A toolmaker in Oregon ships a deposition chamber to a fab in Tainan. The purchase order has four lines: the tool, installation, qualification runs and operator training. Its field engineers expect to spend about seven months on site, and the fab has hired a contractor from Ho Chi Minh City for five months of hook-up work (an invented example). The fab's accounts team asks one question before paying. Which of those lines carries Taiwan tax?
The tool and the work on site are judged separately
Goods that a foreign company's head office sells directly to a Taiwan customer count as ordinary international trade (一般國際貿易) under point 10, paragraph 4 of the Ministry of Finance's source-income principles (amended October 13, 2023). A Taiwan branch does not change that. A Ministry ruling of January 9, 1987 (台財稅第7575300號) says that from January 1, 1987 such direct sales are not taxed as the branch's revenue. Subsidies or commissions the head office pays the branch for those deals are branch income, though, and fees for services the head office itself performs in Taiwan are Taiwan-source income taxed through the branch.
Installation is different. A fee for services performed and completed entirely in Taiwan is Taiwan-source income (Income Tax Act, Article 8, item 3; principles, point 4). When those services belong to the vendor's own line of business, point 4 classes them as business profits earned in Taiwan under item 9. Where one contract mixes several kinds of income, point 13 tells the tax office to identify each kind first and apply the matching rule to each.
20% of the fee, or 3% under Article 25
So what does the fab deduct? As of October 2026, a foreign company with neither a fixed place of business nor a business agent in Taiwan suffers 20% withholding on the gross fee (Standards of Withholding Rates, Article 3, paragraph 1, item 10; last amended June 30, 2021). Deadlines and filings are covered in our column on payments to foreign parents.
Article 25 of the Income Tax Act offers another route. A foreign company that contracts construction work or provides technical services in Taiwan, and finds it hard to allocate costs, may apply to the Ministry of Finance to treat 15% of its Taiwan revenue as profit. Losses cannot be carried forward against it. With no Taiwan branch or business agent, the customer withholds 20% of that deemed profit when it pays (Article 98-1, item 3; Standards, Article 9). That works out to 3% of the fee.
The Ministry's Article 25 review principles (amended May 29, 2023) fill in the detail. Technical services include installation, inspection, repair, test runs and staff training (point 7). Where training materials or course content provide proprietary technical information or secret processes, that part of the fee is a royalty, carved out of the price and refused. Manpower dispatch gets no Article 25 treatment at all (point 8), and one listed sign of dispatch is that the workers are mainly directed, supervised or appraised by the Taiwan host. A vendor with no fixed place or agent in Taiwan applies to the National Taxation Bureau where the payer is located, with a signed copy of the contract and a Chinese translation (points 4 and 5). Approvals granted on or after May 29, 2023 last five years at most, or the contract term if shorter (point 11).
Turnkey work goes further. Point 7 counts installation and mechanical-and-electrical works as construction. When design, procurement of domestic or foreign equipment, installation, testing and training are bound together, cannot be separated, and are paid by progress, the deal is a turnkey contract (統包交易). Article 25 must then be applied to the whole revenue. Parts handed to subcontractors are not deducted.
US vendors have no treaty threshold to count against
As of October 2026, Taiwan has no comprehensive income tax agreement with the United States. The only US arrangement on the Ministry's agreement list is a 1988 exchange of letters on shipping and air transport income. The six-month and 183-day tests below therefore do not shield a US vendor, and Taiwan's domestic rules decide the tax on its installation fees. Working-hour rules for the same engineers are a separate subject, covered in our column on field engineers at a fab. A US tax adviser can confirm how the foreign tax credit treats the Taiwan tax.
Vietnamese contractors: six months, and no service clause
The Taiwan–Vietnam agreement was signed in Hanoi on April 6, 1998 by the Taipei Economic and Cultural Office in Hanoi and the Vietnam Economic and Cultural Office in Taipei, and entered into force on May 6, 1998. Its Article 5(2)(g) lists "a building site, construction, assembly or installation project" and related supervision as a permanent establishment "only where such site, project or activities continue for a period of more than six months." Nothing in Article 5 turns days of service into a permanent establishment.
Counting starts early. Under Article 8 of the Regulations Governing the Application of Income Tax Agreements, a project's duration runs from the day the contractor begins work, preparatory work included, until the work is finished or permanently abandoned. Seasonal or temporary stoppages and subcontracted periods count too.
| Agreement | Building, assembly or installation project | Services through employees | Periods of associated enterprises added |
|---|---|---|---|
| Japan | more than 6 months | more than 183 days in any 12 months beginning or ending in the taxable year | no clause |
| Korea | more than 6 months | more than 183 days in any 12 months | yes, overlaps counted once |
| Vietnam | more than 6 months | no clause | no clause |
| United States | no agreement | no agreement | no agreement |
Sources for the table: Japan and Korea Article 5, and the Vietnam text above.
Five months of hook-up work stays under the Vietnamese threshold. Exemption is still not automatic. Article 7(1) of the agreement taxes business profits only in Vietnam unless they are earned through a permanent establishment in Taiwan, yet the contractor must apply for that relief to the tax office where the payer is located. It files a Vietnamese residence certificate, proof that it has no permanent establishment in Taiwan and documents on the income; once approval is granted, the tax office tells the payer not to withhold (Regulations, Article 23). Rates on dividends, interest and royalties are covered in our column on the Taiwan–Vietnam agreement.
A project that runs past six months is a permanent establishment, and Taiwan may tax the profits attributable to it. One recent change helps such a site with its return: a Ministry order of September 16, 2026 (台財稅字第11500617350號令) lets a foreign company's Taiwan branch or construction site (工程場所) support offshore costs with the head office's financial report certified by a qualified CPA in the head office's country, or a foreign tax authority's certificate, without authentication by a Taiwan mission abroad.
Business tax: Customs takes it on the tool, the fab on the service
Business tax on imported goods is collected by Customs (Business Tax Act, Article 41). The base is the customs value plus import duty (Article 20), and the taxpayer is the consignee or holder of the goods (Article 2, item 2). A Ministry ruling of March 28, 1988 (GL007616) applies the same Article 41 tax to materials and machinery that a foreign contractor buys abroad and supplies under a construction contract in Taiwan.
For the service, the fab pays. Under Article 36, paragraph 1, a buyer of services from a foreign company with no fixed place of business in Taiwan computes business tax on the payment and pays it within 15 days from the start of the next filing period. A buyer on the general (VAT) method that uses the service only for taxable business is exempt. The Ministry's eTax Q&A 9105 applies this rule to foreign technicians sent to repair machines in Taiwan.
If you would like a contract's fee lines or an Article 25 application reviewed, Hovering International Law Firm can be reached at wei@hoveringlaw.com.tw; a short note on the scope of work and the site schedule is enough to start.
Back in Tainan, the two schedules raise different questions. The Oregon vendor's seven months meet no treaty test, because there is no treaty. The Vietnamese crew's five months stay under the six-month line only while the hook-up work keeps to plan.
Official sources
- Income Tax Act (所得稅法, last amended September 11, 2026), Article 8, Article 25, Article 98-1
- Standards of Withholding Rates for Various Incomes (各類所得扣繳率標準, last amended June 30, 2021), Article 3, Article 9
- Regulations Governing the Application of Income Tax Agreements (適用所得稅協定查核準則, last amended April 8, 2025), Article 8, Article 23
- Value-added and Non-value-added Business Tax Act (加值型及非加值型營業稅法, last amended May 28, 2025), Article 2, Article 20, Article 36, Article 41
- Ministry of Finance, 所得稅法第八條規定中華民國來源所得認定原則 (amended October 13, 2023); 外國營利事業申請適用所得稅法第二十五條第一項規定計算所得額案件審查原則 (amended May 29, 2023)
- Ministry of Finance rulings and orders: 台財稅第7575300號 (January 9, 1987); 外國包商在我國境內承包工程而於境外購料者由海關代徵營業稅 (March 28, 1988); 台財稅字第11500617350號令 (September 16, 2026)
- Ministry of Finance eTax portal, Q&A 9105 on foreign technicians repairing machines (updated July 23, 2024)
- Ministry of Finance, Department of International Fiscal Affairs, list of Taiwan's income tax agreements (updated September 4, 2026); English agreement texts with Vietnam, Japan and Korea (consolidated)
Checked: October 7, 2026
Frequently Asked Questions
- Does the Taiwan customer withhold tax on the equipment price itself?
- Under point 10 of the Ministry of Finance's source-income principles, goods that a foreign company's head office sells directly to a Taiwan customer are ordinary international trade. Since January 1, 1987 this holds even if the seller has a Taiwan branch. Withholding is a question for the fees for installation, commissioning and training performed in Taiwan. The exception is a turnkey construction contract taxed under Article 25 of the Income Tax Act, where the whole contract revenue, including equipment procurement, is the base.
- Does a US equipment vendor get the six-month or 183-day protection?
- No. As of October 2026 there is no comprehensive US-Taiwan income tax agreement in force; the only US arrangement on the Ministry of Finance's list covers shipping and air transport income. Fees a US vendor earns for work in Taiwan are taxed under Taiwan's domestic rules: generally 20% withholding on the gross fee, or 20% of a 15% deemed profit if Article 25 treatment is approved.
- Who pays business tax on the installation service?
- The Taiwan customer. When a foreign company with no fixed place of business in Taiwan sells services there, the buyer computes the business tax on the payment and pays it within 15 days from the start of the next filing period, under Article 36 of the Business Tax Act. A buyer that computes tax under the general method and uses the service only for taxable business is exempt. Business tax on the imported equipment is collected by Customs.
This article provides general information and is not legal advice on any individual matter.
