Why should cryptocurrency investors pay attention to the Taiwan-US Double Taxation Avoidance Act passed by the US House of Representatives?

The U.S. House of Representatives voted to pass the "U.S.-Taiwan Rapid Double Tax Relief Act" on the 15th. The purpose of this bill is to improve the situation of double taxation of Taiwan and U.S. companies and individuals in Taiwan and the United States in a reciprocal manner. It will be sent to the Senate for a second vote and will officially take effect after being signed by the President of the United States.
(Preliminary briefing: Taiwan’s cryptocurrency taxation has caused public complaints that “declarations have to be made even if the funds are not withdrawn”. The Ministry of Finance and the Financial Supervisory Commission are each playing their own roles?)
(Background supplement: Taiwan’s cryptocurrency “taxation regulations” have been released, and the Internal Revenue Service has investigated tax evasion of 130 million in currency sales in 2024)

United States-Taiwan Expedited Double-Tax Relief Act (United States-Taiwan Expedited Double-Tax Relief) Act) failed in the last session of the U.S. Congress, but made a comeback in the new Congress on the 16th. It was successfully passed in the House of Representatives with 423 votes in favor and 1 vote against. The bill will be sent to the Senate for a second vote and will take effect after being signed by the President of the United States.

According to public television reports, according to the content of the bill, the United States will add provisions to the Internal Revenue Code that apply to Taiwan residents in the future, allowing Taiwanese in the United States to reduce the 30% withholding tax rate for foreign residents on income derived from U.S. sources such as dividends and interest.

In addition, for Taiwanese companies that set up factories in the United States, if their employees stationed there have already borne Taiwanese taxes, their remuneration from providing labor services in the United States can be exempted from tax.

The bill also incorporates the concept of "permanent establishment" to allow Taiwanese companies to have clearer principles for determining whether business activities in the United States are taxable. In the past, Taiwanese companies were required to declare business tax as long as they had transactions in the United States. After the passage of this bill, Taiwanese companies will only have to pay tax on income related to "permanent establishments." If the income is only used to maintain inventory, display warehouses, etc., they will not need to pay tax.

Avoiding double taxation is necessary

Taiwan has actively negotiated with the United States in recent years to avoid double taxation, hoping to provide more niches for Taiwanese and American companies.

Taiwan’s Ministry of Finance officials pointed out that Taiwan and the United States have close economic, trade and investment exchanges. The signing of the Taiwan-U.S. Double Taxation Avoidance Agreement will eliminate tax risks in bilateral investment and economic and trade activities. It is expected to bring mutually beneficial substantive benefits to the Taiwan-U.S. two-way investment relationship. Not only will Taiwanese companies in the United States receive the same tax treatment as companies from other U.S. agreement partner countries, but it will also attract U.S. companies to invest more extensively in Taiwan to strengthen the resilience of supply chains in key industries in Taiwan and the United States.

Representative Judy Chu mentioned the impact of double taxation on individuals in the United States and Taiwan, saying that in the absence of a relevant agreement, U.S. workers sent to Taiwan to train for domestic chip factories may need to pay taxes twice on the income they earn during business trips.

The United States has solved the problem of double taxation through bilateral income tax treaties with more than 60 countries. However, due to Taiwan’s special political status, it is not feasible to negotiate traditional tax treaties. In the end, among the top ten trading partners of the United States, Taiwan is the only one that has not signed a double taxation agreement.

Zhao Meixin revealed that Taiwanese business people had reported to her that they faced huge tax bills after operating business in the two markets of the United States and Taiwan, so they had to reduce cross-border investments. The American Institute in Taiwan (AIT) once conducted a survey of Taiwanese companies in the United States, and 79% of the respondents said that double taxation was the main reason that hindered their investment in the United States. This all explains the necessity of signing relevant agreements with Taiwan.

The Impact of Cryptocurrency

Regarding the impact of cryptocurrency, we can continue to observe the development of regulations. If cryptocurrency transactions and related income are also included in the scope of double tax relief in the future, this may increase Taiwanese users’ interest in using the services of U.S. cryptocurrency exchanges, thereby promoting cross-border capital flows.

If the cryptocurrency taxation policy is officially launched in the future, investors can observe the pros and cons of tax rates in Taiwan and the United States under different circumstances, and flexibly choose which region to convert cryptocurrencies into legal tender for withdrawal, in order to achieve effective tax savings and provide more space for tax planning and asset allocation.