Taiwan - Income Tax

Taiwan - Income Tax

Taxation of international executives

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?  

31 May.

What is the tax year-end?

31 December.

What are the compliance requirements for tax returns in Taiwan?

Tax returns must be filed by 31 May and no extension is granted. Interest is charged on any underpaid tax after 31 May. No estimated tax is required.

There are severe penalties for omission and failure to file a return.

Penalty provisions

Situation Penalty
Failure to pay tax due by 31 May Interest is charged on any tax due after 31 May.
Tax return not submitted at all The penalty up to three times of the tax due may be imposed.
Failure to report income The penalty up to two times of the tax due may be imposed.
Failure to pay income tax due Generally, this situation does not arise since the tax office will only accept a fully paid tax return.
Incorrect or fraudulent return The earlier mentioned penalty may be imposed depending on the actual circumstances.

Statute of limitations

For taxpayers who have filed in accordance with the income tax law, the statute of limitations is five years. For taxpayers who fail to file in accordance with the income tax law, the statute of limitations is seven years.

Residents

The tax compliance rules are same for residents and non-residents.

Non-residents

The tax compliance rules are same for residents and non-residents.

Tax rates

What are the current income tax rates for residents and non-residents in Taiwan? 

Residents

Income tax table for 2016

Taxable income bracket

Total tax on income below bracket Tax rate on income in bracket
From TWD To TWD TWD Percent
0 520,000 0 5
520,001 1,170,000 26,000 12
1,170,001 2,350,000 104,000 20
2,350,001 4,400,000 340,000 30
4,400,001 10,000,000 955,000 40
10,000,001 No limit 3,195,000 45

Non-residents

For non-resident aliens, the tax rate is 18 percent on gross salary income starts from 2010, and tax rate is 20 percent on other income.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Taiwan? 

For tax purposes, an individual is considered a resident of Taiwan if he/she meets either of the following criteria:

  • he/she is domiciled in Taiwan and resides there at all times
  • he/she is not domiciled in Taiwan but has stayed in Taiwan for 183 days or more during a tax year.

The individual is considered a non-resident if he/she does not satisfy either of the previous mentioned criteria.

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate. 

No, the resident test will be determined by the total number of days the foreigner stays in Taiwan in a calendar year.

What if the assignee enters the country before their assignment begins?

The days will be counted as if he/she worked in Taiwan even before his/her assignment begins.

Termination of residence

Are there any tax compliance requirements when leaving Taiwan? 

Individual residents should file their returns for the current year before leaving Taiwan permanently.

What if the assignee comes back for a trip after residency has terminated? 

The days will be counted as if he/she worked in Taiwan even after residency has terminated.

Communication between immigration and taxation authorities

Do the immigration authorities in Taiwan provide information to the local taxation authorities regarding when a person enters or leaves Taiwan?  

The local taxation authority can directly link to the immigration authority to review such information.

Filing requirements

Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

It is possible, if he/she has the Taiwan-sourced income to report. For example, if the assignee exercises the stock option after he/she departs from Taiwan, but he/she worked in Taiwan from the grant date to the vesting date, he/she will have Taiwan-sourced income in the year of exercise.

Economic employer approach1

Do the taxation authorities in Taiwan adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Taiwan considering the adoption of this interpretation of economic employer in the future?

Information is not available.

De minimus number of days2

Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?

Information is not available.

Types of taxable compensation

What categories are subject to income tax in general situations? 

In general, all remuneration and benefits received by an employee for services rendered in Taiwan are considered taxable income, regardless of where such payments are made. This applies only to those who have remained in Taiwan for longer than 90 days in a tax year. Types of compensation included as taxable income are as follows:

  • base salary and bonus
  • cost-of-living allowance
  • if employees are reimbursed for car expenses incurred on company business, this is not considered taxable income unless compensation exceeds equivalent taxi or ticket prices of trains and buses
  • home leave for expatriates is deemed not taxable if supported by appropriate invoices and contracted for in the employment agreement
    • However, home leave expenses for other family members paid by the employer are taxable.
  • expatriation premium
  • education for dependent children
  • the employee’s portion of pension contributions made by the employer on behalf of the employee is taxable
  • relocation allowance
  • group life insurance payments exceeding TWD2,000 per month made by the employer on behalf of the employee are considered taxable income
    • However, the employer’s portion of contribution to Labor Insurance and National Health Insurance is not taxable.
  • taxes paid on behalf of an employee by the employer are considered taxable income.

Tax-exempt income

Are there any areas of income that are exempt from taxation in Taiwan? If so, please provide a general definition of these areas. 

The following items are exempt from individual income tax.

  • Salary paid by a foreign government to foreign technicians and professors for services rendered in Taiwan under an agreement between the governments.
  • A meal allowance of up to TWD2,400 per month is exempt from individual income tax.
  • Overtime pay of up to 46 hours per month is exempt from tax and in excess of this level is considered taxable income.
  • A daily allowance for food, lodging, and living expenses received by alien technicians or professionals hired by a Taiwanese government agency or a private enterprise to provide service in Taiwan and stay for not more than 90 days shall be exempt from tax up to TWD2,000 per day upon the approval of the Ministry of Economic Affairs.
  • Removal expenses paid for by the employer for the shipping of an employee’s household goods for the period of assignment are tax-exempt.
  • If the employer provides housing for the employee, rather than pay a cash allowance or reimbursement, the value of the benefit may be wholly excluded from taxation.

Expatriate concessions

Are there any concessions made for expatriates in Taiwan? 

According to Article 14 of the Statute for Upgrading Industries, an overseas profit-seeking enterprise that has been approved to be an investor in Taiwan may choose to send its directors, managerial officers, and/or technicians to Taiwan for activities such as investment, plant construction, or market investigation. If these individuals reside in Taiwan for fewer than 183 days in total in one taxable year, their salaries paid outside Taiwan by the enterprise for their Taiwan assignment shall not be considered Taiwan income and would therefore be exempt from Taiwan tax.

Salary earned from working abroad

Is salary earned from working abroad taxed in Taiwan? If so, how? 

For the foreigner, if his/her income is paid and borne by the offshore company and he/she stays in Taiwan for less than 300 days in a tax year, the income earned from working abroad is not taxed in Taiwan. However, if his/her income is paid or borne by the Taiwan Company, such income is taxed in Taiwan though it is earned from working abroad.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in Taiwan? If so, how? 

For each year, the first TWD270,000 of interest earned from financial institutions (sourced in Taiwan) is excluded from a resident individual’s taxable income and in excess of TWD270,000 is considered taxable income. In addition, interest on short-term bills (subject to 10 percent withholding for residents and 15 percent for non residents) and tax-free postal passbook savings accounts are not included in while calculating the above tax exempted interest TWD270,000.

Normally, cash and stock dividends distributed from the local company are taxable.

Dividends paid to the non-resident are generally subject to a withholding tax of 20 percent.

Rental and royalty income is taxed net of certain necessary expenses. A standard percentage is allowed as a deduction from rental income if preferred. The current deduction is 43 percent of the gross rental income.

Income tax levied on gains realized through the sale of residential dwellings can be allowed as a refundable credit against income tax payable under the following conditions.

  • If the taxpayer purchased and registered another residential dwelling with a purchase price in excess of the previous sale price in the same year or within two years from the date of sale, the credit or refund is allowed in the year of the purchase of the new residence.
  • If the gains have already been offset by losses incurred from the sale of other properties, then no credit or refund can be claimed.
  • If the taxpayer purchases another residence for his/her use prior to selling his/her original residential dwelling, this credit or refund is allowed.

Dividends, interest, and rental income

Interest

For each year, the first TWD270,000 of interest earned from financial institutions (sourced in Taiwan) is excluded from a resident individual’s taxable income and in excess of TWD270,000 is considered taxable income. In addition, interest on short-term bills (subject to 10 percent withholding for resident and 15 percent for non resident) and tax-free postal passbook savings accounts is not included in while calculating the above tax exempted interest TWD270,000.

Dividend

Normally, cash and stock dividends distributed from the local company are taxable.

Dividends paid to the non-resident are generally subject to a withholding tax of 20 percent.

Rental income

Rental and royalty income is taxed net of certain necessary expenses. A standard percentage is allowed as a deduction from rental income if preferred. The current deduction is 43 percent of the gross rental income.

Gains from stock option exercises

Residency status

Taxable at:

  Grant Vest Exercise
Resident N N Y
Non-resident N N Y

Foreign exchange gains and losses

Foreign Exchange Gains and Losses derived within Taiwan are normally taxable.

Principal residence gains and losses

Income tax levied on gains realized through the sale of residential dwellings can be allowed as a refundable credit against income tax payable under the following conditions.

  • If the taxpayer purchased and registered another residential dwelling with a purchase price in excess of the previous sale price in the same year or within two years from the date of sale, the credit or refund is allowed in the year of the purchase of the new residence.
  • If the gains have already been offset by losses incurred from the sale of other properties, then no credit or refund can be claimed.
  • If the taxpayer purchases another residence for his/her use prior to selling his/her original residential dwelling, this credit or refund is allowed.

Capital losses

Basically, the capital loss can offset the capital gain of the same capital type. The remaining capital loss, if any, cannot offset the other capital gain or income.

Personal use items

Generally, the gain from selling personal clothes, furniture is not taxable.

Gifts

The property gifted by the individual is not subject to income tax, but not including the property gifted by the company.

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Taiwan? If so, please discuss? 

There is a capital gains tax in Taiwan effective on January 1, 2013. However, the gain from selling the share certificates, which are not listed in the Taiwan stock exchange or trades in the Taiwan over-the-counter market, may be subject to the alternative minimum tax starting from the 2006 tax year.

Are there capital gains tax exceptions in Taiwan? If so, please discuss?

Pre-CGT assets

There is no capital gains tax on selling stocks in Taiwan effective on January 1, 2016.

Deemed disposal and acquisition

No particular issues. The general tax principle applies.

General deductions from income

What are the general deductions from income allowed in Taiwan? 

For 2016 the personal exemption allowed an individual, his/her spouse and each qualified dependent is TWD85,000. For a lineal ascendant who is at least 70 years old, the personal exemption is TWD127,500. There is a range of specific deductions as follows.

  • Charitable contributions to educational, cultural, charitable, or public welfare organizations are allowable to the extent of 20 percent of the individual’s gross income before this deduction. Donations made to national defense or the government is not subject to this 20 percent restriction.
  • Insurance premiums paid for life or labor insurance by the taxpayer on behalf of himself/herself, his/her spouse, or lineal relatives may be deducted to the extent of TWD24,000 per person.
  • Insurance premium paid for National Health Insurance Program.
  • Medical and childbirth expenses incurred by the individual or his/her spouse and paid to a public hospital, an approved private hospital, or clinic shall be deductible insofar as they are not compensated by insurance.
  • Losses caused by natural disasters are deductible when not otherwise covered by insurance or other benefits. To claim the deduction, the taxpayer must apply to the relevant authority for an investigation and appraisal of losses within 15 days after the disaster’s occurrence.
  • Mortgage interest incurred and paid by the individual to a financial institution for a loan to purchase a self-use residential dwelling shall be deductible up to TWD300,000 per income tax return. The interest deductible is reduced by the amount of the exemptions for interest income.
  • A TWD128,000 disability deduction is allowed for each taxpayer, spouse, and dependent who is a mental patient or a disabled person.
  • A taxpayer may claim a maximum college deduction of TWD25,000 per each dependent child if his/her child/children are attending colleges/universities without subsidies or scholarships. However, attendance in an open university or open junior college, or the first three years of a five-year junior college, would not qualify for the deduction.
  • Rental payment incurred and paid by the individual within a tax year is deductible up to TWD120,000 per income tax return. The rental residence must be solely for personal residing purposes, not business related.

If the taxpayer chooses not to take itemized deductions substantiated by documents, he/she is entitled to a standard deduction of TWD90,000 from his/her taxable income. This standard deduction is to be increased to TWD180,000 for a married taxpayer.

Each salary or wage earner may deduct up to TWD128,000 of his/her salary or wage income from his/her taxable income.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Taiwan? 

The actual tax reimbursement method is generally used.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Taiwan? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on. 

For a taxpayer receiving salaried income, the employer must withhold tax payable at the time of payment (by the Taiwan entity) as per the prescribed tax rates and withholding procedures, and report and pay the tax withheld in accordance with the provisions of the income tax law.

Pay-as-you-go (PAYG) withholding

The Taiwan employer must withhold tax payable at the time of payment.

PAYG installments

No installments arrangement.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in Taiwan? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on? 

Under the regular tax, there is no relief for foreign taxes allowed for foreign expatriates. However, if the resident pays alternative minimum tax due to the inclusion of his/her offshore income, he/she may claim the foreign tax credit given that the supporting documents are submitted.

General tax credits

What are the general tax credits that may be claimed in Taiwan? Please list below. 

The general tax credits include investment tax credit and home re-purchase tax credit.

Sample tax calculation3

This calculation assumes a married taxpayer resident in Taiwan with two children whose three-year assignment begins 1 January 2014 and ends 31 December 2016. The taxpayer’s base salary is USD100,000 and the calculation covers three years.

  2014
USD
2015
USD
2016
USD
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1.00 = TWD33.33.

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • Interest income is not remitted to Taiwan.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.

Calculation of taxable income

Year-ended 2014
TWD
2015
TWD
2016
TWD
Days in Taiwan during year 365 365 366
Earned income subject to income tax      
Salary 3,333,000
3,333,000
3,333,000
Bonus 666,600
666,600
666,600
Cost-of-living allowance 333,300
333,300
333,300
Net housing allowance 399,960
399,960
399,960
Company car 0 0 0
Moving expense reimbursement 0 0 0
Home leave 0 124,987
0
Education allowance 99,990
99,990
99,990
Total earned income 4,832,850
4,957,837
4,832,850
Other income 0 0 0
Total income 4,832,850
4,957,837
4,832,850
Deductions 606,000
648,000 648,000
Total taxable income 4,226,850
4,309,837
4,184,850

Calculation of tax liability

  2014
TWD
2015
TWD
2016
TWD
Taxable income as above 4,226,850
4,309,837
4,184,850
Taiwanese tax thereon 903,055
927,951
890,455
Less:      
Domestic tax rebates (dependent spouse rebate) 0 0 0
Foreign tax credits 0 0 0
Total Taiwanese tax 903,055
927,951
890,455

 

927,951

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1Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.

2For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.

3Sample calculation generated by KPMG, the Taiwan member firm of KPMG International, based on the Taiwan Income Tax Law (as revised on 31 December 2015).

© 2016 KPMG, the Taiwan member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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