A common assumption is that money a Taiwan subsidiary sends to its own parent stays inside the group and outside Taiwan tax. Taiwan's Income Tax Act looks at who receives the payment and where the income arises. When the parent has neither a fixed place of business (固定營業場所) nor a business agent (營業代理人) in Taiwan and earns Taiwan-source income, the subsidiary must deduct the tax when it pays (Income Tax Act, Article 73, paragraph 1; Article 88, paragraph 1, item 2). The subsidiary is the withholding agent and the parent is the taxpayer (Article 89, paragraph 1, item 2).
What makes a payment Taiwan-source
Royalties for patents, trademarks, copyrights or secret processes made available for use in Taiwan are Taiwan-source income (Article 8, item 6). Point 7 of the Ministry of Finance's source-income principles (所得稅法第八條規定中華民國來源所得認定原則, last amended October 13, 2023) adds one case. Royalties a Taiwan company pays for a licence it uses abroad, in outsourced processing, manufacturing or research, are Taiwan-source too.
Software depends on the deal. Point 10 treats the sale of uncustomized, standardized software, where the buyer only uses it and may not reproduce, modify or publicly display it, as ordinary international trade in goods. Licences of system or application software and of source code appear as royalties in point 8 of the ministry's Article 25 review principles.
Services turn on where the work is done. Under point 4 of the source-income principles, a foreign company's service fee is Taiwan-source in three cases: the work is performed and completed entirely in Taiwan; it has to be carried out both inside and outside Taiwan to be completed; or it is performed abroad but can be completed only with the participation and assistance of a person or business in Taiwan. Participation means supplying equipment, manpower, specialist knowledge or technology. Basic background information, notices and confirmations that the buyer of the service is expected to provide do not count. Work performed and completed entirely outside Taiwan is not Taiwan-source if the foreign company has no fixed place of business and no business agent in Taiwan, or has them but they took no part in that work.
Interest is simpler. Interest a Taiwan company pays on a loan is Taiwan-source (Article 8, item 4; principles, point 5). Where one intercompany agreement bundles a licence, services and equipment rental, the tax office separates the income types and classifies each one (point 13).
Domestic rates and the 10-day deadline
As of October 2026, Article 3, paragraph 1 of the Standards of Withholding Rates for Various Incomes (各類所得扣繳率標準, last amended June 30, 2021) sets these rates for payments to a foreign company with no fixed place of business in Taiwan:
| Payment to the parent | Rate on the gross amount | Item |
|---|---|---|
| Royalties | 20% | 6 |
| Loan interest | 20% | 4(5) |
| Rent for equipment used in Taiwan | 20% | 5 |
| Other service fees | 20% | 10 |
The clock starts at withholding. Within 10 days from the day it withholds, the subsidiary must pay the tax to the Treasury, file the withholding statement (扣繳憑單) with the tax office for verification and then issue it to the parent. When three or more consecutive national holidays fall within those 10 days, the period is extended by five days (Article 92, paragraph 2, in force since January 1, 2025).
Missing it is expensive. A subsidiary that withholds nothing, or too little, is ordered to pay the shortfall and file the statement by a deadline, and is fined up to the amount of the tax not withheld. Miss that deadline, or file untruthfully, and the fine can reach three times the tax. Withheld tax paid over late attracts a late-payment surcharge (Article 114).
The United States: still no income tax agreement
As of October 6, 2026, Taiwan has no comprehensive income tax agreement with the United States. The Ministry of Finance's list of agreements (updated September 4, 2026) shows only a 1988 exchange of letters on shipping and air transport income. H.R. 33 passed the House by 423 to 1 on January 15, 2025, and was referred to the Senate Finance Committee on January 16, 2025. Its Senate companion, S. 199, went to the same committee on January 23, 2025 (Congress.gov, H.R. 33; S. 199). Neither bill shows enactment in the official record checked on October 6, 2026.
So a US parent's royalties and loan interest from Taiwan bear the full 20%. The bills and their reciprocity condition are covered in U.S.–Taiwan Chip Investment: Royalties, Fees and the Treaty Gap.
Where an agreement applies: Vietnam, Japan and Korea
Taiwan's agreements with these three were concluded between representative offices or associations. Each caps tax at source on interest and royalties beneficially owned by a resident of the other side, and each taxes business profits only in the home territory unless the enterprise has a permanent establishment in Taiwan (Article 7(1) of each agreement).
| Parent's residence | Interest | Royalties | In force |
|---|---|---|---|
| Vietnam (text) | 10% (Art. 11(2)) | 15% (Art. 12(2)) | May 6, 1998 |
| Japan (text) | 10% (Art. 11(2)) | 10% (Art. 12(2)) | June 13, 2016 |
| Korea (text) | 10% (Art. 11(2)) | 10% (Art. 12(2)) | December 27, 2023 |
| United States | no agreement: 20% | no agreement: 20% | — |
Vietnam needs a closer look. Its royalty definition in Article 12(3) includes payments for the use of industrial, commercial or scientific equipment, so equipment a Vietnamese parent rents to its Taiwan subsidiary falls under the 15% cap. The Vietnam agreement also has no clause that treats services furnished over a period as a permanent establishment. Japan's and Korea's agreements do: services furnished in Taiwan for the same or a connected project for more than 183 days within a twelve-month period create one (Article 5(3)).
None of this happens automatically. To withhold at the capped rate, the parent gives the subsidiary a residence certificate issued by its home tax authority and proof that it is the beneficial owner. The subsidiary then cites the agreement article in its withholding return and attaches the licence (with a Chinese translation) and royalty computation, or the loan agreement and interest computation (Regulations Governing the Application of Income Tax Agreements, Article 25, paragraphs 2 and 4). Service fees treated as business profits need the tax office's approval instead. The parent files a residence certificate, proof that it has no permanent establishment in Taiwan and income documents with the tax office where the subsidiary is located, and once the office approves, it tells the subsidiary not to withhold (Article 23).
Already withheld at 20%? The parent or the subsidiary can apply to the tax office that received the withholding return within 10 years from the date the tax was paid, enclosing the same documents and the withholding statement. For tax paid more than five years before the April 8, 2025 amendment took effect, the earlier rules still apply (Article 34).
Easing gross withholding on service fees
For a US parent, two domestic routes matter most. Under Income Tax Act Article 25, a foreign company providing technical services or leasing machinery and equipment in Taiwan, whose costs are hard to allocate, can ask the Ministry of Finance to treat 15% of its Taiwan revenue as taxable income, with no loss deduction. The subsidiary then withholds 20% of that deemed income (Standards, Article 9). That works out to 3% of the revenue. Under the review principles, approvals granted from May 29, 2023 last up to five years, or the contract term if shorter. Royalty elements of the contract and group management services of a general administrative nature are refused.
The second route is a refund. Where 20% was withheld from the gross amount of a Taiwan-source service fee, the parent can, within 10 years from the date it received the income, appoint an agent in Taiwan and ask the tax office where the subsidiary is located to recompute its income after costs and expenses. Once the office recomputes, the overpaid tax is refunded (source-income principles, point 15). Royalties and interest are not on that list.
Business tax and the price itself
When a foreign company with no fixed place of business in Taiwan sells services to the subsidiary, the subsidiary computes and pays business tax (營業稅) within 15 days after the start of the period following payment. A subsidiary that computes tax under the general method and uses the services only for its taxable business is exempt from paying (Business Tax Act, Article 36, paragraph 1). The amount itself is also open to review. If a related-party arrangement departs from arm's-length terms and reduces tax, the tax office may adjust it with Ministry of Finance approval (Income Tax Act, Article 43-1). A US or Vietnamese tax adviser can confirm how the Taiwan tax withheld is credited at home.
Questions about how a particular intercompany payment is classified, or which agreement documents it needs, can be sent to Hovering International Law Firm at wei@hoveringlaw.com.tw.
Twenty, fifteen or ten percent, the deadline stays put. It is 10 days from the day the subsidiary withholds.
Official sources
- Income Tax Act (所得稅法, last amended September 11, 2026), Article 8, Article 25, Article 43-1, Article 73, Article 88, Article 89, Article 92, Article 114
- 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 23, Article 25, Article 34
- 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 36
- 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, Department of International Fiscal Affairs, list of Taiwan's income tax agreements (updated September 4, 2026); agreement texts with Vietnam, Japan and Korea; CCNAA–AIT exchange of letters on shipping and air transport income (1988)
- Congress.gov, H.R. 33 (119th Congress) and S. 199 (119th Congress)
Checked: October 6, 2026
Frequently Asked Questions
- Does Taiwan withhold tax on fees for services our US parent performs entirely in the United States?
- Under point 4 of the Ministry of Finance's source-income principles, a fee for services performed and completed entirely outside Taiwan is not Taiwan-source income if the foreign company has no fixed place of business and no business agent in Taiwan, or has them but they took no part in that work. Services performed partly in Taiwan, or that need equipment, staff, know-how or technology from someone in Taiwan to be completed, are Taiwan-source.
- Is there a US–Taiwan treaty rate for royalties and interest?
- Not as of October 6, 2026. Taiwan's Ministry of Finance lists only a 1988 shipping and air transport agreement with the United States. H.R. 33 passed the House on January 15, 2025 and was referred to the Senate Finance Committee the next day, and the official record shows no enactment. Royalties and loan interest paid to a US parent therefore bear Taiwan's 20% domestic rate.
- What happens if the subsidiary does not withhold?
- Under Article 114 of the Income Tax Act, the tax office orders the subsidiary to pay the tax it failed to withhold, or withheld short, and to file the withholding statement by a deadline, and fines it up to the amount of that tax. If it misses the deadline or does not file truthfully, the fine can reach three times the tax.
This article provides general information and is not legal advice on any individual matter.
