Do I Need to Pay Tax in Taiwan on Profits from My Offshore Company? Understanding the Controlled Foreign Company (CFC) Regime
Taiwan has implemented the Controlled Foreign Company (CFC) regime since the 2023 tax year (Republic of China year 112). Simply put: if a Taiwanese individual or company effectively controls an overseas company located in a low-tax jurisdiction, even if that company retains earnings overseas without distribution, eligible parties must recognize and pay tax in Taiwan on a pro-rata basis. The previous flexibility of 'set up overseas, no tax if not remitted' has been significantly reduced. Actual thresholds are subject to the latest announcements by the Ministry of Finance; this page is a neutral summary, not tax advice.
What is a Controlled Foreign Company (CFC)?
Refers to a Taiwanese individual or profit-seeking enterprise that, together with related parties, directly or indirectly holds 50% or more of the shares or capital contributions in a related enterprise located in a low-tax country or region, or has significant influence over that enterprise. The legislative purpose is to prevent taxpayers from deferring or avoiding Taiwan tax by setting up companies in low-tax jurisdictions and retaining earnings overseas. The regime has two tracks: profit-seeking enterprises are subject to Article 43-3 of the Income Tax Act, and individuals are subject to Article 12-1 of the Income Basic Tax Act.
Source：National Laws Database — Article 43-3 of the Income Tax Act
What qualifies as a 'low-tax country or region'?
Per Ministry of Finance regulations, a jurisdiction qualifies if: the statutory corporate income tax rate does not exceed 14% (i.e., 70% of Taiwan's 20% rate), or it taxes only domestic-source income and exempts foreign-source income or taxes it only upon repatriation (territorial principle). Commonly cited zero- or low-tax jurisdictions (e.g., BVI, Cayman, some territorial-tax regions) often fall within this scope, but actual determination is based on the Ministry of Finance's published list and standards.
Source：Ministry of Finance, Tax Administration
What Exemptions Exist? Not Every Offshore Company Is Subject to CFC Taxation
Two situations may exempt recognition under CFC rules in the current year: first, the CFC has "substantive business operations" locally (fixed place of business, employees actually operating locally, and low proportion of passive income); second, the individual CFC's annual profit is below NT$7 million (small-amount exemption). However, note that if the total profit of "all CFCs" held by the same individual or business exceeds NT$7 million, all must be included, and the small-amount exemption no longer applies. Whether the exemption applies should be determined on a case-by-case basis according to regulations.
Source：National Laws Database — Article 12-1 of the Income Basic Tax Act
Individual holding of offshore companies: taxed under the Alternative Minimum Tax
For individual CFCs, the profit is included in the "basic income amount," calculated under the Income Basic Tax Act (commonly known as the Alternative Minimum Tax), and combined with other foreign income subject to relevant thresholds and deductions. That is, even if individual shareholders do not repatriate funds to Taiwan, they may still incur filing and tax obligations under certain conditions. Exemptions, deductions, and filing methods are subject to annual adjustments; refer to the latest announcements from the Ministry of Finance and tax authorities, and consult a qualified tax professional for case-specific advice.
Source：Ministry of Finance, Tax Administration
Frequently Asked Questions
Do Taiwanese need to report taxes on overseas company earnings even if not remitted?
Possibly. Since the 2023 tax year, if you and related parties have effective control over an overseas company located in a low-tax jurisdiction (with combined shareholding of 50% or more, or significant influence), even if earnings are retained overseas and not distributed, eligible parties must recognize and pay tax in Taiwan on a pro-rata basis. Applicability depends on whether exemptions such as substantial operations or small earnings thresholds are met, and is subject to Ministry of Finance regulations.
When did the CFC regime begin?
Taiwan's CFC regime took effect from the 2023 tax year (Republic of China year 112). For individuals, it applies for the first time when filing 2023 income tax in May 2024. Profit-seeking enterprises follow Article 43-3 of the Income Tax Act, while individuals follow Article 12-1 of the Income Basic Tax Act.
Which jurisdictions are considered 'low-tax countries or regions'?
Per Ministry of Finance standards, jurisdictions where the statutory corporate income tax rate does not exceed 14%, or where only domestic income is taxed (foreign income is exempt or taxed only upon repatriation), fall under this category. Many zero-tax, low-tax, or territorial-tax offshore jurisdictions may fall within this scope; the actual determination is based on the Ministry of Finance's published list and criteria.
Are There Cases Where CFC Taxation Does Not Apply?
There are two common exemptions: the CFC has substantive business activities locally; or the individual CFC's annual profit is below NT$7 million. However, if the combined profits of all CFCs exceed NT$7 million, the small-amount exemption does not apply and all profits must be included. Whether the exemption applies must be assessed on a case-by-case basis.
Does Setting Up in a Place with a Normal Tax System Like Singapore or Hong Kong Still Count as a CFC?
It depends on whether the 'low tax' threshold is met and your shareholding/control level. Jurisdictions with tax rates above 14% and not purely territorial taxation may not be classified as low-tax jurisdictions; however, shareholding structure and effective tax rate still need case-by-case review. It is recommended to confirm with Ministry of Finance standards and professional advice.
Does This Mean Offshore Companies Are Pointless?
No. CFC rules target arrangements that "defer or avoid tax by retaining undistributed profits"; offshore companies with genuine business substance and operational needs still have their uses. The key is to incorporate Taiwan's CFC and filing obligations into the setup decision, rather than looking only at the nominal tax rate of the jurisdiction. This page is a neutral summary, not tax advice.
Official data sources
This page is a neutral compilation of information, for reference only, not tax/legal advice, and does not constitute any commitment. Options frequently change; please refer to the latest official announcements. · Last updated：