Global Tax Alert | 3 March 2014

Taiwan issues retroactive amendments to exempt from withholding tax royalties paid on qualified patent rights registered outside Taiwan

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Executive summary

Taiwan's Ministry of Finance (MOF) issued a ruling (Ruling) to amend the withholding tax exemption applicable to royalties paid to a foreign enterprise on qualified patent rights registered outside Taiwan. The amendments are retroactively effective for license contracts concluded on or after 1 January 2011. Nonresident licensors are expected to benefit from the Ruling.

Ruling highlights

Under Item 21, Article 4 of the Income Tax Act, royalties paid to a foreign enterprise are exempt from Taiwanese withholding tax if the following criteria are met:

  • Approved by the Industrial Development Bureau and National Taxation Bureau;
  • Royalties are for the use of patent rights, trademarks, and/or various kinds of special licensed rights in order to introduce new production technology or products, improve product quality, or reduce production costs as well as remuneration paid to a foreign enterprise for its technical services rendered in the construction of a factory; and
  • Royalties are qualified patent rights that are registered in Taiwan.

The Ruling amends the third criterion by extending the exemption to any qualified patent right, regardless of a registration location, provided the criteria set forth in the new amendments are met.1

In addition, the Ruling provides an exemption from Taiwanese withholding tax for royalties paid to a foreign person by a Taiwanese entity in the manufacturing or technical service industries for the use of copyrighted computer programs, provided that the copyrights comply with Article 4 of the Copyright Act, provided the copyrighted computer programs meet the definition of technical cooperation and approvals are obtained from the Industrial Development and National Taxation Bureaus.

The following chart summarizes the key changes of the new amendments:


Prior to the amendments
(as of 31 December 2010)

After the amendments
(starting from 1 January 2011)

Technical Know-how (as opposed
to patent rights)

Based on the Regulations for Encouraging Manufacturing Enterprises and Technical Services in the Newly Emerging, Important and Strategic Industries

No longer applicable

Patent rights

Limited to the copyrights registered with the Taiwan Intellectual Property Office

Applicable to patent rights registered in Taiwan or foreign countries

Computer programs Copyright


Copyrighted Computer programs compliant with Article 4 of the Copyright Act


Foreign licensors who have registered their qualified patent rights outside Taiwan and licensed them to Taiwanese licensees would be eligible to file a refund claim for withholding taxes imposed on the payments received on or after 1 January 2011, if the criteria are met and the approvals are granted.

Similarly, foreign licensors may be eligible to file a refund claim for taxes withheld on royalties paid for the use of computer programs, provided that the computer programs meet the requirements and the two bureaus' approvals are obtained.

Unpatented technologies, i.e., know-how, are still subject to tax; accordingly, if licenses consist of both patented rights and unpatented technologies, foreign licensors should seek professional advice to determine if the license should be bifurcated to reduce Taiwanese withholding taxes.


1. The criteria are: (1) used for purposes of technical cooperation; (2) parent rights should be limited to technology that is critical to a Taiwanese entity but unavailable in Taiwan or technology is available in Taiwan but incompatible with the Taiwanese entity's product specifications; (3) provided to 20 specified types of industries listed in the Ruling; and (4) limited to a foreign entity located in a country that enters into a mutual agreement of rights of priority with Taiwan or is a member of the World Trade Organization.

For additional information with respect to this Alert, please contact the following:

Ernst & Young (Taiwan), Taipei
  • Sophie Chou
    +886 2 2720 4000 ext. 1610
  • Alice Chung
    +886 2 2720 4000 ext. 2712
  • Michael Lin
    +886 2 2720 4000 ext. 1608
Ernst & Young LLP, Asia Pacific Business Group, New York
  • Chris Finnerty
    +1 212 773 7479
  • Kaz Parsch
    +1 212 773 7201
  • Bee-Khun Yap
    +1 212 773 1816

EYG no. CM4219