Simple Tax Guide for Americans in Taiwan
US Expat Taxes - Taiwan
At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Taiwan for over 8 years. We have been checked by the State Department and are listed on the list of approved Tax Preparers by the US Consulate in Taibei. Our clients hail from all parts of the country - New Taipei and Kaohsiung, Taichung and Taipei, Tainan and Hsinchu.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.
We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.
The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
We have many clients living in Taiwan and know how to integrate your U.S. taxes into the local income taxes you pay. Any Taiwanese income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in Taiwan for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.
Below we include information on the Taiwanese Tax System for the American Expatriates.
Taiwan Personal Income Tax Rates
Taiwan personal income tax rates are progressive to 40%.
|10,310,001 and over*||45%*|
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.
*On January 18, 2018, amendments to the Income Tax Act by the Legislative Yuan and is retroactively effective from January 1, 2018, the 45% tax rate for net consolidated income bracket of higher than NTD 10 million will be abolished. Therefore, a resident’s net taxable income is taxed at progressive rates from 5% to 40% and the maximum tax rate will be 40% on net taxable income earned over TWD 4,530,001 for 2018. In addition, surtax on undistributed earnings can be credited against dividend withholding tax for 2018; however, from January 1, 2019 onwards, surtax on undistributed earnings can no longer be credited against dividend withholding tax. Additionally, from January 1, 2018, withholding tax on dividend income for non-residents is increased from 20 % to 21 %.
Alternative Minimum Tax
Tax residents in Taiwan with AMT taxable income of more than NTD 6 million may be subject to a 20% AMT. The AMT payable will be the balance of AMT after deduction for income tax payable and any foreign income tax credits.
For 2019 the personal exemption allowed an individual, their spouse and each qualified dependent is TWD88,000. For a lineal ascendant who is at least 70 years old, the personal exemption is TWD132,000. 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 themselves, their 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 their 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 TWD200,000 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 their child/children are attending colleges/universities without subsidies or scholarships. However, attendance in an open university or open junior college, or the first 3 years of a 5-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, they are entitled to a standard deduction of TWD120,000 from their taxable income. This standard deduction is to be increased to TWD240,000 for a married taxpayer.
Each salary or wage earner may deduct up to TWD200,000 of their salary or wage income from their taxable income.
For 2019 the personal tax deductions increased as follows:
- Standard deduction will be increased by NTD 30,000, from NTD 90,000 to NTD 120,000. The amount will be doubled for taxpayers with spouse.
- Special deduction for income from salaries / wages and special deduction for disabled and handicapped will be increased by NTD 72,000, raised from NTD 128,000 to NTD 200,000, respectively.
- Special deduction for pre-school-aged children will be increased by NTD 95,000, raised from NTD 25,000 to NTD 120,000
Basis – Individual income tax is levied on the Taiwan-source income of both resident and nonresident individuals.
Residence – An individual is considered resident in Taiwan for tax purposes if he/she is a Taiwan national or a foreign national who resides in Taiwan for at least 183 days in a calendar year.
Tax Filing status – The income of the taxpayer, the taxpayer's spouse and dependents must be consolidated and reported on a single tax return. A resident taxpayer is allowed to claim personal exemptions and deductions on his/her tax return.
Taxable income – Taxable income includes salaries or wages (and any allowances, bonuses or similar compensation); professional fees; rental income from property in Taiwan; and dividends, interest and royalties derived from sources in Taiwan. Awards and prizes are also subject to taxation. Any income of the taxpayer's spouse or dependents living at home is included in assessing total liability. Under the imputation system, dividends received by individual shareholders are taxed only once, as part of personal income.
Taxation of Capital gains – Gains from the sale of land and a local company's securities are exempt.
Tax Deductions and allowances – The taxpayer may elect to take the standard deduction or to itemise deductions. If the total deductions on an itemised basis exceed the standard deduction amount, a taxpayer may choose to itemise deductions rather than take the standard deduction. Deductions are available for insurance premiums, mortgage interest, rental expenses up to a specified amount and charitable donations. A nonresident taxpayer is not entitled to personal exemptions and deductions.
Other taxes on individuals:
Capital duty – No, but a one-time registration fee is charged on registered capital at a rate of 1/4000 or NTD 1,000, whichever is higher.
Stamp duty – Stamp tax applies to various types of documents at the following rates: 0.4% of all cash receipts paid by the recipient with the exception of 0.1% for money deposited by bidders; NTD 12 per deed of sale of movables; 0.1% of the contract amount for job contracting agreements, and contracts for the sale, exchange, donation or division of real estate, paid separately by the contracting parties.
Real property tax – A land value tax is levied on both rural and urban land based on the valuation recorded in the local land register.
Inheritance/estate tax – Estate and gift tax is levied on the worldwide assets of Taiwanese domiciled individuals. If a Taiwanese national does not have a Taiwan domicile, but has a residence in Taiwan, worldwide assets are subject to Taiwan estate and gift tax, provided the total length of stay within 2 years before the gift transfer date or date of death exceeds 365 days.
Capital acquisitions tax – No
Net wealth/net worth tax – No
Taiwan Tax year – Taiwan tax year is the calendar year
Social security contributions – There is no social security tax in Taiwan. However, all companies with 50 or more workers must establish funds for employee welfare.
Tax Filing and payment of tax – A resident individual must file an income tax return and pay any tax due between 1 May and 31 May of the following year.
Penalties – There is no late filing penalty. However, a late payment penalty of 1% of the unpaid amount calculated every 2 days up to a maximum of 15% of the unpaid amount will apply and late payment interest will begin to accrue 30 days after the payment due date. For under-reported income, a maximum penalty of 2 times the under-paid tax amount applies, which may be increased to 3 times the unpaid tax amount if an income tax return is not filed.
Taiwan profit-seeking enterprise income tax (company tax)
With effect from 1 January 2018, the CIT rate in Taiwan is 20%.
However, for profit-seeking entities with less than TWD 500,000 in taxable income, the CIT rate is 18% in 2018, 19% in 2019, and 20% in 2020 if taxable income exceeds TWD 120,000.
Residence – A profit-seeking enterprise is resident in Taiwan if its head office is in Taiwan.
Basis – A profit-seeking enterprise that has its head office in Taiwan (such as a subsidiary that is wholly owned by a foreign company or a joint venture company) is subject to profit-seeking enterprise income tax on its worldwide income. A foreign tax credit is available for income tax paid in other countries on income derived outside Taiwan.
The credit may be used to offset the foreign tax paid against the enterprise's Taiwan income tax liability, but the credit may not exceed the incremental tax liability that would result if the foreign-source income was added to Taiwan taxable income and taxed at the applicable domestic rate. A profit-seeking enterprise with its head office outside Taiwan (such as a branch of a foreign company) is considered nonresident for tax purposes. Such an enterprise is subject to profitseeking enterprise income tax only on its Taiwan-source income but at the same rate as applies to domestic companies.
Taxable income – Taxable income of a profitseeking enterprise is net income, which is defined as gross annual income after deduction of costs and expenses, losses and taxes.
Taxation of dividends – Taiwan operates an imputation system to prevent the double taxation of dividends. Under the system, when a Taiwan company distributes its aftertax profits as dividends to individual resident shareholders, the distributing company also allocates the profit-seeking enterprise income tax paid on the dividends to the shareholders as an imputed tax credit. The individual shareholders can then use the imputed credit to offset their individual income tax liability.
Consequently, the profit-seeking enterprise income tax paid by a Taiwan company becomes an advance tax payment for its shareholders. For Taiwan corporate shareholders, the dividends received are not considered taxable income, but the tax credits are included in the balance of its shareholder-imputed credit account (ICA) and will be imputed to the shareholders for future dividend distributions. The imputed tax credit is not available to nonresident shareholders.
Taxation of Capital gains – Capital gains are treated as ordinary income and taxed at the standard profit-seeking enterprise rate. Currently, gains derived from the sale of land and a domestic company's securities are exempt.
Losses – Assessed tax losses of a business entity (including a corporation and branch of a foreign company) may be carried forward for 10 years, provided the entity keeps accounting books, files a "Blue Return" or an annual corporate tax return that has been examined and certified by a local CPA within the prescribed period in the year the losses were incurred and in the year the losses are utilised. The carryback of losses is not permitted.
Surtax – To neutralise a company's dividend distribution decision, a 10% surtax is imposed on undistributed profits. Nonresident shareholders (including corporations and individuals) may use the 10% surtax as an offset against dividend withholding tax.
Alternative minimum tax – A profit-seeking enterprise with a fixed place of business or business agent in Taiwan is subject to a separate AMT calculation if it earns certain income that is tax exempt or that enjoys certain tax incentives under the Income Tax Act or other laws and the enterprise's basic income exceeds NTD 2 million.
Foreign tax credit – Taiwan companies (including Taiwan subsidiaries of foreign companies) are subject to Taiwan income tax on their worldwide income. Taiwan uses the credit method to unilaterally avoid the double taxation of income. Foreign income tax paid on foreign income may be credited against the total Taiwan income tax liability up to the amount of Taiwan income tax derived from the foreign-source income.
Participation exemption – Taiwan companies are not taxed on dividends received from investments in other Taiwan companies.
Holding company regime – No
Tax Incentives – The Statute for Investment by Foreign Nationals provides for a number of tax and nontax incentives for eligible direct investors:
- - Right to hold up to 100% foreign ownership;
- - Convertibility and ability to remit all net profits and interest without being subject to the foreign exchange control rules;
- - Right to repatriate up to 100% of investment capital and profits at any time after incorporation or upon dissolution of the company;
- - Same access to incentives and privileges enjoyed by domestic investors; and
- - For enterprises with a foreign investment component of at least 45%, equity exemptions from employee share subscription requirements.
The Industrial Innovation Act provides an income tax credit for innovation-related R&D expenses incurred by Taiwan-based enterprises at their facilities located in Taiwan. The Act allows a company to take a credit against its tax payable up to 15% of its total R&D expenditure for the current year. The tax credit is capped at 30% of the taxpayer's corporate income tax payable for the current year and cannot be carried forward.
Dividends – No withholding tax is imposed on dividends paid to a resident shareholder. As from January 1, 2018, withholding tax on dividend income for non-residents is increased from 20 % to 21 %.
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 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.
Royalties – 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.
Other – Where an offshore company provides technical services to a Taiwan entity, payments to the company are subject to a 20% withholding tax. However, if the costs associated with the provision of the services are difficult to calculate, an application may be submitted to the National Tax Administration to use an approved profit rate.
The Income Tax Law allows the service provider to apply for a hypothetical taxable income of 15% of the total business turnover for services provided (10% for certain transport industries). The 15% profit rate amount will be taxed at the 20% corporate rate, resulting in an effective tax rate of 3% or 2%, respectively.
Branch remittance tax – No
Other taxes on corporations:
Capital duty – There is no capital duty, but a one-time registration fee is charged on registered capital at a rate of 1/4000 or NTD 1,000, whichever is higher.
Payroll tax – No
Real property tax – The Land Value Tax (LVT) is imposed on a taxpayer's total urban and rural land that has been assigned a land value in each municipality directly administered by the central government or county. LVT is levied at regular progressive rates (from 1% to 5.5%) or special rates.
Land that has been assigned a value is subject to the Land Value Increment Tax (LVIT) based on the total amount of land value increment at the time title to the land is transferred. LVIT is levied at regular progressive rates (from 20% to 40%) or special privileged rates. If land used as a residence is sold by the owner (and the owner complies with relevant regulations), a special privileged rate of 10% applies.
Social security contributions – There is no social security tax in Taiwan. However, all companies with 50 or more workers must establish funds for employee welfare. When an enterprise is founded, 1%-5% of its registered capital, or amounts equal to 0.05%-0.15% of monthly revenue or 20%-40% of the proceeds from the sale of certain materials at the time of each sale, must be set aside and added to the employee welfare fund.
Stamp duty – Stamp tax applies to various types of documents at the following rates: 0.4% of all cash receipts paid by the recipient with the exception of 0.1% for money deposited by bidders; NTD 12 per deed of sale of movables; 0.1% of the contract amount for job contracting agreements, and contracts for the sale, exchange, donation or division of real estate paid separately by the contracting parties.
Transfer tax – Deed tax is levied on the transfer of title to real estate through a sale, exchange, acceptance of a dien right, donation, subdivision or occupancy, except where the LVIT applies. The tax is based on the deed price of the property as prescribed by the local government.
Other – Companies are subject to a securities transaction tax and a futures transaction tax. Securities transaction tax is levied on all securities transactions on the stock exchange (with the exception of government bonds). The tax rate is 0.3% of the shares and share certifications and
0.0000125%-0.6% for futures transactions.
Transfer pricing – Taiwan has transfer pricing rules requiring that transactions between related parties be conducted on arm's length terms. The transfer pricing guidelines provide a specific definition of related parties, which includes direct and indirect control, as well as control over a board of directors. The following transfer pricing methods are accepted by the Taiwan tax authorities: comparable uncontrolled price, comparable profits, profit split or other methods provided by the Ministry of Finance. Taxpayers are required to maintain documentation of related party transactions that must be attached to the corporate income tax return. The tax authorities can adjust the income of taxpayers whose controlled transactions fall outside acceptable ranges and penalties may be imposed for failure to comply with the arm's length principle and the documentation requirements. Advance pricing agreements are possible.
Thin capitalisation – The Executive Yuan has drafted a bill that would introduce thin capitalisation rules, but the bill has not been passed by the Legislative Yuan. Nevertheless, a 1:3 debt-to-equity is recommended.
Controlled foreign companies – Although Taiwan currently does not have a CFC regime, CFC rules are under discussion.
Disclosure requirements – The transfer pricing rules require profit-seeking enterprise income taxpayers to disclose information on related parties and transactions in their tax returns. The responsible person and the chief financial person of the entity must sign off on the disclosure to ensure the completeness and accuracy of the information disclosed.
Taiwan Tax year – For profit-seeking enterprises, Taiwan tax year is the accounting fiscal year, but an enterprise must obtain approval to adopt a fiscal year other than the calendar year.
Consolidated tax returns – Consolidated tax returns may be filed by qualifying financial holding companies that hold at least 90% of the outstanding issued shares of domestic subsidiaries for 12 consecutive months during a tax year as defined by the Financial Holding Law. Under the Mergers and Acquisitions Law, after a qualified merger, acquisition or spin-off transaction, if a company owns 90% or more of the total issued shares of another company, the company can file a consolidated return.
Tax Filing requirements – A company must pay provisional income tax in an amount equal to 50% of the preceding year's tax liability between 1 and 30 September. However, if the company's income tax return is examined and certified by a CPA, or if a "blue return" is filed, the company can opt to pay the provisional tax at an amount calculated on the basis of its operating income for the first 6 months of the current tax year.
The final tax return must be filed before 31 May and must include the payment of any tax liability. Enterprises with a fiscal year other than the calendar year must file the return on or before the last day of the fifth month after the close of the fiscal year.
The enterprise must attach to the annual return a report detailing its imputed tax account for the preceding year, as well as a report of changes in its retained earnings.
Penalties – Penalties are imposed for a late filing and failure to file a return. A late filing penalty is calculated at 10% of the tax payable and capped at NTD 30,000, but may be increased to 20% of the tax payable, capped at NTD 90,000 if the taxpayer fails to file an income tax return after receiving a reminder notice from the tax office. A late payment penalty of 1% of the unpaid amount calculated every 2 days up to a maximum of 15% of the unpaid amount will apply, and late payment interest will begin to accrue 30 days after the payment due date. For underreported income, a maximum penalty of 2 times the underpaid tax amount applies and may be increased to 3 times the unpaid tax amount if an income tax return is not filed.
Rulings – A taxpayer can apply to the tax authorities for a ruling to confirm its tax position or clarify a tax issue. The 3 types of tax rulings that can be requested are private letter rulings, advance rulings and advance pricing agreements (APAs). The Ministry of Finance publishes a list of all tax rulings that can be referenced by other taxpayers.
Taiwan business tax (taiwan vat)
Taiwan has a Business Tax similar to VAT. The basic rate of the Business Tax in Taiwan is 5%.
The following items are zero rated: exports, export-related services, items sold by dutyfree shops, goods sold to export-oriented entities within a tax-free export zone or science-based industrial parks and goods sold to a bonded factory or warehouse.
Exempt status applies to healthcare services, land sales, and approved textbooks and academic writings. Financial institutions, certain restaurants and small companies are subject to special Business Tax on the basis of their gross business receipts at rates ranging from 0.1% to 25%. However, certain services of financial institutions are taxed at the 5% rate because the services are not the core business of the financial institution (core business services are taxed at 2%).
Taxable transactions – Business tax (BT) is imposed under 2 systems: the VAT system and the Non-VAT (special BT) system. Business Tax applies to the sale of goods, the provision of services and imports. The VAT applies much like a European-style VAT, with an input tax credit or a refund available where BT paid on purchases exceeds the Business Tax paid. Financial institutions, small companies and certain restaurants fall within the scope of the special Business Tax system. Their sales, based on gross business receipts, are subject to Business Tax. Business Tax paid under the special Business Tax system is not recoverable and, therefore, is an additional cost to the buyer.
Business Tax Registration – Under the Company Act, a business entity must register with the Ministry of Economic Affairs and other competent authorities before conducting business in Taiwan. The tax laws also require a business entity to register for each of its operations having a fixed business location in Taiwan. However, if a foreign company renders supervision, installation, testing and other technical cooperation services in Taiwan, it may apply to the tax office for an exemption from the tax registration requirement.
– A Business Tax return must be filed every 2 months and payment made at the time the return is filed. Severe penalties apply for evasion of Business Tax.