1 Introduction to Taiwan Tax EnvironmentDecember 2016

2 Agenda Introducing Taiwan Tax System Tax Revenue Individual Income TaxCorporate Income Tax Business Tax Recent Tax Reforms BEPS (Base Erosion and Profit Shifting) Facing Tax Challenges

3 Introducing Taiwan Official name: Republic of ChinaGeography: The total area is 36,193 km2, making it the world's 137th- largest country/dependency, smaller than Switzerland and larger than Belgium Language: Mandarin is the official national language and is spoken by the vast majority of the population of Taiwan. 70% of the population speak Taiwanese, Hokkien (a variant of the Min Nan dialect of Fujian province) as their mother tongue, in addition to Mandarin, and many others have some degree of understanding. Sport: Baseball is the most popular sport in Taiwan. Besides baseball, basketball is also the popular sport

4 Introducing Taiwan Foods: Taiwanese cuisine and night markets in Taiwan Stinky Tofu Bento box Oyster omelette Oyster noodles

5 Introducing Taiwan What is your favorite Taiwanese food or snack?Foods: Taiwanese cuisine and night markets in Taiwan Questions for group discussion: What is your favorite Taiwanese food or snack? What is your favorite tourist spot in Taipei city? 10 minutes for discussion and then share your experience Bubble Tea Double layer roll

6 Tax System National Tax: Local Tax: Individual Income TaxCorporate Income Tax Business Tax (Value-Added & Non-Value-Added) Estate Tax Gift Tax Customs Duties Securities Transactions Tax Local Tax: Land Value Tax House Tax Land Value Increment Tax Vehicle License Tax Stamp Tax Amusement Tax

7 Tax Revenue Year 2015 Unit: US$billion Amount Ratio% Growth%Individual Income Tax 15.3 22.2 15.4% Corporate Income Tax 14.9 21.7 14.9% Business Tax 10.8 15.7 0.2% Commodity Tax 5.9 8.6 5.9% Land Value Increment Tax 3.7 5.3 11.6% Other taxes 18.2 26.5 13.4% Total 68.9 100.0 8%

8 Individual Income Tax Tax basis: Taxpayers: Filing status:Individuals including residents and non-residents would be levied income tax on the income sourcing from Taiwan Taxpayers: Residents One who maintains a domicile in Taiwan and is ordinarily residing in Taiwan One who resides in Taiwan for 183 days or more in a taxable year, even if he or she does not maintain a domicile in Taiwan Non-residents Individuals who do not qualify as residents Filing status: Income earned by taxpayers (including their spouses, and qualified dependents) shall be consolidated in one tax return The taxpayer shall, within the period from 1st May to 31st May of each year, file an annual income tax return

9 Individual Income Tax A progressive income tax rate system has been adopted for individual income tax. The tax rate table for year of 2015 is structured as follows: Brackets Taxable income × tax rate－adjustment=Tax payable (NTD) 1     0~520,000    ×5％ 2      520,001~1,170,000 ×12％ – 36,400 3   1,170,001~2,350,000 ×20％ – 130,000 4   2,350,001~4,400,000 ×30％ – 365,000 5   4,400,001~10,000,000 ×40％ – 805,000 6 10,000,001 above ×45％ - 1,305,000

10 Individual income tax rateIndividual income tax rate (the highest progressive rate ) for certain countries Country Individual income tax rate Sweden 25% Netherlands 52% Germany 42% Hungary 16% Japan 45% Republic of Korea 38% US 39.6% Taiwan

11 Individual Income Tax Questions for group discussion:Under a progressive income tax rate (v.s. flat income tax rate) system, the wealthy people need to pay more tax (higher income applicable to higher progressive income tax rate) than the low income people. Assuming you are a rich person and your country enforces progressive income tax rate, are you willing to pay more tax in your country? Why or Why not? 10 minutes for discussion and then share your group’s viewpoint. Like we discussed my cleint….real case…he is very rich so he will apply to 45%...almost half earned income will go to government pocket or treasury…I am a middle class and I apply to 30% income tax rate. Assume you are a rich guy like my client, are you willing to pay more tax under a progressive income tax rate system? Do you think it is fair to tax rich people by progressive income tax rate? It is common and normal people will have different opinion.

12 Corporate Income Tax Tax basis:Taiwan corporations, including subsidiaries of foreign corporations set up in Taiwan, would be subject to corporate income tax on their worldwide income. On the other hand, branches of foreign corporations are subject to income tax only on Taiwan-sourced income Tax rate: The taxable income would be subject to 17% income tax rate (25%, before year of 2010) For undistributed earnings of corporations, it would be subject to another 10% surtax Tax incentives: Tax incentive for expense spent on research and development (R&D) activities Taiwan corporations may claim up to 15% of their R&D expense as a credit to offset their corporate income tax Filing status: A profit-seeking enterprise shall, within the period from 1st May to 31st May of each year, file an annual income tax return

13 Corporate income tax rateCorporate income tax rate table for certain countries Country Corporate income tax rate Sweden 22% Netherlands 25% Germany 15.825% Austria Japan 35% Republic of Korea 24.2% US % Taiwan 17%

14 Corporate Income Tax Questions for group discussion:Recently we have seen that many multi-national companies execute complex tax planning and leverage loopholes of tax laws in order to reduce tax liability. As a consumer, will you be still loyalty to their products or services when you are aware of that those companies do not pay fair shares of their tax?

15 Business Tax Tax basis: Tax rate: Filing status:Any transaction of goods or services within the territory of Taiwan including importation of goods is subject to VAT Tax rate: Regular business tax rate (value-added tax) is 5% 0% business tax rate is only applicable to exported goods or services 2% or 5% business tax rate (non-value-added tax) is applicable to specific financial institute services. Filing status: A business entity shall, prior to the 15th day of the following period, file a VAT return with tax authority on bimonthly basis

16 Business Tax (Value-Added Tax)Sample of GUI (Government Uniform Invoice)

17 Business Tax Business tax rate table Country Business tax rate Sweden25%, 12%, 6% Netherlands 21% Germany 19%, 7% Republic of Korea 10% Japan 8% (until Mar 2017) / 10% (effective Apr 2017) US Range from 4% to 11% depending on states Taiwan 5%

18 Business Tax Questions for group discussion:When you do some purchase in a supermarket or grocery store, do you need to pay Business Tax in your country? If yes, what is the tax rate? Would it be different if you do purchase from on-line website (in-country or foreign website)?

19 Recent tax reforms carried out in Taiwan45% progressive income tax rate would apply if annual taxable income over NT$10,000,000 (approximately US$330,000) Capital Gain Tax on Real Estate based on fair market value Estate Tax (Inheritance Tax) and Gift Tax changed from a flat tax rate of 10% to the progressive tax rate system of three tax brackets, 10%, 15%, 20% Controlled Foreign Company (CFC) rule and Place of Effective Management (PEM) rule will apply

20 BEPS (Base Erosion and Profit Shifting)BEPS is a technical term referring to the negative effect of multinational companies' tax avoidance strategies on national tax bases. BEPS can be achieved through the use of transfer pricing. BEPS is used in a project headed by the OECD which produced detailed reports in September 2014 in response to actions agreed previously. BEPS is said to be an "attempt by the world’s major economies to try to rewrite the rules on corporate taxation to address the widespread perception that the corporations don’t pay their fair share of taxes https://www.youtube.com/watch?v=Th4fxMFRIt0

21 BEPS (Base Erosion and Profit Shifting)Questions for group discussion: The video indicated three common ways to reduce corporate income tax in a country. What are they? What does transfer pricing (“TP”) stand for? How can multinational companies use TP to manage taxable income and corporate tax? How does tax authority address when companies intend to use TP to avoid tax? 15 minutes for discussion then share your group’s viewpoint.

22 Facing New Tax ChallengesUber Case Google Play/App Store

23 Questions?