Cross-Strait Tax 2026: Taiwan Businesspeople in China, the 2015 Tax Agreement and CFC Rules
Taiwanese businesses and individuals operating across the Strait face one of Asia's trickiest tax landscapes: two tax systems, no fully effective double-taxation treaty, and since 2023, controlled-foreign-company rules that look through offshore holding structures. This guide covers how tax residency is decided on each side, what the 2015 cross-strait tax agreement promises (and its current status), the withholding rates that actually apply today, and the CFC regime every Taiwan investor with an offshore company must now reckon with.
Tax residency: two 183-day tests
Both sides use a 183-day presence test, but they run independently β you can be a tax resident of both, one, or neither in the same year.
- Taiwan: 183+ days in Taiwan during the calendar year β resident, taxed on worldwide income with full exemptions and deductions; fewer than 183 days β non-resident, Taiwan-source income taxed by withholding (salary at 6% or 18% depending on the monthly pay level).
- Mainland China: domiciled in China, or non-domiciled but present 183+ days in a tax year β tax resident, taxed on worldwide income (with the well-known six-year rule softening the worldwide scope for non-domiciled individuals). Fewer than 183 days β non-resident, taxed only on China-source income.
A Taiwanese executive shuttling between Taipei and Shanghai must count days on both sides. Dual residency is resolved by tie-breaker concepts (permanent home, center of vital interests), but absent an effective treaty, each side simply applies its own law β which is why the agreement's status matters so much.
The 2015 cross-strait tax agreement: signed, not yet in force
On August 25, 2015, the two sides signed the γζ΅·ε³½ε ©ε²ΈιΏε ιιθͺ²η¨ εε εΌ·η¨ εεδ½εθ°γ (Cross-Strait Agreement on Avoidance of Double Taxation and Tax Cooperation). Its headline terms:
| Income type | Treaty cap (once effective) | Without treaty (today) |
|---|---|---|
| Dividends β corporate holder with β₯25% direct stake | 5% | 10% (China side) |
| Dividends β all other cases | 10% | 10% (China side) |
| Interest | 7% | 10% (China side); 20% (Taiwan side, 15% for certain bonds) |
| Royalties | 7% | 10% (China side) |
The critical caveat: according to the Mainland Affairs Council, the agreement is still pending completion of the effectiveness procedures on Taiwan's side (it requires related amendments to pass the legislature). It takes effect only after both sides complete their procedures and notify each other, applying to payments made on or after January 1 of the following year. Until then, the "without treaty" column is what actually applies β meaning Taiwan investors in China currently get no treaty relief, and the 5%/7% preferential caps remain a future benefit, not a present one.
What Taiwan investors in China face today
Without an effective treaty, the practical picture for a Taiwan company with a mainland subsidiary:
- Dividends from China: 10% withholding at source in China. Taiwan then taxes the dividend under its 20% corporate rate, with a foreign tax credit for the 10% already paid in China β total burden roughly 20%, not 10%.
- Interest and royalties paid from China: 10% withholding in China, creditable in Taiwan.
- Capital gains on selling the China subsidiary: taxed in China under Chinese law; Taiwan taxes the gain with a foreign tax credit.
- Individuals: a Taiwan resident working in China is taxed in China on China-source employment income and must also report worldwide income in Taiwan, claiming the foreign tax credit β the familiar double-filing burden.
Taiwan's CFC rules: the offshore structure killer
Since the 2023 tax year (112εΉ΄εΊ¦), Taiwan's controlled foreign company regime β for both companies (Income Tax Act Β§43-3) and individuals (Income Basic Tax Act Β§12-1) β forces current taxation of retained offshore profits:
| Element | Rule |
|---|---|
| Who is caught | A Taiwan enterprise (or individual) plus related parties holding 50%+ of a foreign company in a low-tax jurisdiction, directly or indirectly, or exercising significant influence |
| Low-tax jurisdiction | Statutory rate β€14%, or territorial systems that exempt foreign-source income |
| What's taxed | The CFC's current-year earnings (minus legal reserves and approved prior losses), apportioned by direct shareholding ratio and holding period β taxed even if never distributed |
| Exemption 1 | The CFC has substantive business operations locally |
| Exemption 2 | The CFC's current-year profit is NT$7,000,000 or less (with anti-fragmentation rules aggregating multiple CFCs) |
| Relief | Dividends actually distributed later are not taxed again; foreign taxes credited; losses carried forward 10 years |
Classic Taiwan-business structures β a BVI or Cayman holding company sitting on undistributed mainland profits β are exactly what this targets. The NT$7 million micro-threshold helps genuinely small operations, but anyone parking serious retained earnings offshore needs a real substance story or faces annual deemed-distribution tax.
Trading goods across the Strait: the VAT angle
Beyond income tax, cross-strait traders deal with indirect tax asymmetry: Taiwan's 5% business tax (ηζ₯η¨ ) on domestic sales versus China's 13% VAT on goods. Export sales from Taiwan are generally zero-rated for business tax purposes, while imports into China face Chinese VAT and customs duties. Transfer pricing between related Taiwan and mainland entities is actively scrutinized on both sides β document related-party transactions as if both tax bureaus will read them, because they might.
Next steps
- Count your days on both sides β dual 183-day exposure is the most common surprise for shuttling executives.
- Do not price in the treaty benefits yet β model dividends, interest, and royalties at the non-treaty 10% rates until the 2015 agreement actually takes effect.
- Audit your offshore holdings against the CFC rules β map every BVI/Cayman/Samoa entity: control percentage, jurisdiction tax rate, substantive operations, and annual profit vs the NT$7 million threshold.
- Claim foreign tax credits properly β Taiwan's credit for China-paid tax is your main double-tax relief; keep every withholding certificate.
- Document transfer pricing β contemporaneous documentation is the cheapest insurance against adjustments on either side.