What Are Employee Commissions and How Are They Earned?

There are various models of commercial transactions in the market. In addition to manufacturers selling products directly, it’s common for distributors and agents to act as intermediaries, promoting products in local markets.

A distributor purchases products or services directly from the manufacturer, obtains ownership, and resells them to earn business profits. An agent, on the other hand, operates under an authorization model provided by the original brand and earns income primarily through commissions and related service fees.

Both distributors and agents usually face sales pressure, so companies often implement commission systems for their sales staff. A commission system, also known as an incentive system, rewards employees with bonuses based on their sales performance, stimulating motivation and encouraging efforts to expand sales.

Besides sales positions, commissions are also widely used in other industries such as securities trading, real estate transactions, and stock trading — in all these cases, intermediaries who facilitate deals receive commissions as compensation.

Definition of Commission Income

So, what exactly is commission income? As mentioned, commissions are labor compensation paid to intermediaries for their assistance and brokerage services in commercial transactions, typically calculated as a percentage of the transaction amount.

In companies where such activities occur, commission payments and income are common and must be reported as part of business income for tax purposes. The intermediary must provide valid proof of the transaction, hold independent status, and possess proper business qualifications.

Difference Between Commissions and Kickbacks

A kickback refers to an off-the-books rebate — usually paid in cash, goods, or other forms — returned to a person or organization involved in the transaction. This could be paid to either of the transacting parties or their agents. In contrast, commissions are formal compensation paid exclusively to intermediaries.

What Is the Tax Withholding Rate for Commissions?

Tax withholding means that the company, as the payer, withholds a certain percentage of the income as tax and pays it directly to the government. This system ensures accurate income reporting and tax revenue distribution while helping taxpayers manage their payments and securing the government’s tax income.

The withholding rate for commissions varies depending on the recipient’s residency and whether the business has a fixed place of business within the Republic of China (Taiwan).

Summary of Commission Withholding Rates:

• Individual residing in Taiwan: 10%
• Individual not residing in Taiwan: 20%
• Business without a fixed place of business in Taiwan: 10%
• Business with a fixed place of business in Taiwan: 20%

Receiving Commission Income: Personal vs. Company Accounts

What is the difference between receiving commissions under a personal name versus a company name? The main distinction lies in tax reporting.

In Taiwan, many small and medium-sized enterprises are family-run, and it's quite common for personal and business bank accounts to be mixed. If an employee receives commissions through their personal account, the payer must withhold 10% for income tax and issue a withholding certificate to the individual for personal income tax declaration.

If the commission is paid to a corporate account, the recipient must issue an invoice, report the income as part of corporate earnings, and pay taxes according to the business income tax rate.

Because of this difference, some companies or employees may try to evade taxes or falsely report income for illegal gains. Therefore, whether handling internal operations or dealing with other companies, businesses must remain vigilant to avoid violating tax laws, which could lead to penalties and back taxes — a risk that is never worth taking.