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Taiwan Limits Income Tax Exemption On Royalties

by Mary Swire, Tax-News.com, Hong Kong

22 November 2011


Taiwan’s National Tax Administration (NTA) has confirmed that the income tax exemption for royalties paid to foreign enterprises will be limited to the extent of their domestic use.

The NTA has reminded domestic companies that, when using patent rights, trademarks or any kind of special licensed rights of foreign enterprises to introduce new production technology or products, improve product quality or reduce production costs in Taiwan, such use should be conducted within Taiwan, or the income tax exemption will be lost.

Its reminder follows a recent decision of the Supreme Administrative Court, which dismissed the claim from a foreign company that had signed a patent license agreement with a domestic company and then applied for a tax exemption. The domestic company, however, was seen to have transferred the licensed patent to its subsidiary in Mainland China for manufacturing.

NTA had therefore rejected the application, given that the licensed patent was for foreign use and manufacturing instead of domestic licensee use, which contradicts the reason for the tax exemption in promoting Taiwan’s economic development.

TAGS: compliance | tax | trademarks | tax compliance | royalties | intellectual property | corporation tax | China | Taiwan | tax authority | manufacturing | multinationals | tax breaks | trade

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