NEW INCOME TAX RULES FOR PRC RESIDENTS

05/01/2004

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Amendments to the Act Governing Relations between the Peoples of the Taiwan Area and the Mainland Area were promulgated on 29 October 2003. Under the amended Article 25, the tax treatment of PRC individuals' income from Taiwan sources depends on whether they reside or stay in Taiwan for at least 183 days in a tax year. However, the amendments to the Act did not take effect until 1 March 2004. This has given rise to doubts as to how the new provisions should be applied to income in 2004.

In an interpretation dated 31 March 2004, the Ministry of Finance clarified the following:

If a PRC individual resides or stay in Taiwan for 183 days or more during the period from 1 January to 31 December 2004, his income from Taiwan sources for the period from 1 March 2004 to 31 December 2004 is subject to consolidated income tax under the same rules as apply to Taiwan residents in accordance with the amended Act.

A PRC individual's income for the period from 1 January 2004 to 29 February 2004 should be handled under the provisions of the old Act. As such, withholding tax should be deducted at source at the prescribed rates, and no annual tax return need be filed.