Taiwan: Taxes applied on foreign computer software sellers
Managing IP is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Taiwan: Taxes applied on foreign computer software sellers


Sumin Lai of Saint Island International Patent & Law considers a Supreme Administrative Court ruling which sheds light on types of software being subject to income tax

In today's global information community, cutting-edge companies in Taiwan usually have greater incentive to purchase computer software abroad in order to keep up with the rapid changes in technology. To this end, the profit thus generated in Taiwan by a foreign company with no permanent local establishment may be taxable. A foreign software seller could be either levied a tax of 20%, similar to royalty or remuneration received from the other’s use of IP right or service, or subject to no income tax. 

Computer software

According to the tax authorities, a computer software is regarded as a general commodity if it is sold for purchase by downloading through the internet without the need of shifting from seller-oriented to buyer-oriented; a shrink wrap software pressed on CD-ROM; a packaged software which cannot be modified or publicly displayed and is readily available to general users; or a software not customised for individual users, such as Microsoft's Office or operating system. 

A software of this kind is deemed a commodity of international trade and will not be subject to any income tax under the Income Tax Act. On the other hand, the provider of a custom-made software developed for a specific purpose is treated as a royalty or remuneration receiver, and is subject to a 20% withholding tax. Such software includes, for instance, a program installed on an internal database for deep learning purpose; a custom-made software developed for the purpose of planning an enterprise resource planning (ERP) system designed to help resource integration.

Court ruling

While quite a number of controversies arose from diverging interpretations regarding in which category a piece of computer software should be classified, in 2021, the Supreme Administrative Court rendered a ruling which is able to shed some light on this tax issue. 

The legal representative of a Taiwan-based company received from tax authorities a payment certificate advising him to pay a short-paid duty for the reason that the software that the company purchased is customised and hence is considered to be an intangible asset subject to a 20% withholding tax. Dissatisfied with such determination, the representative filed a series of appeals in an attempt to indemnify against this tax liability. After the case was appealed to the highest court level, in 2021, the Supreme Administrative Court made a final decision that the appellant is obliged to pay all the amount of short-paid duty. 

The Supreme Administrative Court held that, instead of categorising a piece of software into standardised or customised software according to the rules set up by the tax authorities based upon Article 8.9 of the Income Tax Act, what should first be addressed is whether or not the profit generated by the foreign seller is in the nature of remuneration or royalty which is subject to a 20% withholding tax according to Article 8.6 of the Income Tax having priority over Article 8.9 of the Income Tax Act in law application order. 

In this respect, the Supreme Administrative Court delved into every detail of the facts and circumstances surrounding the transaction between the two parties, and drew a conclusion that the computer software provider is actually a remuneration or royalty receiver and hence is subject to a 20% withholding tax. In the meantime, the Supreme Administrative Court pointed out that it is hardly possible, in the current complicated international trading circumstances, to abruptly categorise a piece of software into standardised or customised software.

Need for review

It is still too early to judge if the above-referenced judgment will affect the current practice adopted by the tax authorities that a foreign software seller shall be levied a tax based on whether the sold software is standardised or not. 

However, this case emphasised the need for a careful review of the contract between a computer software provider and a local buyer, and as far as possible, a full communication with the tax authorities in advance, so as to avoid any unnecessary tax supplement liability or penalty.



Sumin Lai

Lawyer, Saint Island Intellectual Property Group

E: siiplo@mail.saint-island.com.tw


more from across site and ros bottom lb

More from across our site

Former Jenner & Block litigators say they plan to capitalise on a ‘huge uptick’ in life sciences work after joining Fish & Richardson’s newly formed life sciences industry team
Pravin Anand and Vaishali Mittal of Anand & Anand explain how they helped Swiss pharma company Vifor secure a landmark win against generic companies in India
Malisheia Douglas, who spent six years at Eaton Corporation, said she was attracted by the firm's global footprint
The European Parliament has voted in favour of overhauling the SEP framework, a proposal that has sparked deep division among patent owners and implementers
Daniel Poh talks about his journey to becoming managing partner and how firms can win new business from Chinese companies
Missing a deadline can have serious consequences but law firms should consider being lenient to those responsible
Each week Managing IP speaks to a different IP practitioner about their life and career
CMS, which was told to respond to a cancellation action by February 12 but filed its response a day later, has rowed back on claims about an IT error
The deal could help Rouse gain a foothold in Australia and New Zealand for the first time
With a team of more than 80 patent lawyers and attorneys across 21 European offices, the firm is acting in some of the most high-profile UPC cases
Gift this article