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WITHHOLDING TAX RATES FOR REMUNERATION OF FOREIGN HR FIRMS
In an interpretation dated 9 June 2006, the Min-istry of Finance (MOF) ruled that in a case where a human resource consultant headquartered out-side of Taiwan ("oreign HR Firm") executes a human resource supply contract with an entity in Taiwan ("Local Client"), the nature of the For-eign HR Firm's remuneration under such a con-tract is either that of commission or personnel management fee, and not technical service fees as referred to in Paragraph 1, Article 25 the In-come Tax Act. Accordingly, if the Foreign HR Firm has no fixed place of business or business agent in Taiwan, the Local Client must withhold Taiwan income tax at 20% upon paying the re-muneration.
Where the human resource supply contract identifies a portion of the remuneration as the salary payable to the personnel dispatched by the Foreign HR Firm, the Local Client should withhold at the time of payment Taiwan income tax at the applicable rates from the portion of the remuneration payable to the Foreign HR Firm for services provided, and the portion of the remu-neration payable as salary to the dispatched personnel, respectively. If it is not possible to identify the amount of the remuneration payable to the dispatched personnel as salary at the time of payment, the Local Client should treat the Foreign HR Firm as the sole income recipient and withhold Taiwan income tax on the total remuneration. After being notified by the For-eign HR Firm of the total amount of salary paid to the dispatched personnel, the Local Client should submit an application to the tax collection authorities stating the amount of salary and that of the Taiwan income tax that should be withheld, along with the Foreign HR Firm's notification and payroll records as supporting documents.
Moreover, because the Local Client is the de facto employer of the personnel dispatched to provide services under the Local Client's super-vision and direction, the salary, to be paid by either the Foreign HR Firm or the Local Client, is Taiwan-sourced income and subject to Taiwan individual income tax in accordance with the relevant provisions of the Income Tax Act.