If your company sends engineers, technicians, consultants or other personnel to Taiwan, obtaining a treaty exemption approval is often an important first step.
But it does not mean the Taiwan tax risk is closed. A recent case published by Taiwan’s tax authority shows why.
A Japanese company had already obtained approval for a business-profits exemption under the Taiwan-Japan income tax agreement. Its personnel had spent 160 days in Taiwan, performing equipment inspection and maintenance services for a Taiwanese customer.
The Taiwanese customer therefore paid TWD 10 million in service fees without withholding tax.
So far, everything appeared to be in order.
Then the parties signed another contract.
The Japanese company continued sending personnel to Taiwan for another 35 days in January and February of the following year.
The result?
160 days + 35 days = 195 days
Because the contracts involved services of the same nature and were commercially connected, Taiwan’s tax authority aggregated the service days.
The 183-day Service PE threshold was exceeded. The Japanese company was therefore considered to have a Permanent Establishment (PE) in Taiwan.
More importantly, the problem did not affect only the new contract.
The Taiwanese customer was required to go back and pay TWD 2 million of withholding tax on the earlier TWD 10 million payment, even though a treaty exemption approval had originally been obtained.
📌Why should foreign companies care?
The immediate withholding obligation may technically sit with your Taiwanese customer.
But commercially, the issue can quickly come back to the foreign service provider.
Depending on the contract, this may lead to discussions over:
• who ultimately bears the additional Taiwan tax
• whether the Taiwanese customer can recover the tax from you
• whether a tax gross-up applies
• whether future payments will be withheld
• whether the Taiwan project is still profitable after tax
• how the PE should report and pay tax going forward
This is why Taiwan PE risk should be managed as part of the project, not simply as part of the tax filing.
Three things foreign service providers should watch:
1️⃣ Do not track the 183 days contract by contract
Signing a new PO or a new agreement does not necessarily restart the clock.
Under Taiwan’s treaty application rules, service days relating to the same or commercially connected projects may need to be aggregated.
Factors may include whether the projects involve the same customer, similar work, the same personnel, or other commercial connections.
2️⃣ A new calendar year does not necessarily reset the count
Depending on the applicable treaty, the PE threshold may be tested over any twelve-month period.
A project running from late 2026 into early 2027 may therefore need to be looked at as one continuous period.
For foreign companies with recurring Taiwan projects, simply checking the year-end travel report is not enough.
3️⃣ Revisit the tax position before extending the Taiwan project
A treaty exemption approval is based on the facts presented in the application.
If the project is later extended, a new contract is signed, or additional employees are deployed to Taiwan, the original analysis should be revisited before the next payment is made.
And if a Taiwan PE is becoming unavoidable, 20% gross withholding should not automatically be treated as the final tax cost.
Depending on the facts, there may be other approaches to consider, including:
• Taxation based on profits attributable to the Taiwan PE
• An application under Article 25 of Taiwan’s Income Tax Act or Art. 15-1 of Taiwanese sourced income guidance for qualifying activities
• Restructuring the withholding and filing process
• Revisiting the tax clause and pricing of the Taiwan contract
The appropriate approach depends on the treaty, the nature of the services and the actual project structure.
📌Our practical takeaway
If your Taiwan engagement involves repeated site visits, multiple contracts or an extension of the original project, ask one question before signing the next PO:
“After this contract, how many Taiwan service days will we have in the relevant 12-month period?”
That review is usually much easier to do before the PE threshold is crossed than after your customer receives a tax assessment.
📌 LY CPA Firm assists foreign companies with:
✓ Taiwan PE and Service PE risk assessments
✓ Treaty business-profits exemption applications
✓ Cross-contract and cross-year day-count reviews
✓ Taiwan withholding tax planning
✓ Article 25 deemed-profit applications
✓ PE profit attribution and Taiwan tax controversy support
We regularly advise foreign companies providing technical, consulting and other cross-border services into Taiwan.
👉 Cross-Border Tax Risk and Incentive
👉 Tax Controversy and Relief
