Introduction to Individual Income Tax in Taiwan
Individual Income Tax (IIT) in Taiwan, it is levied on incomes generated by individuals that income sourced from Taiwan. Tax residence and non-tax residence had been introduced to difference tax rates, Tax Residence calculate their tax payable for the year in accordance to progressive tax rate, however non-tax residence will be tax at a different rate accordance to the Income Tax Act.
IIT is residence-based income tax levy, which is, when a person had been determined as taxable person in Taiwan, the worldwide income which they had been obtained in the year is subjected to be taxable. The above situation will be varied due to the situation involved in each tax residence: –
(1) Taiwan citizens which had earning (e.g employment incomes) from the Peoples Republic of China (China) would obtain tax rebate if the taxpayer had pay his tax in China.
(2) Any foreign income sourced by the tax residence in Taiwan shall be calculated in accordance to Income Basic Tax.
A person who is a tax residence in Taiwan under Income Tax Act are determined by :-
(1) A person who domicile in Taiwan.
(2) A person who have residence in Taiwan for at least 183 days.
Starting from the May 1 to May 31 of every calendar year, a tax residence in Taiwan is subjected to submit their tax returns to the Taxation Administration, Ministry of Finance. It is an obligation to the taxpayer to file their partners, and dependent parent’s tax returns along with its tax return.
To arrive at taxable income on IIT, below personal relief should be accounted for which any suitable case by case:
(1) Personal Exemptions
For the year 2019, to arrive at the taxable income, a total of NT$ 88,000 per taxpayer would be relieved from the assessable income. In the case of taxpayer had arrived at the age of 70, personal relief will be amounted to NT$ 132,000 per person for the year and afterwards.
(2) General Deductions and Special Deductions
On top of personal exemptions as item A mentioned, a list of general deduction or special deduction had been is in place for the relief of taxpayer’s burden.
Effort of collecting the evidence to support the special deductions is in beneficial for taxpayer if in the case that the sum of special deduction had exceeded the general deduction.
|Deduction for Taxpayer for the Year of Assessment 2019|
|Item||Deductible Amount (TWD)|
|General Personal Deduction||Single Assessment||NT$120,000 per assessment|
|Join Assessment with Partner||NT$180,000 per assessment|
|Itemised deduction||Donations||Except for donation to Ministry of National Defenses; Contribution for troop-cheer; or any Other contribution to the Ministry, an amount dose not exceeding 20% of consolidated assessable income for the year shall be relieved.|
|Insurance Premiums||Limited to NT$24,000 per person, does not included contribution to National Health Insurance (NHI).|
|Medical and Childbirth Expenses||Any non- insurance covered expenses to clinic, hospital had been authorised by NHI or public hospitals.|
|Natural Disaster Damages||Any non-insurance covered losses incurred.|
|Interest on Housing Mortgage||Up to NT$300,000 per assessment per household.|
|Housing Rental||Up to NT$120,000 per assessment per non-business nature household.|
(2) General Deductions and Special Deductions—Cont’d
|Deduction for taxpayer for the year of assessment 2019—Cont’d|
|Special Deduction||Loss on Property Transaction||Loss claimed for the year shall not exceed the same income generated for the year.|
|Salary and Wages Deduction||Total annual salaries and wages received shall be allowed for deduction up to maximum NT$270,000|
|Saving and Investment Deduction||A maximum deductible saving and investment deduction amount shall not exceed NT$270,000 except for interest received from postal pass-book saving provisioned under Section 36 of Post Saving and Remittance Act.|
|Disable Deduction||Any tax person who had defined as patient under The Mental Health Act, may have a deduction of NT$ 200,000.|
|Education Deduction||A maximum up to NT$25,000 per dependent child of taxpayer which is not included attended:-
(1) National Open University (NOU)
(2) Vocational University
(3) The first 3 years of the 5 years Vocational University
(4) Those who accepted government education subsidies
|Pre-school Children Deduction*||A tax person who borne a children which is under or equal to 5 years old, NT$ 120,000 per child per year will be deducted.|
|Long-term Care Deduction*||Total amount up to NT$ 120,000 per year per assessment for any taxpayer which have elderly dependence who mentally or physically incapacity and required long term care defined by Ministry of Health and Welfare.|
There are special exceptional who a taxpayer is non-qualified for the claim as marked * above.
(3) Progression Tax Rate
The progression tax rate that a tax residence shall be refer to for the calculation on tax payable in year 2019:
|Progressive Tax Rate system for the year 2019|
|Net Taxable Income (TWD)||Tax rate||Progressive Difference (TWD)|
|0 ~ 540,000||5%||0|
|540,001 ~ 1,210,000||12%||37,800|
|1,210,001 ~ 2,420,000||20%||134,600|
|2,420,001 ~ 4,530,000||30%||376,600|
|4,530,001 and above||40%||829,600|
Any foreign individual who is not domicile and is not residence in Taiwan for at least 183 days in the tax assessment year is not considered as tax residence for the year of assessment. A non-residence taxpayer will not be allowed for claiming deduction or exemption to derived at the tax payable amount for the year of assessment that the taxpayer have sourced income from Taiwan. In the taxable period a non-tax residence individual, is subjected to withholding tax rate average at 20% of income sourced from Taiwan.
Major categories differ a non-residence withholding tax obligation:-
(1) Residence in Taiwan Less than 90 Days
A foreign individual who stays in Taiwan less than 90 days in an assessable period, earnings source from Taiwan will be subjected for withholding tax by its employer such as 18% (6% under limited circumstances) for salaries and wages, and non-allowed for any deduction or exemption.
(2) Residence in Taiwan for More than 90 Days but Less than 183 Days
Any foreign individual who stays in Taiwan for at least 90 days and less than 183 day and not domicile in Taiwan will be taxed on any individual income sourced in Taiwan, unless those income stated in Double Taxation Agreement (DTA) between Taiwan and the country of foreigner originated from.
For instance, a foreign employee who rendered his service towards a Taiwan employer and residence in Taiwan for a period of days in above mention column, wages and salaries that derived from this company will be deemed to be derived from Taiwan. The foreigner is subjected to fill up the tax return form voluntary by May 31 of the tax year and 18% (6% under certain circumstances) is payable to Ministry of Tax Administrative. However, if the foreigner had been elected to let its employer to withhold its tax, tax filing could be neglected.
An individual who qualifies as tax residence in Taiwan, could relief from any income that had been earned in the tax year in accordance to DTA had been signed or any other tax relief had been stated in Income Tax Act or relevant Act had been enforced.
However, in the case that a taxpayer which had incomes exceeded NT$ 6.7 million for the tax year, and IBT had been calculated had exceed the tax payable calculated following Income Tax Act, in accordance to Income Basic Tax Act the taxpayer is subjected to flat rate at 20% using the calculation as below shown,
Basic Taxable Income
= (Consolidated Income + Add-back items – NT$6.7 million) x 20%
Add-back items had included qualified insurance premium, interest from private investment funds, non-cash donations, any qualified item published by Ministry of Finance.
(1) Shares Option from the Companies registered in Republic of China
Any shares that had been obtained from the companies had registered in the Republic of China are calculated as part of an individual assessable incomes if the market share price as at the executed date is premium compared to the shares option price.
(2) Shares Options from the Foreign Companies
Shares obtained from a foreign Companies, included its subsidiary, branches, or representatives office incorporated in the Republic to China via shares options shall be calculated as part of an individual assessable income for the year if the market price of the Company’s share had premium compared to the shares option price.
Assessable Income on Share Option
= (Market share price as at execute date – Option share price) x (Days of residence in Taiwan between option granted and maturity / Option maturity period)
For tax residence who domicile in Taiwan, instead of a proportional of the premium from the share option, the full amount shall be considered as the assessable income. On the other hand, if the period of residence for the purpose of providing services in Taiwan of a non-domicile individual had not fall within the period before the option granted, the income will not be considered as sourced in Taiwan.
Estate and Gifts tax will be implied on worldwide basis to an individual who domicile in Taiwan or who stay in Taiwan for at least 365 days in total, for the prior 2 years period from the inheritance and gifts transaction taken place. However, inheritance and gifts tax will be implied when deemed to be from Taiwan on an individual which not fits the residency rule above.
(1) Estate Tax
The heir, beneficial from inheritance assets, or a testamentary trustee will be subjected to estate tax in Taiwan upon the death of the inheritor/donor/ testator. The tax payable shall be calculated at the value of property had been inherited at the point of the inheritor passed away less NT$ 12 million as fixed non-taxable relief and other relief as stated in Estate and Gift Tax Act. If in the case of the deceases have hold investment in Taiwan in accordance of Statute for Investment by Overseas Chinese, any qualified property under this had been inherited will be relieved half of the value as non-taxable portion. For instance
Estate Tax = (Value of property received – Non-taxable value – Qualified deductions) x 10% – Interest and other qualified deductions accordance to Income Tax Act
(2) Gifts Tax
The recipient will be subjected to gifts tax upon receiving any property of the donor at the value of the date as transaction is made less a tax-free amount and qualified deduction in accordance to Estate and Gifts Tax Act. For instance, an amount of NT$ 2.2 million is non-taxable per assessment. However, property that is claimed to be donated to government, for schooling purpose, for charity or religious and other public use are non-taxable.
= (Value of the property as at transaction date – Non-taxable portion – Qualified deduction) x 10%