Ministry of Finance prepares legal tool regulating tax relations with Taiwan

For an external comment procedure, the Ministry of Finance has submitted a bill to prevent double taxation in relation to Taiwan. As the Czech Republic does not recognise Taiwan as an independent state, it is not possible to enter into a double taxation treaty.

Hence, the Ministry of Finance proposes to adopt a unilateral measure in form of an act. The content of this act’s schedule corresponds with the content of double taxation treaties prepared based on the OECD’s and the UN’s model conventions. Taiwan is expected to implement similar measures. The bill and related schedules ensure the objective distribution of the right to collect income tax between the two jurisdictions where income originates in the territory of one state but is generated by a tax resident of the other state. It will be possible to proceed in accordance with the act and its schedules after information about meeting the conditions for its implementation by both the Czech Republic and Taiwan has been published in the Collection of Laws. 

Major areas of taxation are to be regulated as follows:

Permanent establishment
The time test for a permanent establishment will be applied as follows: A permanent establishment will arise when a construction project in the territory of one state lasts more than 12 months or when services are provided in the territory of one state for more than 9 months in aggregate during any twelve-month period.

Dividends and interest
Paid-out dividends and interest may be taxed in the source state up to a maximum of 10%.

A maximum 5% rate is applied to royalties at the source state relating to the right to use industrial, business or scientific equipment. A maximum 10% rate applies to royalties relating to all other instances. 

Profits from the alienation of assets
Profits from the alienation of shares and other interests may be taxed in the source state if more than 50% of their value is generated, directly or indirectly, from the real property located in the territory of this state.

Elimination of double taxation
To eliminate double taxation, the Czech Republic will generally apply the simple credit method in respect of Taiwanese tax. In addition, it will also be possible to apply the exclusion method in connection with income from employment under the Income Tax Act.

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