Manufacturers Should Pay Technical Royalties Foreign Enterprises, and Also Withhold Income Tax in the Case of Outsourcing Research.

The manufacturers in Taiwan should adopt the way of purchase to introduce the patent right or patented techniques owned by foreign enterprises. In the event of outsourcing research, the remuneration of foreign enterprises does not comply with the regulation of tax exemption, and the manufacturers which introduce foreign enterprises’ patents should still withhold income tax when paying royalties.

Ministry of Finance in Taiwan indicates that tax exemption must be under the premise that the techniques introduced have to fit in with the following conditions: 1. manufacture of new products; 2. increase in output, quality improvement, and reduction of manufacture cost; 3. supply of new techniques of manufacture. In the case of failure to fit in with the above-mentioned conditions, the regulation of tax exemption as regulated in Taiwan shall not be applied to foreign profit-seeking enterprises’ royalties or technical remuneration gained from the manufacture industry and technical service industry. Local manufacturers also have to withhold 20% of the total amount of royalties or technical remuneration paid to foreign enterprises according to the regulation of the Income Tax Act. (2004.03)

CYJ/CCS