Introduction to Taiwan Taxation System

1. Overview

Taiwan classifies all taxes into two categories: National tax and City/County/Municipal tax. The classification of taxes and the competent tax collection authorities are listed below:

National Taxes Municipal Taxes
Income Tax Land Value Tax
Business Tax (VAT and Non-VAT) Amusement Tax
Securities Transaction Tax Land Value Increment Tax
Futures Transaction Tax Stamp Tax
Estate and Gift Tax Vehicle License Tax
Tobacco and Wine Tax Building Tax
Commodity Tax Farm Tax
Customs Duty Deed Tax


2. Fiscal Year

Taxable income is ordinarily determined by reference to the year ending 31 December, which is the standard Taiwan financial year. However, with the consent of the Tax Authorities, taxpayers may choose a substituted accounting period.


3. Types of Taxes

Income Tax
All foreign residents with Taiwan source income shall pay consolidated individual income tax in accordance with law on the basis of their Taiwan source income. Those profit-seeking enterprises with a general headquarter in Taiwan shall pay consolidated profit-seeking enterprise income tax on the income of all profit-seeking enterprises within and outside Taiwan. The profit-seeking enterprises with a general headquarter outside Taiwan shall pay tax on only their Taiwan source income.

Business Tax
Value added tax (VAT) at 5% is known as the Business Tax and applies to business persons in all industries under the VAT system. Export sales and export-related services, however, are subject to zero tax rates. Financial institutions are subject to business turnover tax. Professional practitioners are subject to VAT or business turnover tax for service revenue earned.

Currently, the tax rate of non-VAT system that applies to banks, insurance companies, trust and investment companies, securities traders, futures traders, bills finance companies, and pawnshops (except reinsurance premium income, for which the rate is 1%) is 2%.

Profit-seeking enterprises (manufacturers, wholesalers, retailers etc.) are collectors of VAT and are required to pay the net VAT, being taxes collected from sales less taxes paid on purchases and business expenses, to their district tax offices and file returns. Zero ratings and exemptions exist for some items.

Securities Transaction Tax
With effect from 1 January 1990, the levy of tax on gains derived from the sale of shares and bonds was suspended. Such transactions however are taxed an ad valorem Securities Transaction Tax. That is the transacted price forms the basis of the tax and not the gain per se. The current rate is 0.3% for a transaction in shares or share certificates embodying the right of shares issued by a company limited by shares and 0.1% of corporate bonds or any securities which have been duly approved by the government. Bonds issued by governments are exempt from securities transaction tax.

Futures Transaction Tax
A futures transaction tax is assessed on all futures transactions in Taiwan. The current rate is 0.1% for a transaction in option contracts or option contracts on futures, and 0.0000125% ~ 0.01% for transactions in stock index futures contracts, interest rate futures contracts and other futures contracts.

Customs Duty
Customs duty on taxable imported goods is based on the value of the goods including transport and insurance costs or on the quantity imported with different rates depending on the category of the goods. There are no harbour duties but ìTrade Promotion Service Fee? at customs value times 0.04%.

Commodity Tax
Commodity tax (excise duty) of between 8% and 35% by its price or certain amount by its volume is imposed on certain designated commodities whether manufactured locally or imported.

Land Value Tax
All land having value is subject to land value tax with a flat rate of 1% applicable to land for industrial use. For residential land meeting certain requirements for self-use, the flat rate is 0.2%. For the land reserved for public buildings, the rate is 0.6% if the land is used for buildings during the reserved period. Land used for other purposes is subject to a progressive rate of tax
ranging from 1% to 5.5%.

Land Value Increment Tax
The sale of land gives rise to tax imposed on the increase in the assessed value since the previous sale or transfer. Rates vary from 20% to 40% on a progressive scale except for:
a) Self Use Residential Land meeting certain requirements is taxed at 10%.
b) Transfers by inheritance, government approved sale of industrial land, and sales followed by replacement purchases in certain circumstances are exempt.

Land Value Increment Tax would have 20% to 40% discount for the portion of higher than 20% tax rate if the land is held over 20 to 40 years.

Building Tax
Building tax is levied annually on the assessed value of buildings and improvements at the following rates: commercial space 3% to 5%, professional offices, private hospitals, and premises of non-profit organizations 1.5% to 2.5% and residential buildings 1.2% to 2%.

Deed Tax
Deed tax is imposed on the transfer of real estate at tax rates varying from 2% to 6%. Deed tax is not imposed on the land where Land Value Increment Tax is imposed.

Stamp Tax
Stamp Tax is imposed on business transaction documents, property titles, permits and the like. The following are exempt from stamp duty: all types of instruments used by offshore banking branches, documents executed abroad, receipts for the delivery of goods and certain other transactions. Subject to stamp tax are the following documents: receipts for cash, contracts or deeds for purchase or sale of chattels, contracts or deeds for undertaking jobs and contracts or deeds for sale, exchange, donation or division of real property.

Estate and Gift Tax
Estate and gift taxes are levied on the worldwide assets of Taiwan-domiciled individuals. If a Taiwanese national does not have a Taiwan domicile, but has a residence in Taiwan, his worldwide assets are subject to the Taiwan estate and gift tax, provided the individualís total stay in Taiwan exceeds 365 days out of the two years before the date of decease or gift transfer. The tax rate of estate tax and gift tax is 10%.

Fringe Benefits Tax
Although there is no separate Fringe Benefits Tax (FBT), perquisite or other benefits supplementing normal wages and salaries are included in the computation of employment income and are taxable as such. Minor exceptions do exist.

Special Goods and Services Tax
Effective from June 1, 2011, sell, produce or import special goods and services in Taiwan is taxable for 10% ~ 15% special tax based on selling price of goods and services. For example, land and building sold within 2 years after purchase will be taxable. Besides, certain transactions of airplane, yacht, car, furniture, products of wildlife and membership will be taxable, too.


4. Lodgment of Returns

Taxpayers of income tax and business tax have to file tax returns.

Resident corporations and nonresident corporations with permanent establishments in Taiwan need to file annual income tax returns with the tax authorities in the fifth month of the following fiscal year. No extension is permitted. The income tax returns of a business enterprise must include the forms prescribed by the tax authorities and relevant supporting documents.

Resident individual and nonresident individual but resides within the territory of Taiwan for a period of more than 183 days during a taxable year must file an income tax return in the fifth month of the following fiscal year. No extension is permitted.

Business Tax (VAT) returns must be filed bimonthly before the 15th day of the following period and tax due must be paid at that time. The VAT filing date is the 15th day of every odd month, but business entities that qualify for the 0% VAT rate may apply to the tax office to file VAT returns on a monthly basis.