20% Tax to be Levied on Royalty for Foreign Motion Pictures from August 1, 2005.

　From August 1, 2005, under the circumstance that foreign film makers lease foreign motion pictures for domestic film companies’ screening in Taiwan, where the domestic film companies in Taiwan have the rights of reproduction and sublease, the foreign film makers’ royalty revenue derived from the lease of motion pictures paid by the domestic film companies shall be deemed as the income within the territory of Taiwan and thus a 20% tax should be levied on such royalty revenue received according to Item 6, Article 8 of the Income Tax Act. The tax-exempt preferential treatment granted to foreign motion pictures for 25 years has come to an end. Such drastic change greatly impacts the 8 largest US film makers and the cable television providers.

 

　Besides, where it is agreed that the leased foreign motion pictures cannot be reproduced and subleased to others and should be screened within a specific period of time, the income tax to be levied on the royalty revenue received by the foreign film makers should be calculated as follows in accordance with Article 26 of the Income Tax Act:

 

1.        In the case of a motion picture enterprise outside of the territory of Taiwan which has no branch office inside Taiwan, 50% of the revenue from the lease of motion pictures through agents shall be deemed as income within the territory of Taiwan;

2.        Where a branch office has been established inside the territory of Taiwan, costs may be computed at 45% of the revenue received by the motion picture enterprise;

3.        Profit-seeking enterprise of Taiwan should withhold the income tax on the revenue received by foreign motion picture enterprises which have no branch offices in Taiwan nor agents pursuant to Article 88 of the Income Tax Act. (2005.2)

CYJ/CCS