Taiwan provides for foreign tax relief via unilateral provisions and through double taxation agreements (DTA's) with foreign jurisdictions.

Unilateral Relief

Foreign taxes paid on foreign-sourced income may be credited against an enterprise’s Taiwan corporate income tax liability. However, the credit is limited to the amount of Taiwan corporate income tax that would normally be applied to the taxable foreign-sourced income.

For any foreign tax credit sought, the enterprise must provide proof that the foreign tax was paid, such as a tax receipt, voucher, etc. issued by the tax authority of the foreign country in which the tax was paid, and may be attested by the Taiwan diplomatic representative office or other approved organization in the foreign country.

Any unused credits may not be carried forward or back.

Relief under Tax Treaties

When foreign taxes are payable in a jurisdiction with which Taiwan has a DTA, relief for double taxation is regulated by the relevant agreement (generally the credit method).

The National Taxation Bureau of the Southern Area, Ministry of Finance issued guidance on the procedure for claiming foreign tax credits. It is clarified that the following key points must be considered when declaring foreign-sourced income and calculating foreign tax credits:

The amount of income derived outside of the territory of Taiwan shall be the whole overseas income after deducting related costs and expenses;
Foreign tax credits must be converted to New Taiwan Dollars (TWD) at the exchange rate on the date of payment. Foreign taxes paid on foreign-sourced income may be deducted from an enterprise’s Taiwan corporate income tax liability at the time of filing final tax returns. However, the deduction is limited to the amount of the domestic Taiwan corporate income tax that would normally be applied to the taxable foreign-sourced income. Proof is required to show that the foreign tax has actually been paid; and
In situations covered by a tax treaty, the foreign tax credit is available only with respect to the (amount of) tax that the treaty partner is allowed to levy under the treaty. The foreign tax credit is denied for the portion of foreign tax levied by the source State in contravention of the treaty provisions.

For instance, domestic Company A received royalties of TWD 10 million from a company in Thailand in 2022, with a withholding tax of TWD 1.5 million and related costs of TWD 2 million. When Company A filed the income tax return for 2022, the income tax payable due to the inclusion of its foreign-sourced income was TWD 1.6 million [TWD 10 million—TWD 2 million) X 20%].

Company A had paid a withholding tax of TWD 1.5 million in Thailand, less than the total tax liability of TWD 1.6 million. However, according to the Tax treaty between Taiwan and Thailand, the reduced tax rate for royalties is 10%.

Therefore, Company A can only claim TWD 1 million (TWD 10 million X 10%) as the foreign tax credit. As for the overpaid foreign tax of TWD 0.5 million (TWD 1.5 million – TWD 1 million), Company A might apply for the issuance of a Certificate of Residence of Taiwan and then apply to the tax authority in Thailand for the refund of the overpaid tax.

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