Profit-seeking Enterprises Not Applying for the Application of Double Taxation Agreement Shall not Claim to Offset on the Overpaid Foreign Tax Credit!

The National Taxation Bureau of Kaohsiung, Ministry of Finance, said that the profit-seeking enterprise with its head office in the territory of the Republic of China shall file the profit-seeking enterprise income tax return for all of its income from both domestic and overseas sources. If the income tax has been levied on the overseas income by the income source country, the enterprise can deduct its tax amount within the limit. However, when obtaining the source income from the other contracting state of the tax agreement, the enterprise shall note whether the income is applicable to tax-exemption under the tax agreement. If the foreign tax amount is overpaid without of claiming the applicable tax agreement, it shall not be deducted from the domestic profit-seeking enterprise income tax payable. The Bureau recently received a call from a domestic company A. In 2018 company A was commissioned by an overseas mobile communication software company B to make stickers, with proceed of 100,000 USD, and company B withheld foreign taxes of 20,000 USD. Then, when filing for the 2018 profit-seeking enterprise income tax return, should company A include this income? If so, company A shall need to pay the domestic profit-seeking enterprise income tax of 20% on this income, resulting in double taxation on the same income, and the tax burden is too heavy. The Bureau responded that in accordance with the provisions of Paragraph 2, Article 3 of the Income Tax Act, the profit-making enterprise with the head office in the territory of the Republic of China shall pay profit-seeking enterprise income tax on its consolidated income from both domestic and overseas sources. However, the income tax paid in the income source country may be deducted within the limit to eliminate double taxation. In addition, there are currently 32 effective tax agreements for the avoidance of double taxation. If the income obtained from overseas is subject to tax exemption or the capped tax rate in other contracting states under the tax agreements, the profit-making enterprise shall apply for the application of the tax agreement for exemption from taxation to reduce the tax burden. However, if the profit-making enterprise fails to apply to the other contracting states for the application of the tax agreement and overpays the foreign tax, it shall not be deducted in the domestic profit-seeking enterprise income tax payable in accordance with the provisions of Paragraph 2, Article 26 of the Regulations Governing Application of Agreements for the Avoidance of Double Taxation with Respect to Taxes on Income. The Bureau reminded that when a profit-seeking enterprise obtains overseas income, it shall pay attention to whether the income source country has signed an income tax agreement with our country. If the income is subject to tax exemption or a capped tax rate in the other contracting state, the enterprise may first apply to the taxing authority to issue a residency certification, and apply to the taxing authority of the other contracting state for the application of the tax agreement, with the application documents required by the other contracting state attached, in order to avoid double taxation. Contact: Mrs. Xie, Head of the First Examination Division TEL: 07-7256600 ext.7160