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4.1. Domestic PE of a Foreign Entity

Although the definition of permanent establishment (PE) is not clearly set under Taiwan law, for Taiwan tax purposes, a fixed place of business or a business agent in Taiwan can result in a tax liability similar to that of PE.

A fixed place of business can include a branch, a place of management, a factory, construction site, etc. However, storage sites used exclusively for the purchasing goods, or maintenance sites not used for processing or manufacturing are excluded.

A business agent is one who has authority to make business arrangement and sign contracts, or maintains and delivers goods for a non-resident. If a non-resident sends someone to Taiwan to perform business intelligence or liaison activities only, they are not considered a business agent.

Any foreign entity deemed to have a fixed place of business or an agent under the above definitions would be subject to corporate income tax on Taiwan sourced income.

In addition to the aforementioned general rules, additional rules regarding Taiwan PE are set out by double taxation agreements (DTA's) between Taiwan and other jurisdictions.

Permanent Establishment in Taiwan Defined by DTA's

Taiwan has signed DTA's with over 30 other countries. DTA's between mainland China and other jurisdictions do not apply to Taiwan and vice versa. The following outlines the key rules pertaining to PE in Taiwan as per DTA's.

In general, the concept of permanent establishment in Taiwan is consistent across all DTA's that Taiwan has with foreign jurisdictions, and is in line with OECD guidelines. Most DTA's concluded by Taiwan dictate that non-resident enterprises located in those jurisdictions will be considered to have PE in Taiwan (and vice versa) in the following four scenarios:

  • Physical PE
  • Construction PE
  • Service PE
  • Agency PE

Physical PE

A physical (fixed place) PE is defined as one through which the business of an enterprise is wholly or partly carried out. Although exact terms for what constitutes a fixed place PE vary somewhat between DTA's with Taiwan, they generally include:

  • A place of management
  • A branch
  • An office
  • A factory
  • A workshop
  • A mine, an oil or gas well, a quarry or any other place of extraction of natural resources

There is no qualification for the scale or the form of the place of business for the fixed place PE and it will normally have the following features:

  • It must be a place of business
  • It must be a fixed place of business with a certain degree of permanence
  • The enterprise must carry on the whole or a part of its business through this fixed place of business

Construction PE

A construction PE can take the form of a building site, a construction, assembly or installation project, or related supervisory activities within Taiwan that last for a period greater than 6 months to 12 months, or greater than 6 consecutive months within 2 calendar years depending on the relevant DTA.

Service PE

A service PE is constituted when a non-resident enterprise furnishes services in Taiwan, including consultancy services, by the enterprise directly or through employees or other personnel engaged by the enterprise, and the service activities continue for the same or a connected project for a period or periods aggregating more than 120 days within any 12 month period or up to 12 months within a 15 month period depending on the relevant DTA. Only a limited number of DTA’s concluded by Taiwan (typically the more recent ones) provide for service PEs.

Agency PE

An agent PE will be constituted when a non-independent agent acts in Taiwan on behalf of a non-resident enterprise, and has and habitually exercises an authority to conclude contracts in the name of the non-resident enterprise. In addition, a PE would be constituted if the agent does not have the authority to conclude contracts but maintains a stock of goods or merchandise in Taiwan belonging to the enterprise from which they regularly fills orders on behalf of the enterprise, and according to some DTA's, if the agent regularly secures orders in the first-mentioned territory wholly of almost wholly for the enterprise.

Independent agents acting on behalf of a non-resident enterprise will not constitute a PE if the agent is acting in the ordinary course of his business.

If an agent's activities are limited to those related to the following list of general PE exclusions, then that agent activity will not constitute a PE.

General PE Exclusions

The following activities do not constitute a PE in Taiwan when engaged in by a non-resident enterprise.

  • A place for storage, display or delivery of goods only
  • A place for maintenance of goods only
  • A place for maintenance of goods to be processed by another enterprise
  • A place for purchasing or advertising goods or for collecting information for the enterprise
  • A place for carrying on an activity of a preparatory or auxiliary character for the enterprise;
  • A place for any combination of the above activities which is of a preparatory or auxiliary character for the enterprise

In addition, a representative office in Taiwan of a foreign enterprise is not regarded as a PE on satisfying the following conditions:

  • The activities are for the enterprise itself
  • The activities do not directly generate profits
  • The functions of the representative office are only of a supportive nature