   What Counts as “Electronic Services”?

The MOF defines “electronic services” broadly to include:

  • Streaming media
  • Downloadable content
  • Mobile apps and online games
  • E-books
  • SaaS and cloud-based services
  • Online advertising
  • Any other service delivered over the internet to end-users in Taiwan

 

2.   VAT Obligations

Foreign enterprises with no fixed place of business in Taiwan must register for VAT if their annual sales to customers in Taiwan exceed NT$600,000. The current VAT rate is 5% of gross sales. Registered foreign sellers must file bimonthly VAT returns and remit collected VAT to Taiwan’s tax authorities.

 

3.  Income Tax

In addition to VAT, Taiwan imposes Profit-Seeking Enterprise Income Tax (PSEIT) on Taiwan-sourced income earned by foreign enterprises. The key issue is whether and to what extent a foreign provider’s revenue is considered to be “Taiwan-sourced.”

Taiwan applies a “source of economic enjoyment” principle. If services are consumed in Taiwan or create value within Taiwan’s economy, the revenue is generally deemed domestic-source. This covers nearly all B2C electronic services sold to Taiwan users.

  • Tax Rate and Filing Requirements

The standard corporate income tax rate is 20% on net taxable income, with a NT$120,000 exemption for small profits. Unlike VAT, which is based on gross revenue, PSEIT applies to net profits attributable to Taiwan.

  • Deemed Profit Method

Where a foreign enterprise cannot reasonably allocate actual costs to Taiwan, tax authorities may apply a deemed profit approach. Under MOF guidance:

– A standard industry net profit margin, often 30%, may be assumed; and

– If only part of the value creation occurs in Taiwan, a 50% domestic contribution ratio is often used.

 

4.  Withholding Tax Requirements

Under Article 88 of the Income Tax Act, if a Taiwanese business or organization pays a foreign enterprise for services, it is generally required to withhold 20% of the gross payment and remit this to the tax bureau.

This withholding does not apply to payments from individual consumers. In such cases, the foreign provider must file a Taiwan income tax return directly (usually through a tax agent) and pay PSEIT accordingly.

 

Benefits of Establishing a Local Presence

Setting up a local branch or subsidiary offers several tax and operational advantages:

  • Ability to present local accounting records, enabling precise allocation of income and expenses;
  • Potential to reduce deemed profit assumptions;
  • More predictable and controllable tax outcomes as business volume increases.

For smaller enterprises or those testing the market, registering for VAT without forming a local entity may suffice. However, as Taiwan sales grow and operations become more integrated, the tax burden under deemed profit methods may exceed the cost of establishing a branch or subsidiary.

In our experience, there is often a “tipping point”—a level of Taiwan activity where a local presence becomes the more efficient and tax-optimal structure.

 

If you have questions or would like further information on taxation of cross-border digital services in Taiwan, please contact Megan Chiu (mchiu@winklerpartners.com).

Written 18 July 2025 by Gregory A. Buxton and Megan Chiu.

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