S 199119th CongressIn Committee

A bill 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.

Introduced: Jan 23, 2025

Sponsor: Sen. Crapo, Mike [R-ID] (R-Idaho)

Standard Summary

Comprehensive overview in 1-2 paragraphs

This bill, called the United States-Taiwan Expedited Double-Tax Relief Act, would create a new, preferential tax regime for certain residents of Taiwan who earn income from sources in the United States. It adds a new section (Sec. 894A) to the Internal Revenue Code to establish rules that reduce or modify U.S. tax and withholding on specific types of U.S.-source income for “qualified residents of Taiwan,” and it sets up a framework for negotiating a formal U.S.–Taiwan tax agreement (Title II). The approach hinges on reciprocity: the new regime only applies if Taiwan provides reciprocal benefits to U.S. persons. The bill also establishes a process for Congress to be involved in negotiations, oversight, and implementation, including required notices, briefings, and implementing legislation. In short, the bill would temporarily grant Taiwan residents favorable U.S. tax treatment for many kinds of U.S.-sourced income, contingent on Taiwan offering similar benefits to U.S. taxpayers, and it would pave the way for a formal tax treaty with Taiwan.

Key Points

1Special rules for qualified residents of Taiwan (Sec. 894A).
2- Income from U.S. sources such as interest, dividends, royalties, and certain gains would be taxed with a reduced “applicable percentage” instead of the usual 30% withholding, typically 10% (with a 15% rate for certain dividends). For some dividend situations, the rate can be 10% or 15% depending on the circumstances.
3- Dividends may receive a lower rate if the Taiwan shareholder meets ownership thresholds and other conditions; certain dividend types (e.g., from REITs, expatriated entities, REMIC-related income, etc.) are carved out from the favorable rate.
4- Qualification rules for residents of Taiwan include a detailed test for corporate ownership, public trading, and “qualified subsidiary” structures. The rules also include provisions for entities that are dual residents or have complex ownership links.
5- Special treatment clarifications for income from an active trade or business in Taiwan that emanates from U.S. sources, with special rules when income is earned through a U.S. permanent establishment.
6Qualified wages and entertainment/athletic income (Sec. 894A(2) and (3)).
7- Qualified wages paid to a Taiwan resident are generally not taxed in the United States and are not subject to withholding if the worker is not a U.S. resident or is in international-traffic employment.
8- Qualified wages are defined as compensation for personal services performed in the United States, paid by a non-U.S. employer and not borne by a U.S. permanent establishment; several typical exclusions apply (e.g., directors’ fees, entertainers/athletes, students, pensions, etc.).
9- Entertainer or athlete income up to $30,000 in gross receipts may be exempt from U.S. tax if it’s from activities in the United States and the recipient is a qualified Taiwan resident, subject to specific exceptions.
10Income connected with a U.S. permanent establishment (Sec. 894A(b)).
11- If a qualified Taiwan resident operates a trade or business in the U.S. through a U.S. permanent establishment, taxation for that income would follow standard U.S. rules for that income (as if taxed under general U.S. rules for permanent establishments) rather than the normal nonresident rules.
12- Other related provisions cover U.S. real property dispositions, branch profits tax, and special rules for entertainment/athletic income linked to a U.S. permanent establishment.
13Definitions and structural rules (Sec. 894A(c) and (d)).
14- Key terms include “qualified resident of Taiwan,” “United States permanent establishment,” “temporarily or permanently established presence,” “dual resident,” “connected person,” and “foreign country of concern.”
15- The bill includes an explicit reciprocity requirement: the new rules apply only if Taiwan provides reciprocal benefits to U.S. persons.
16- The bill contemplates anti-avoidance, reporting, and record-keeping rules to prevent abuse and to guide withholding agents.
17Withholding and administration (Sec. 1447 and related).
18- Adds a new withholding provision to direct the IRS to provide reduced withholding rates for qualified Taiwan residents (Sec. 1447 references the new Sec. 894A for rates and rules).
19Title II: U.S.–Taiwan tax agreement authorization process.
20- Authorizes the President to negotiate a formal tax agreement with Taiwan after the Sec. 894A reciprocity condition is met.
21- Agreement elements should align with the U.S. model treaty (2016) and may restate existing bilateral provisions addressing double taxation.
22- Requires a formal process with congressional consultations, clarifies entry into force conditions (including approval legislation and Taiwan’s implementation steps), and mandates public disclosure of the contemplated agreement before it enters into force.
23- Sec. 204 outlines notification and ongoing briefings to Congress, and Sec. 205–206 establish approval, implementation, and reporting requirements for the agreement and its policies.

Impact Areas

Primary group/area affected- Qualified residents of Taiwan with U.S.-source income, including interest, dividends, royalties, and certain wages, and those earning income through a U.S. permanent establishment. It also affects entities in Taiwan that are twin-resident or have cross-border ownership structures.Secondary group/area affected- U.S. withholding agents, employers, and financial institutions that handle payments to foreign residents, as well as U.S. taxpayers who might be affected by potential changes in treaty-like arrangements with Taiwan.Additional impacts- Potential revenue and compliance implications for the U.S. Treasury, as withholding rates would change for certain Taiwan-resident beneficiaries; impact on cross-border investment planning and corporate structuring with Taiwan connections; increased congressional oversight and a formal treaty negotiation framework could shape future U.S.–Taiwan tax relations.- If reciprocity is not forthcoming from Taiwan, the benefits of Sec. 894A would not apply, limiting the bill’s practical effect.The bill is introduced and would require approval legislation and implementing legislation to take effect.It sets up a process to negotiate a formal U.S.–Taiwan tax agreement and to secure congressional and Taiwan approvals before it can enter into force.The text provided ends mid-section in Title II, but the core concept is to create an expedited, reciprocal framework for reducing U.S. tax burdens on qualified Taiwanese residents while enabling a formal treaty-based relationship.

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