Foreign wind energy players: Local tax regime offers various WHT mitigation options

Tax regulations are evolving and being adopted to introduce wind energy technology in domestic market and grow domestic expertise

In the global trend to find alternative green energy, Taiwan is well on its way to grow its own expertise. Although wind energy, which is a common energy source in Europe, is a relatively new field in Taiwan given its unique geographical location, proneness to earthquakes, and past reliance on fossil energy, the government has been promoting the wind farm industry since 2017 and plans to reach an offshore wind installation capacity of 5.7 gigawatts (GW) by 2025. As Taiwan needs to leverage experienced offshore wind farm developers, it has divided this plan into three stages: “demo, potential, and block.” It not only hopes to introduce the technology into the domestic market but also to cultivate a domestic team who will learn the necessary skills and techniques.

Deloitte Taiwan has been assisting major wind farm developers and accompanying them on this new journey since 2017. The development of the industry has given rise to common tax issues, however. One such issue is related to Taiwan’s income sourcing rules in cross-border transactions, particularly transactions relating to the provision of services. Service fees generally are subject to a 20% withholding tax in Taiwan even if the payments are related to services rendered entirely outside of Taiwan or rendered partly in Taiwan and partly offshore. The 20% tax is levied on the gross amount of service fees without taking into consideration the costs and expenses incurred to earn the service income. Although the tax authorities have interpreted the rules broadly, several options exist to mitigate the withholding taxes on payments to offshore service providers. 


Deemed profit rate (ITA article 25)

Article 25 of the Taiwan Income Tax Act (ITA) may help foreign profit-seeking companies with a head office outside of Taiwan that have difficulty in determining their costs and expenses in rendering prescribed services such as technical assistance, construction contracting, leasing of machinery and equipment, and international transport. Pursuant to article 25, these companies can request to have a deemed profit rate of 15% apply to their services on a per-contract basis, which means that they will only be subject to an effective tax rate of 3% (i.e., 20% corporate income tax rate on 15% deemed profit).

The use of article 25 requires pre-approval from the tax authorities and the request application must be made on a contract-by-contract basis. If the application is submitted after the payment has been made, a subsequent refund application is required to recover any overpaid amount.



  • A foreign company that is not a taxable entity with business substance and that is merely a conduit is not eligible to use article 25.
  • A foreign entity that needs cash usually prefers to use article 25 as the process is quicker than claiming a benefit under a double tax agreement (DTA) (discussed below) and the effective tax rate is only slightly higher than the 0% DTA rate.
  • If article 25 is used with respect to technical assistance, the applicant must demonstrate the technical element of the assistance rather than just mere administrative matters or the routine nature of the work.
  • Even though article 25 is a relatively common way to obtain preferential tax treatment, the Taiwan tax authorities may still raise inquiries regarding various contracts such as jack-up boat leases, turn-key contracts, and consultancy service contracts because wind energy is a relatively new concept for them.


Double tax agreements

As of January 2021, Taiwan had signed DTAs with 34 countries. Even if the DTA network is rather limited, some major wind farm industry players from Denmark and Germany still choose this option to mitigate their withholding tax exposure in Taiwan.

DTAs allow foreign taxpayers who have a presence in Taiwan that does not constitute a permanent establishment (PE) to apply for a business profit exemption. While this option may provide foreign taxpayers with the best tax result, it may not always be the preferred choice as it involves a time-consuming process.



  • Some wind farm suppliers reside in non-DTA countries or are organized as partnerships or sole proprietorships (i.e., they are not tax resident as this term is defined in the applicable DTAs) and are thus not eligible for DTA benefits.
  • Applying for DTA benefits takes longer than an article 25 application, and thus entities with cash needs are reluctant to choose the DTA option.
  • Foreign suppliers usually look for multiple project opportunities in Taiwan and might inadvertently create a PE in Taiwan by undertaking sequential, connected projects, rendering them ineligible for DTA benefits.
  • On a separate but interesting note, the business profits article in many DTAs also provides an exemption for the guarantee premium earned by export credit agencies (ECAs). Based on Taiwan’s Ministry of Finance (MOF), the guarantee premium should be considered the ECA’s business profits rather than interest income in the context of a DTA as the ECA is not the party that actually provides the financing. Deloitte Taiwan has successfully secured a business profits exemption for three ECAs and is in the process of applying for another three. For ECAs located in jurisdictions that do not have a DTA with Taiwan, please see the comments regarding ITA article 4-22 below.


Pre-determined net profit rate and contribution ratio (ITA article 8)

Pursuant to article 8 of the ITA, a foreign enterprise with Taiwan-source income from the provision of qualified services or business profits but with no fixed place of business or business agent in Taiwan may apply to the tax authorities for a pre-determined net profit rate and contribution ratio for income tax calculation purposes before the enterprise has any revenue. The net profit rate may be provided by the taxpayer itself based on its actual books. If the net profit rate is not available or is challenged by the tax authorities, a “deemed” profit rate may be assessed based on the prescribed industry standard rates for the activities carried out by the foreign enterprise. The contribution ratio represents the portion of the foreign enterprise’s overall activities carried out in Taiwan. 



  • Article 8 may alleviate the cash flow impact on foreign enterprises from having taxes withheld upfront. However, foreign enterprises should be careful to submit their application to the tax authorities before any payment is remitted.
  • The length of the process varies but, in general, it is slightly longer than the article 25 process but shorter than applying for DTA benefits.
  • In practice, the tax authorities only allow either a deemed profit rate or a contribution ratio, not both, so most applicants opt for the deemed profit rate option to minimize their administrative burden and thus expedite the application process.  


Statutory tax exemption for “power plant construction” (ITA article 4-21)

Article 4-21 of the ITA exempts from income tax service fees generated from the provision of services for “power plant construction.” To qualify for the exemption, the following key conditions must be met:

a.  The service recipient should be a power-generating enterprise organized as a “company limited by shares;” in other words, the service recipient (i.e., the power plant) must have been legally incorporated after all the required regulatory processes were completed and all the necessary permits were obtained;

b.  The services rendered by the foreign profit-seeking enterprise should be related to the construction planning, the basic or detailed engineering design, and the machinery/equipment design needed prior to the construction and start-up of the power plant; and

c.  The exemption, which applies on a contract-by-contract basis, must be approved by the Bureau of Energy (BOE) and the Taiwan Ministry of Economic Affairs (MOEA), and then by the tax authorities.



  • The exemption application process takes place in two stages and therefore takes quite a long time.
  • Deloitte has secured the BOE approval for the very first pilot case. The BOE is still finalizing the review guidelines for wind farm power plant constructors since it has been almost two decades since an application was first filed under article 4-21 and, at the time, the applicant had applied for the construction of an onshore coal-based power plant. Once the review guidelines are finalized, applicants will have more concrete and reliable guidance to follow.
  • The BOE review guidelines may tentatively incorporate the localization policies set by the MOEA, which will enable domestic teams to have the opportunity to learn skills and techniques from foreign entities. In other words, the exemption may be granted to foreign entities who are willing to technically cooperate with local entities.


Statutory tax exemption for interest from certain export loans (ITA article 4-22)

Article 4-22 paragraph 3 of the ITA provides a tax exemption for interest derived from favorable interest export loans offered to or guaranteed for Taiwan entities by foreign governmental institutions and foreign financial institutions that are specialized in offering export loans or guarantees. Unfortunately, “favorable interest” has not been defined yet but a comparison with the interest rate on general loans or other loans with similar facts and circumstances may be needed to prove that the interest rate on the export loans is favorable.



  • Taiwan wind farm power generation companies may rely on loans from banks and ECAs to reach financial close. Article 4-22 allows ECAs of countries that do not have a DTA with Taiwan to seek tax exemption treatment.
  • Although a guarantee premium is considered business profits in the DTA context, it is treated as interest income under domestic law. As such, ECAs must prove that the interest (collectively, the interest payable to the banks and to the ECA) is favorable in order for the MOF to approve the tax-exempt treatment. The ECAs need a reasonable argument with relevant information or documents to substantiate why the interest is favorable.
  • Deloitte has submitted two applications under this option for ECAs located in non-DTA countries and is waiting for the approvals.

Taiwan’s tax regime provides foreign enterprises with various methods to mitigate their tax burden in Taiwan with respect to their Taiwan-source income. With the scaling up of the wind energy industry, Taiwan’s tax regulations are evolving and being adopted to respond to the variations involved in this new industry. Deloitte is at the forefront, together with developers and associated suppliers, to embrace the changes and provide comprehensive services that should help foreign enterprises make a smooth transition to the Taiwan market. 



Arthur Y. Chen



Angel L. Lou

Senior Manager


Sara C. Liu

Senior Manager


Chinying Yu


Did you find this useful?