TAX STATUS OF MAINLAND INDIVIDUALS AND ENTITIES

01/01/2004

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The Act Governing Relations between the Peo-ples of the Taiwan Area and the Mainland Area was amended on 29 October 2003. In response to the new wording of its Article 25, which al-lows mainland Chinese investors to invest in Taiwan, the Ministry of Finance recently ap-proved draft amendments to the Standards of Withholding Rates for Various Incomes to in-troduce rules for determining the income tax status of Mainland-Area individuals and entities, based on whether an individual has resided in or visited the Taiwan Area for a total of 183 days or more during a tax year, and whether an entity has a permanent place of business or a business rep-resentative in the Taiwan Area.

The provisions on taxation of income from Taiwan-Area sources are also amended, and re-lated tax withholding rates are stipulated for various types of income. The main points of the amendments are as follows:

Income from Taiwan-Area sources (other than share dividends or distributed earnings) re-ceived by a Mainland-Area individual who remains in the Taiwan Area for 183 days or more in a tax year, or by a Mainland-Area en-tity with a fixed place of business in the Tai-wan Area, is subject to the same tax with-holding rates as applicable to individuals resident in the Taiwan Area, or to for-profit enterprises with a fixed place of business in the Taiwan Area. (Article 2.)

Income from Taiwan-Area sources (other than share dividends or distributed earnings subject to tax withholding under Article 25-1 of the Act) received by a Mainland-Area individual who remains in the Taiwan Area for less than 183 days in a tax year, or by a Mainland-Area entity with no fixed place of business in the Taiwan Area, is subject to the same tax withholding rates as apply to individuals not resident in the ROC, or to for-profit enter-prises with no fixed place of business within ROC territory. (Article 3.)

If a Mainland-Area entity with no fixed place of business in the Taiwan Area, or a Mainland-Area individual who remains in the Taiwan Area for less than 183 days in a tax year, is a trust beneficiary as referred to in Article 3-1 Paragraphs 1 to 3 of the Income Tax Act, its or his entitlements are subject to a tax withholding rate of 20% of their value. Any increase in the value of entitlements should be declared for assessment and is tax-able at a rate of 20%. (Article 4.)

Income from property transactions received by a Mainland-Area entity with no fixed place of business in the Taiwan Area should be de-clared for assessment and is taxable at the same rate as applies to for-profit enterprises with no fixed place of business or business representative within ROC territory. Income from property transactions or from his own farming, fishing, animal husbandry, forestry, or mining activities, or other income received by a Mainland-Area individual who remains in the Taiwan Area for less than 183 days in a tax year, should be declared for assessment and is taxable at the same rates as applicable to individuals not resident in Taiwan. (Article 9.)

If the tax to be withheld on any single payment of income from a Taiwan-Area source to a Mainland-Area individual who remains in the Taiwan Area for 183 days or more in a tax year does not exceed NT$2,000, the same provisions regarding the withholding or ex-emption from withholding of tax apply as for individuals resident in Taiwan. (Article 11.)