Newsletter
INCOME TAX ACT AMENDED
According to an amendment to the Income Tax Act promulgated on 30 May 2006, before dis-tributing dividend income to a foreign entity, the domestic payer must withhold income tax at the prescribed withholding rate. Even if the foreign entity has a branch office in Taiwan, the Taiwan branch is not required to consolidate such divi-dend into its income tax return. In line with this change, the provisions of Article 88 regarding tax withholding at source were also amended to provide that when a company pays out dividends to a foreign entity, regardless of whether the for-eign entity has a branch office in Taiwan, the payer should withhold income tax from the amount of dividend at the prescribed withholding rate, and report the same in due course.
In addition, starting from fiscal year 2005 and for the purposes of calculating the additional 10% undistributed earnings of a company, the term "undistributed earnings" should be taken to mean a company's net income for the then current year calculated in accordance with the Business Ac-counting Act. This resolves the unfair situation whereby the taxable income determined by the tax authorities was used as the basis for calcu-lating the amount of tax payable, and companies were required to pay such 10% tax even though their accounting books showed no earnings available for distribution.