To amend the Internal Revenue Code of 1986 to provide special rules for the taxation of certain residents of Taiwan with income from sources within the United States. · Referred in Senate (2025-01-16)

Sec. 894A. Special rules for qualified residents of Taiwan.

(a) Certain income from United States sources

(1) Interest, dividends, and royalties, etc
- Interest, dividends, and royalties, etc
- (A) In general
  - In the case of interest (other than original issue discount), dividends, royalties, amounts described in section 871(a)(1)(C), and gains described in section 871(a)(1)(D) received by or paid to a qualified resident of Taiwan—
    - (i) sections 871(a), 881(a), 1441(a), 1441(c)(5), and 1442(a) shall each be applied by substituting for each place it appears, and the applicable percentage (as defined in section 894A(a)(1)(C)) 30 percent
    - (ii) sections 871(a), 881(a), and 1441(c)(1) shall each be applied by substituting for each place it appears. a United States permanent establishment of a qualified resident of Taiwan a trade or business within the United States
- (B) Exceptions
  - (i) Subparagraph (A) shall not apply to—
  - any dividend received from or paid by a real estate investment trust which is not a qualified REIT dividend,
  - any amount subject to section 897,
  - any amount received from or paid by an expatriated entity (as defined in section 7874(a)(2)) to a foreign related person (as defined in section 7874(d)(3)), and
  - any amount which is included in income under section 860C to the extent that such amount does not exceed an excess inclusion with respect to a REMIC.
  - (ii) For purposes of clause (i)(I), the term qualified REIT dividend means any dividend received from or paid by a real estate investment trust if such dividend is paid with respect to a class of shares that is publicly traded and the recipient of the dividend is a person who holds an interest in any class of shares of the real estate investment trust of not more than 5 percent.
- (C) Applicable percentage
  - For purposes of applying subparagraph (A)(i)—
    - (i) Except as provided in clause (ii), the term applicable percentage means 10 percent.
    - (ii) In the case of any dividend in respect of stock received by or paid to a qualified resident of Taiwan, the applicable percentage shall be 15 percent (10 percent in the case of a dividend which meets the requirements of subparagraph (D) and is received by or paid to an entity taxed as a corporation in Taiwan).
- (D) Requirements for lower dividend rate
  - (i) The requirements of this subparagraph are met with respect to any dividend in respect of stock in a corporation if, at all times during the 12-month period ending on the date such stock becomes ex-dividend with respect to such dividend—
  - the dividend is derived by a qualified resident of Taiwan, and
  - such qualified resident of Taiwan has held directly at least 10 percent (by vote and value) of the total outstanding shares of stock in such corporation.
  - For purposes of subclause (II), a person shall be treated as directly holding a share of stock during any period described in the preceding sentence if the share was held by a corporation from which such person later acquired that share and such corporation was, at the time the share was acquired, both a connected person to such person and a qualified resident of Taiwan.
  - (ii) Notwithstanding clause (i), the requirements of this subparagraph shall not be treated as met with respect to any dividend paid by a regulated investment company or a real estate investment trust.
(2) Qualified wages
- (A) In general
  - No tax shall be imposed under this chapter (and no amount shall be withheld under section 1441(a) or chapter 24) with respect to qualified wages paid to a qualified resident of Taiwan who—
    - (i) is not a resident of the United States (determined without regard to subsection (c)(3)(E)), or
    - (ii) is employed as a member of the regular component of a ship or aircraft operated in international traffic.
- (B) Qualified wages
  - (i) The term qualified wages means wages, salaries, or similar remunerations with respect to employment involving the performance of personal services within the United States which—
  - are paid by (or on behalf of) any employer other than a United States person, and
  - are not borne by a United States permanent establishment of any person other than a United States person.
  - (ii) Such term shall not include directors' fees, income derived as an entertainer or athlete, income derived as a student or trainee, pensions, amounts paid with respect to employment with the United States, any State (or political subdivision thereof), or any possession of the United States (or any political subdivision thereof), or other amounts specified in regulations or guidance under subsection (f)(1)(F).
(3) Income derived from entertainment or athletic activities
- (A) In general
  - No tax shall be imposed under this chapter (and no amount shall be withheld under section 1441(a) or chapter 24) with respect to income derived by an entertainer or athlete who is a qualified resident of Taiwan from personal activities as such performed in the United States if the aggregate amount of gross receipts from such activities for the taxable year do not exceed $30,000.
- (B) Exception
  - Subparagraph (A) shall not apply with respect to—
    - (i) income which is qualified wages (as defined in paragraph (2)(B), determined without regard to clause (ii) thereof), or
    - (ii) income which is effectively connected with a United States permanent establishment.

(b) Income connected with a United States permanent establishment of a qualified resident of Taiwan

(1) In general
- In general
- (A) In general
  - In lieu of applying sections 871(b) and 882, a qualified resident of Taiwan that carries on a trade or business within the United States through a United States permanent establishment shall be taxable as provided in section 1, 11, 55, or 59A, on its taxable income which is effectively connected with such permanent establishment.
- (B) Determination of taxable income
  - In determining taxable income for purposes of paragraph (1), gross income includes only gross income which is effectively connected with the permanent establishment.
(2) Treatment of dispositions of United States real property
- In the case of a qualified resident of Taiwan, section 897(a) shall be applied—
  - by substituting for , and carried on a trade or business within the United States through a United States permanent establishment were engaged in a trade or business within the United States
  - by substituting for . such United States permanent establishment such trade or business
(3) Treatment of branch profits taxes
- In the case of any corporation which is a qualified resident of Taiwan, section 884 shall be applied—
  - by substituting for in subsection (a) thereof, and 10 percent 30 percent
  - by substituting for in subsection (d)(1) thereof. a United States permanent establishment of a qualified resident of Taiwan the conduct of a trade or business within the United States
(4) Special rule with respect to income derived from certain entertainment or athletic activities
- (A) In general
  - Paragraph (1) shall not apply to the extent that the income is derived—
    - (i) in respect of entertainment or athletic activities performed in the United States, and
    - (ii) by a qualified resident of Taiwan who is not the entertainer or athlete performing such activities.
- (B) Exception
  - Subparagraph (A) shall not apply if the person described in subparagraph (A)(ii) is contractually authorized to designate the individual who is to perform such activities.
(5) Special rule with respect to certain amounts
- Paragraph (1) shall not apply to any income which is wages, salaries, or similar remuneration with respect to employment or with respect to any amount which is described in subsection (a)(2)(B)(ii).

For purposes of this section—
(1) In general
- The term qualified resident of Taiwan means any person who—
  - is liable to tax under the laws of Taiwan by reason of such person's domicile, residence, place of management, place of incorporation, or any similar criterion,
  - is not a United States person (determined without regard to paragraph (3)(E)), and
  - in the case of an entity taxed as a corporation in Taiwan, meets the requirements of paragraph (2).
(2) Limitation on benefits for corporate entities of Taiwan
- (A) In general
  - Subject to subparagraphs (E) and (F), an entity meets the requirements of this paragraph only if it—
    - (i) meets the ownership and income requirements of subparagraph (B),
    - (ii) meets the publicly traded requirements of subparagraph (C), or
    - (iii) meets the qualified subsidiary requirements of subparagraph (D).
- (B) Ownership and income requirements
  - The requirements of this subparagraph are met for an entity if—
    - (i) at least 50 percent (by vote and value) of the total outstanding shares of stock in such entity are owned directly or indirectly by qualified residents of Taiwan, and
    - (ii) less than 50 percent of such entity’s gross income (and in the case of an entity that is a member of a tested group, less than 50 percent of the tested group’s gross income) is paid or accrued, directly or indirectly, in the form of payments that are deductible for purposes of the income taxes imposed by Taiwan, to persons who are not—
    - qualified residents of Taiwan, or
    - United States persons who meet such requirements with respect to the United States as determined by the Secretary to be equivalent to the requirements of this subsection (determined without regard to paragraph (1)(B)) with respect to residents of Taiwan.
- (C) Publicly traded requirements
  - An entity meets the requirements of this subparagraph if—
    - (i) the principal class of its shares (and any disproportionate class of shares) of such entity are primarily and regularly traded on an established securities market in Taiwan, or
    - (ii) the primary place of management and control of the entity is in Taiwan and all classes of its outstanding shares described in clause (i) are regularly traded on an established securities market in Taiwan.
- (D) Qualified subsidiary requirements
  - An entity meets the requirement of this subparagraph if—
    - (i) at least 50 percent (by vote and value) of the total outstanding shares of the stock of such entity are owned directly or indirectly by 5 or fewer entities—
    - which meet the requirements of subparagraph (C), or

(d) Other definitions and special rules

For purposes of this section—
- The term includes, with respect to any entity taxed as a corporation in Taiwan, such entity and any other entity taxed as a corporation in Taiwan that— tested group
- Two persons shall be if one owns, directly or indirectly, at least 50 percent of the interests in the other (or, in the case of a corporation, at least 50 percent of the aggregate vote and value of the corporation’s shares) or another person owns, directly or indirectly, at least 50 percent of the interests (or, in the case of a corporation, at least 50 percent of the aggregate vote and value of the corporation’s shares) in each person. In any case, a person shall be connected to another if, based on all the relevant facts and circumstances, one has control of the other or both are under the control of the same person or persons. connected persons
- The term foreign country of concern has the meaning given such term under paragraph (7) of section 9901 of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (), as added by section 103(a)(4) of the CHIPS Act of 2022). 15 U.S.C. 4651(7)
- For purposes of this section—
- For purposes of this section, rules similar to the rules of section 894(c) shall apply.

(e) Application

(1) In general
- This section shall not apply to any period unless the Secretary has determined that Taiwan has provided benefits to United States persons for such period that are reciprocal to the benefits provided to qualified residents of Taiwan under this section.
(2) Provision of reciprocity
- The President or his designee is authorized to exchange letters, enter into an agreement, or take other necessary and appropriate steps relative to Taiwan for the reciprocal provision of the benefits described in this section.

(f) Regulations or other guidance

(1) In general
- The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section, including such regulations or guidance for—
  - determining—
    - (i) what constitutes a United States permanent establishment of a qualified resident of Taiwan, and
    - (ii) income that is effectively connected with such a permanent establishment,
  - preventing the abuse of the provisions of this section by persons who are not (or who should not be treated as) qualified residents of Taiwan,
  - requirements for record keeping and reporting,
  - rules to assist withholding agents or employers in determining whether a foreign person is a qualified resident of Taiwan for purposes of determining whether withholding or reporting is required for a payment (and, if withholding is required, whether it should be applied at a reduced rate),
  - the application of subsection (a)(1)(D)(i) to stock held by predecessor owners,
  - determining what amounts are to be treated as qualified wages for purposes of subsection (a)(2),
  - determining the amounts to which subsection (a)(3) applies,
  - defining established securities market for purposes of subsection (c),
  - the application of the rules of subsection (c)(4)(B),
  - the application of subsection (d)(6) and section 1446,
  - determining ownership interests held by residents of a foreign country of concern, and
  - determining the starting and ending dates for periods with respect to the application of this section under subsection (e), which may be separate dates for taxes withheld at the source and other taxes.
(2) Regulations to be consistent with model treaty
- Any regulations or other guidance issued under this section shall, to the extent practical, be consistent with the provisions of the United States model income tax convention dated February 7, 2016.

H.R. 33

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Sec. 894A. Special rules for qualified residents of Taiwan.