Israel – Taiwan Tax Treaty

Business Activity in Taiwan

The strategic location of Taiwan in the Asia-Pacific and its modern infrastructure are the reasons why foreign investors find it an ideal place to set up their businesses. Taiwan’s government offers incentives with liberal regulations so that not only domestic but also foreign investors may partake in economic and industrial growth. Furthermore, the investment environment is very competitive thanks to the low corporate tax levied at 20%.

Moreover, Taiwan is an international hub for global commerce and innovation, with major exports in electrical circuits, office machines, and computers, primarily to China, the United States, Hong Kong, Singapore, and Japan, and imports of crude petroleum and machinery from Australia, China, the United States, Hong Kong, and Japan. On the other hand, the tourism sector is also expanding thanks to its unique landscapes, rich mixed cultures, and friendly citizens.

Bilateral Agreements Between Taiwan and Israel

1. Double Taxation Treaty

Convention on the Prevention of Double Taxation

The agreement between the Governments of Israel and Taiwan regarding the avoidance of double taxation was signed on December 23, 2009, and entered into force on December 31, 2009.

To read the agreement in English click here.

Applicability of the MLI

Israel signed the “Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting” (MLI), on June 7, 2017, and ratified it on January 1, 2019. In contrast, Taiwan has yet to sign the MLI.

Residency for Tax Purposes in Taiwan

Residence of an Individual

An individual is considered a tax resident in Taiwan if they live there or stay for more than 183 days within a year. However, if a taxpayer has Taiwan nationality but lives abroad, the taxpayer should spend at least 31 days in the country or be tied to Taiwan through economic activities, family, or social contributions.

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

A company is considered a tax resident in Taiwan if it is established in Taiwan.

To learn about how a company is considered a resident of Israel, click here.

The Tax System in Taiwan

Taiwan’s Tax Authority is called the National Taxation Bureau of Taipei.

Income taxation: 5%, 12%, 20%, 30%, 40%

Taxation of companies and branches: 0%, 20%

VAT: 5%

Capital gains tax: 0%

Withholding Tax

Inheritance Tax and Estate Tax in Taiwan

In Taiwan, the estate tax is structured with rates between 10% and 20% respectively for estates up to TWD 50 million, between TWD 50 million and TWD 100 million (with a deduction of TWD 2.5 million), and for those above TWD 100 million (with a deduction of TWD 7.5 million). There are also exemptions up to TWD 13.33 million for one death and additional deductions for spouses, descendants, parents, handicapped heirs, and funeral expenses.

According to the law on gift taxes, TWD 2.44 million per donor is the annual exemption, with a rate of 10% on gifts less than TWD 25 million, 15% on gifts between TWD 25 million and TWD 50 million (with a deduction of TWD 1.25 million), and 20% on gifts above TWD 50 million (with a deduction of TWD 3.75 million).

Relocation to Taiwan

Taiwan is among the top globally countries for economic freedom and competitiveness, making it a great place to live and invest. Its cities are virtually free of crime and vandalism, and they are clean, convenient, cosmopolitan, and affordable, with excellent transportation options.

Taiwan is a leader in technical innovation. Government funding, incubation centers, and private support groups create a vibrant startup environment, positively impacting the entire business climate. The seamless integration between universities, research centers, and commercial zones ensures a healthy environment where great ideas can thrive.

The government’s substantial investment in infrastructure is enhancing the country’s quality of life and business climate, while also offering a significant opportunity for foreign companies to join in this rapid development.

The place is not only good for business but also for living as it consistently appears among the top countries in the world for expatriates’ satisfaction surveys owing to high quality living environment, stable weather and great health care facilities in addition to other services.

In Taiwan, there are almost 100 Jewish residents. The majority of them come to Taiwan on two or three year assignments from multinational corporations or international organizations. Some also work in academia and government roles. More than half of the community holds American citizenship, around a quarter are Israeli, and the remaining residents are from diverse nations.

Real Estate Taxation in Taiwan

In Taiwan, an annual tax is imposed on land and buildings. The rates at which this fee is charged range from 1% to 5.5% on the evaluated value of the land. A commercial property pays between 3% and 5% of its assessed value while non-commercial ones pay between 1.2% and 3.6%.

Transfer of Funds from Israel to Taiwan

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to a 25% withholding tax. The tax authority can allow, under certain circumstances, to reduce or dismiss the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

Due to the fact that both countries have a tax treaty with each other, one can submit a declaration form (2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, there is a possibility to transfer the payment without the withholding tax and the approval of the Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes, and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in Taiwan

The main types of legal entities recognized by Taiwanese law include:

Limited Companies

A limited company has to have one shareholder and one director. Each shareholder has one vote, regardless of capital contributions. To transfer capital, shareholders must obtain consent from all other shareholders.

Companies Limited by Shares

Forming a Limited by Shares Company requires at least two individual shareholders or a single corporate shareholder. Although the shareholders are free to transfer their shares, they can also impose certain restrictions. Shareholders can provide cash or in-kind investments, and the directors do not have to be shareholders. All Companies Limited by Shares must comply with the requirement of adopting the method of “cumulative voting” according to the Company Act.

Close Companies

A close company is a private company with no public offering, limited to a maximum of 50 shareholders. Directors do not need to be shareholders, and all Limited by Shares must adopt an accumulative voting method. They can also raise funds and still keep the founders’ control. Close Companies effectually raise capital while the founders remain the dominant force.

Branch Office of a Foreign Company

A foreign company can establish a branch office in Taiwan to engage in profit-seeking activities. Unlike a limited company, a branch office is exempt from many corporate formalities, making it a simpler and more flexible option for foreign businesses. It does not require local shareholders or a board of directors, and the foreign parent company retains full control over its operations. However, the branch office is still subject to local taxation and must comply with local business regulations.

Incentive Laws in Taiwan

The Taiwan Free Trade Zone is a designated area where different industries can trade, store, transport, produce, and more. This zone is popularly known as integrated processing and transportation, in which industries are often free from customs duties due to specific regulations.

The Taoyuan Aviation Free Trade Port Zone is located near Taoyuan International Airport and covers an area of 34.85 hectares. It has direct access to aircraft aprons, thus, it expands significantly to the airside. It is widely used for electronic manufacturing, international logistics, healthcare items, cosmetics, and bicycles. Among the advantages of the zone, notable benefits include the 0% duty and 0% business tax on transactions between the FTZ and bonded areas.

In addition to the free zone, Taiwan is a manufacturing powerhouse that uses the country’s existing strengths in manufacturing, to develop high value-added products in the supply chain.

To attract investors and promote economic growth, Taiwan provides several tax incentives. These include tax credits and exemptions from import duties on machinery not produced in Taiwan, as well as tax relief for adopting key technologies and investing in smart machinery and 5G.

Furthermore, the undistributed earnings can be used as a basis for some tax reliefs related to significant investments that are made by companies. Additionally, it allows usage of stock options received in lieu of other considerations such as technology or employee compensation that are not available under the regular stock option plan.

The government encourages private sector participation through public-private partnerships which target the biotechnology/ pharmaceuticals industry. The National Development Fund invests in high-tech industries and green energy at less than 49% ownership usually sold off later. Various provinces offer different incentives depending on their specific needs like subsidies alongside assistance to firms based in cities such as Taipei Taoyuan and Kaohsiung.

To read more about incentive laws in Taiwan, please click here.

Double Tax Treaties of Taiwan