Taiwan and the US enjoy a particularly strong economic relationship: Taipei was Washington’s fifth-largest trading partner in 2025, while the US recently became Taiwan’s top trade partner.
Supported by arms sales, semiconductor, and AI cooperation, Taipei and Washington’s economies are growing intertwined. However, amid these increasingly interconnected economies lies a critical gap that requires a prompt response –– the lack of a bilateral tax agreement.
Taiwan already has double-taxation agreements with 34 other countries, making the absence of one with the US an anomaly. This structural issue undermines both Taiwanese firms that invest in the US and American companies present in Taiwan.
The lack of a tax agreement creates an environment in which Taiwanese officials have estimated that their firms face an effective tax rate of up to 51% on their US profits, while American investors are subjected to a 21% withholding tax on their Taiwan-source dividends.
The US-Taiwan Expedited Double-Tax Relief Act seeks to address this issue by amending the US Internal Revenue Code of 1986 to offer similar tax relief benefits to those found in standard US tax treaties to Taiwanese residents and businesses.
Beyond the economic aspect of the issue, a tax treaty would set new standards in the Taipei-Washington relationship that could support Taiwan's national security and international integration.
By sending a strong signal of commitment to Taiwan, Washington could at the same time bolster Taiwanese investments on its soil, foster other countries to pursue the same path with Taiwan, and ultimately increase deterrence in East Asia.
Increasingly salient issue
Double taxation is an issue that has been stalled for a long time and that only recently became particularly salient within the Taiwan-US relationship.
According to Christopher Cottorone, President at TriOrientInvestments, Co-Chair of the Private Equity Committee at the American Chamber of Commerce in Taiwan and Vice-President and co-founder of the Italian Chamber of Commerce in Taipei, what has made the double-taxation bill considerably more critical is the convergence of several factors that have unfolded since 2022.
First, the global chip shortage of that period began to hit the US in a way that made boosting bilateral investment between the US and Taiwan an urgent priority, a realization that Cottorone credits with finally bringing about the signing of the US-Taiwan Initiative on 21st-Century Trade.
Second, Taiwan's security, and in particular its reliance on arms purchased from the US, has in his view become not only a security factor but an economic one as well, binding Taiwan's defense posture ever more tightly to its commercial relationship with Washington.
At the same time, US-Taiwan trade has flourished in recent years as firms relocate away from China, as Taiwan expands its role at the head of global supply chains, and as its increasingly affluent society becomes an attractive market.
A double-taxation agreement, Cottorone told me, may not have been a priority in earlier years, but has now become one. A tax agreement could normalize Taiwan's global standing
These same dynamics are also what make the passage of the bill significant for Taiwan in two major ways, besides economic benefits. By formally elevating Taiwan to a status similar to that of the US's other major trading partners, a tax agreement could function as a further normalization of Taiwan’s international integration.
Same path
An agreement would send a strong signal that could hopefully lead other countries to follow the same path, further embedding Taiwan as a central partner for the international industry. The fewer countries that shy away from engaging with Taiwan, the more it will be able to secure its place as an indispensable partner in global trade and technology.
This could lead to formal membership in major international initiatives, such as the Pax Silica, for which Taiwan is currently a non-signatory member. Washington itself treating Taiwan as a normal trading partner on matters as fundamental as taxation is key to fostering an environment in which Taiwan can deepen cooperation with other actors.
This would also produce a security effect, as a more integrated Taiwan means that an invasion would have an even bigger impact on the global economy, which, according to Bloomberg Economics, is estimated at US$10 trillion.
According to Cottorone, given the scarcity of formal security guarantees available to Taiwan, its strategic interest lies in deepening exactly those relations and agreements that produce long-term mutual benefit. A double-taxation agreement would serve this purpose by further interweaving the two economies, thereby normalizing the relationship and generating security as a function of that economic entanglement.
Structural anomalies for both
A double-taxation agreement is therefore more than necessary.
The current fiscal situation between Washington and Taipei is an anomaly, both in economic and security terms. But what needs to be understood is that this applies to both the US and Taiwan.
Taipei needs Washington’s support for its own military build-up – this is beyond doubt. But Washington also depends on Taipei for its own economy and security.
Economically, the situation is quite clear: not having a tax agreement with your fifth-largest trading partner is a weakness.
Given that Taiwan has already signed more than 30 of these agreements with other nations without Beijing retaliating, Washington's continued caution on this issue does not match the precedent. This history makes it hard for China to retaliate should the US and Taiwan sign one too.
Security-wise, the US and China are in competition over AI innovation, in which the US will need Taiwan’s technological hedge to support its semiconductor and AI industries. Unnecessary fiscal barriers impose a tax penalty on the Taiwanese firms making capital commitments to US chips and high-tech systems.
The same tax penalty weighs on other critical sectors, such as a “non-red” supply chain for drones –– where the cooperation between Taiwan and the US is growing.
The incentives for finally passing the bill exist for both Taipei and Washington. As bipartisan support for Taiwan remains strong, this could hopefully translate into the Senate. The road ahead is still long, but a bill this long overdue may finally have the momentum it needs to pass.
