Determining the Withholding Tax Rate for Company Employee Salary in Taiwan

To determine if an employee is a tax resident in Taiwan, various factors such as the number of days they reside in Taiwan, whether they have a residence, household registration, and whether they work or do business in Taiwan should be considered. Generally, this can be categorized into three scenarios. If a company sends employees abroad for expansion, it is important to change in the employee’s tax status and handle salary income withholding at the correct tax rate.

First, if an individual has household registration in Taiwan and resides in Taiwan for a total of 31 days or more, they are considered as resident. Second, if an individual resides in Taiwan for more than one day but less than 31 days, if the focus is living and economic is within Taiwan (e.g., they have labor and health insurance, their spouse and children remain in Taiwan, etc.), they can also be considered a resident. Lastly, if an individual does not have a residence in Taiwan but stays in Taiwan for a total of more than 183 days within a tax year, they are also considered a resident.

The above text can be determined using the following flowchart:

Notes: The term “living and economic center in Taiwan” should be determined by considering various factors such as an individual’s family and social relationships, cultural and other activities, occupation, business location, and property management. The following principles should be considered:
A. Enjoying Taiwan’s social welfare benefits such as National Health Insurance, Labor Insurance, National Pension Insurance, or Farmers’ Health Insurance.
B. Having a spouse or minor children residing in Taiwan.
C. Operating a business, executing tasks, managing property, being employed to provide services, or serving as a director, supervisor, or manager in Taiwan.
D. Other living conditions and economic benefits that are sufficient to identify the living and economic center in Taiwan.

For example, company A assigns employee A, who is registered in Taiwan, to go to United States for long-term business research. Employee A receives a monthly remuneration of NTD40,000 from company A (which exceeds NTD39,600. The basic salary in 2023 is NTD26,400 multiplied by 1.5 equals NTD39,600) and should be subject to Taiwan comprehensive income tax according to the law. However, the HR department of company A did not notice that employee A was stations in the United States for almost the entire year of 2023 and only returner to Taiwan for about two weeks during the New Year (not exceeding 31 days in Taiwan throughout the year). As the result, the HR department continued the usual practice of treating him as a Taiwan tax resident and handled the withholding tax declaration for his salary income in January 2024.
In fact, the correct approach should be:
Since he did not stay in Taiwan for more than 31 days in 2023, his tax status has changed to a non-tax resident. According to the regulations, the withholding tax should be based on the non-resident tax rate, which is 6% for monthly salaries not exceeding 1.5 times the basic salary, and 18% for those exceeding this amount. Given his situation, since his monthly salary exceeds NTD39,600, it should be withheld at 18%. The company should withhold NTD7,200 in taxes when paying the salary and report the withholding within ten days from the payment date. If the National Taxation Bureau discovers a failure to comply, the company will be penalized.

Therefore, this is a gentle reminder to companies that when paying income to employees, they should pay attention to the employees’ tax status to determine if they are considered Taiwan residents. If an employee is registered in Taiwan but has not entered Taiwan at all during the tax year, they are deemed a non-Taiwan resident individual according to regulations. In this case, it is crucial to note the withholding tax rate and complete the withholding report within ten days from the payment date.