Global tax burden by Singapore investing in Taiwanese companies

This article explores the analysis of tax burdens under different investment status, when a company in Taiwan distributes dividends and when shareholders sell equity in Singapore.

e-mail:  sin2tw@evershinecpa.com

GTX-SG2TW-010
We are a company in Singapore codenamed SG-Par. We invested in a 100% subsidiary in Taiwan 10 years ago, codenamed TW-Sub. Recently we want to invest in a Taiwanese TW-OTC-A listed company and become its shareholder. May I ask? After the investment, the TW-OTC-A listed company distributes dividends. What are the differences in tax burden among the following 4 options?:
Option 1: Invest from SG-Par
Option 2: Invest from TW-Sub
Option 3: Invest from a Singaporean natural person SG-NC
Option 4: Invest from Taiwanese natural person TW-NC

Answer:
After the investment, the TW-OTC-A listed company issued dividends
(1)Option 1:
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When investing directly in TW-OTC-A from SG-Par, the latter needs to obtain approval from the Investment Review Committee.
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Basis: 108.9.20 Amendment to the withholding rate standards for various types of income (Articles 3 and 4) Non-domestic individuals and foreign profit-making companies shall withhold 21% when receiving domestic dividends.
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However, if foreign investors in that country have signed a tax agreement with Taiwan, they can still apply for preferential withholding tax rates. For example, 20 foreign investors from Singapore, Indonesia, France, the United Kingdom, the Netherlands, Austria, Belgium, Japan, Denmark, and the Czech Republic receive dividends from China. The applicable withholding rate is 10%, while foreign investment in India and Malaysia applies 12.5%, and Vietnam and New Zealand apply 15%.
When TW-OTC-A makes profits in the future and distributes dividends, since Singapore and Taiwan have signed a tax agreement, TW-OTC-A will withhold 10% and remit 90% to Taiwan to SG-Par.
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According to Singapore’s tax regulations, dividend income received by Singaporean investors is generally tax-free.
This is because Singapore has a single-tier corporate tax system, whereby companies only pay corporate tax on income earned in Singapore, while dividend income is tax-free.
Therefore, dividends issued by Taiwanese companies no longer need to be included in business income for taxation in Singapore.
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In Singapore, dividend income received by shareholders is generally tax-free. This is because Singapore has a single-tier corporate tax system and companies already pay corporate tax on their income, so dividend income is no longer subject to personal income tax.

2)Option 2:
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If you invest in TW-OTC-A from TW-Sub, TW-Sub must first apply for a capital increase. The capital increase comes from SG-Par and requires approval from the Investment Review Committee.
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When TW-OTC-A pays dividends in the future and TW-Sub records it, the income will not be recognized for tax purposes, but retained earnings will be taxed 5%.
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When TW-Sub distributes surplus back to SG-Par in the future, when it distributes dividends, since Singapore and Taiwan have signed a tax treaty, 10% will be withheld and 90% will be remitted to SG-Par.
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But there is a way to use TW-Sub to reduce capital and remit it back to SG-Par. At this time, there is no need to withhold 10%.
Of course, this method can only reduce capital for customers who have already remitted capital.
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After all, 10% is still required to be withheld from earnings distribution.
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According to Singapore’s tax regulations, dividend income received by Singaporean investors is generally tax-free.
This is because Singapore has a single-tier corporate tax system, whereby companies only pay corporate tax on income earned in Singapore, while dividend income is tax-free.
Therefore, dividends issued by Taiwanese companies no longer need to be included in business income for taxation in Singapore.
*
In Singapore, dividend income received by shareholders is generally tax-free. This is because Singapore has a single-tier corporate tax system and companies already pay corporate tax on their income, so dividend income is no longer subject to personal income tax.

(3)Option 3:
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If a natural person from Singapore invests in TW-OTC-A from SG-NC, when TW-OTC-A distributes dividends, since Singapore and Taiwan have signed a tax agreement, TW-OTC-A will withhold 10%. Then remit 90% to Taiwan to SG-NC.
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According to Singapore’s tax regulations, dividend income received by Singapore investors (natural persons) is usually tax-free.
This is because Singapore has a single-tier corporate tax system, whereby companies only pay corporate tax on income earned in Singapore, while dividend income is tax-free.
Therefore, dividends distributed by Taiwanese companies to investors (natural persons) in Singapore no longer need to be included in personal income for tax purposes.

(4)Option 4:
If TW-NC, a Taiwanese natural person, invests in TW-OTC-A, when TW-OTC-A distributes dividends, the Taiwanese natural person must incorporate the dividends into personal income before the end of May of the following year and pay personal income tax.
In Taiwan, dividends received by a natural person from a listed company must be included in the individual’s comprehensive income tax return. These dividend income can be taxed in one of two ways:
A: Consolidated taxation: Dividend income is incorporated into the personal comprehensive income tax, and the tax deductible is calculated based on 8.5% of the dividend amount. The upper limit of the deduction is 80,000 yuan per household.
B: Separate taxation: Dividend income is taxed separately at a tax rate of 28%.
Which method to choose depends on your total income and tax bracket?
Generally speaking, it is more advantageous for those with lower dividend income to choose consolidated taxation, while for those with higher dividend income, it may be more cost-effective to choose separate taxation.

GTX-SG2TW-020
We are a company in Singapore codenamed SG-Par. We invested in a 100% subsidiary in Taiwan 10 years ago, codenamed TW-Sub. Recently we want to invest in a Taiwanese TW-OTC-A listed company and become its shareholder. May I ask? After investing for a period of time, if you sell the equity of TW-OTC-A listed company on the stock exchange and obtain it from the stock exchange, what will be the difference in tax burden among the following 4 options?:
Option 1: Invest from SG-Par
Option 2: Invest from TW-Sub
Option 3: Invest from a Singaporean natural person SG-NC
Option 4: Invest from Taiwanese natural person TW-NC

Answer:
After investing for a period of time, the equity of the TW-OTC-A listed company was sold and obtained from the stock exchange.
(1)Option 1:
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If you use the Singapore parent company SG-Par to invest, when you sell the equity, the stock exchange will be tax-free in Taiwan.
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According to Singapore’s tax regulations, stock exchange gains generated by Singapore companies from selling equity interests in Taiwan listed companies are generally regarded as capital gains rather than business income.
However, if the Singapore company fails to meet the economic substance requirements when disposing of these equity interests, the proceeds may be treated as taxable income. Economic substance requirements include substantial economic activities in Singapore, such as major decision-making taking place in Singapore, and certain offices, employees and expenses.
Therefore, if the Singapore company meets the economic substance requirements, the income gained from selling the equity of the Taiwan listed company does not need to pay tax in Singapore.
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In Singapore, dividend income received by shareholders is generally tax-free. This is because Singapore has a single-tier corporate tax system and companies already pay corporate tax on their income, so dividend income is no longer subject to personal income tax.

(2)Option 2:
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If you invest in TW-OTC-A from TW-Sub, according to the current income tax law, the stock exchange gains generated by Taiwanese companies from selling the stocks of listed companies do not need to be included in the income tax return.
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However, these incomes still need to be included in the company’s basic income and are subject to the minimum tax system.
Article 8 of Chapter 2 of the Basic Income Tax Regulations (Amended on 101.8.8.; Effective from 2020) (Adjustments to the Calculation and Announcement of Deductions for Profit-Profit Enterprises) The basic tax for profit-seeking enterprises is the deduction from the basic income calculated in accordance with the provisions of the previous article. After NT$500,000 (the annual tax exemption has been raised to NT$600,000 in 2012), the amount is calculated according to the tax rate set by the Executive Yuan; the minimum tax rate shall not be less than 12% and the maximum shall not exceed 100%. Fifteen percent; the collection rate shall be determined by the Executive Yuan based on the economic environment.
The deduction amount specified in the preceding paragraph, its calculation adjustment and announcement method shall apply mutatis mutandis to the provisions of Paragraph 2 of Article 3.
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In addition, 5% of retained earnings will be charged.
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According to Singapore’s tax regulations, stock exchange gains generated by Singapore companies from selling equity interests in Taiwan listed companies are generally regarded as capital gains rather than business income.
However, if the Singapore company fails to meet the economic substance requirements when disposing of these equity interests, the proceeds may be treated as taxable income. Economic substance requirements include substantial economic activities in Singapore, such as major decision-making taking place in Singapore, and certain offices, employees and expenses.
Therefore, if the Singapore company meets the economic substance requirements, the income gained from selling the equity of the Taiwan listed company does not need to pay tax in Singapore.
*
In Singapore, dividend income received by shareholders is generally tax-free. This is because Singapore has a single-tier corporate tax system and companies already pay corporate tax on their income, so dividend income is no longer subject to personal income tax.

(3)Option 3:
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If a Singaporean natural person SG-NC invests in a Taiwan listed company TW-OTC-A to obtain equity, when the equity is sold, the stock exchange will be tax-free in Taiwan.
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In Singapore: According to Singapore’s tax regulations, income derived by Singaporean natural persons from securities transactions is generally regarded as capital gains, and capital gains are tax-free in Singapore.
(4)Option 4:
If a Taiwanese natural person TW-NC invests in a Taiwanese listed company TW-OTC-A to obtain equity, and when the equity is sold, the stock exchange will be tax-free in Taiwan.

**Please note the following:
The above content is a summary of Evershine R&D and Education Center in August 2024.
Over time, regulations may change and different options may be adopted in different situations.
So before choosing an option, contact us or consult with a professional you trust in the field.

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