Taiwan Increase on 2021 Withholding Amount Threshold
Starting from 1 January, 2021, Taiwan basic monthly salary has been adjusted to NT$24,000. When a tax withholder pays wages to individuals living outside Taiwan (referred to non-residents), the withholding rate for calculation is adjusted accordingly. In 2020, monthly salary below NT$35,700 is subject to a 6% withholding rate, while exceeding NT$35,700 is subject to 18%. In 2021, the cut-off point would be increased to NT$36,000.
Who is considered as non-resident? Taiwan Income Tax Act Article 7 stipulates the definition of resident: 1. Those who have a residence in Taiwan and often live in Taiwan. 2. Those who do not have a residence in Taiwan but stay in the country for a total of 183 days during a tax year. A person who does not meet the above definition of a resident is considered as a non-resident. Non-resident s are mostly foreigners, especially those who come to Taiwan for the first year or in the last year of their contracts, would stay for less than 183 days.
According to the Standard of Withholding Rates for Various Incomes Article 3, if the total monthly salary payment for a non-resident is less than 1.5 times of the monthly basic salary approved by the Taiwan Executive Yuan, 6% will be deducted from the payment amount, and if it exceeds 1.5 times, 18% of the amount would be deducted.
For example, on February 6, 2021, a Taiwan company pays NT$30,000 to Lina (non-resident) as salary and the withholding tax shall be NT$1,800 (NT$30,000 x 6%). If it pays NT$40,000 to Matthew (non-resident) as salary, then the withholding tax shall be NT$7,200 (NT$40,000 x 18%).
If a year-end bonus is issued in the New Year, for example, a Taiwan company gives Lina (non-resident) a bonus of NT$15,000, together with the monthly salary of February, the total amount received shall be NT$45,000, which exceeds NT$36,000, then the withholding tax shall be NT$8,100 (NT45,000 x 18%). The amount (NT$1,800) withheld for the salary (NT$30,000), can be deducted in the total withholding tax amount, therefore the tax withhold for the bonus (NT$15,000) shall be NT$6,300 (NT$8,100 – NT$1,800).
If Matthew and Lina stay in Taiwan for more than 183 days afterwards, they eventually become a resident, who can apply for settlement declaration and tax refund.