Taiwan’s individual income tax system is based on one’s residence status. The Taiwan government taxes the worldwide income of Taiwan tax residents, while it only taxes Taiwan-sourced income for foreigners.
An individual is considered a Taiwan tax resident if he/she stays in Taiwan for more than 183 days in a calendar year. Tax residency is determined on a day-count basis regardless of whether the stay is continuous or not. An employed foreign national who comes to Taiwan and has already stayed for more than 183 days or a student who has stayed for more than one year will be treated as a Taiwan tax resident.
The Taiwan individual income tax rate starts at 5% and goes up to 40%. A series of deductions are allowed before the imposition of income tax, which reduces an individual’s taxable income. For Taiwanese citizens and foreign nationals with Taiwan residency, the first NT$90,000 (approximately US$3,000) of their annual salary is not subject to taxation. In addition, various expenses such as housing rent, life insurance premiums, and medical expenses can be deducted from an individual’s taxable income.
For foreigners who are not Taiwan residents, salaries paid by Taiwan-sourced employers are subject to withholding tax at a rate of 20%. Withholding tax is final and no personal income tax return needs to be filed. However, a foreigner who derives other incomes from Taiwan, such as rental income or interest income from bank deposits, needs to file a personal income tax return in order to declare such Taiwanese-sourced incomes. The annual filing deadline is March 31 each year for incomes earned in the previous calendar year.
failure to comply with these regulations may result in penalties including surcharges and interest charges. Therefore, it is advisable for those affected to seek professional assistance to ensure compliance with Taiwan’s individual income tax system.
Taiwan Individual Income Tax Rates
Taiwan has a progressive income tax system, with tax rates ranging from 5% to 40%. Taxable income is divided into brackets, and each bracket is subject to a different tax rate. The first NT$540,000 of taxable income (approximately US$17,000) is taxed at 5%, while the next NT$670,000 (approximately US$21,000) is taxed at 12%. Income above NT$4,530,000 (approximately US$140,000) is subject to the highest tax rate of 40%. Taiwan also imposes a 3% tax on wages and salaries. This tax is withheld by employers and paid directly to the government. Taiwan’s income tax rates are relatively high when compared to other countries in the region. However, the country’s strong economy and high level of development make it possible for Taiwan to maintain a high standard of living despite these high taxes.
|Bracket||Tax Rate||Annual Taxable Income (NTD)||Quick Calculation (NTD)|
|1||5%||Up to 540,000||27,000|
|2||12%||540,001 to 1,210,000||80,400|
|3||20%||1,210,001 to 2,420,000||242,000|
|4||30%||2,420,001 to 4,530,000||633,000|
Yearly income = 5 million NTD
Bracket 1: 5% x 540,000 = 27,000 NTD tax on the first 540,000 NTD
Bracket 2: 12% x 670,000 = 80,400 NTD tax on the next 670,000 NTD
Bracket 3: 20% x 1,210,000 = 242,000 NTD tax on the next 1,210,000 NTD
Bracket 4: 30% x 2,110,000 = 633,000 NTD tax on the next 2,110,000 NTD
Bracket 5: 40% x 470,000 = 188,000 NTD tax on the remaining 470,000 NTD
Total = 27k + 80.4k + 242k + 633k + 188k
= 1,170,400 NTD tax due on an annual salary of 5,000,000 NTD
Tax Residency in Taiwan
Individual income tax is levied on Taiwan-sourced taxable income derived by residents, as well as non-residents from Taiwan-sourced income. Non-residents are liable to individual income tax only on Taiwan-sourced taxable income. Anyone who works or derives income in Taiwan will need to file a Taiwan Tax Return, regardless of whether they are a resident or non-resident for tax purposes. Taiwan has a territorial taxation system, meaning that only Taiwan-sourced income is subject to Taiwan taxation. Foreign sourced income is not subject to Taiwan taxation, regardless of the taxpayer’s residency status.
To be considered a resident for Taiwanese individual income tax purposes, an individual must satisfy one of the following conditions:
– have resided in Taiwan for more than 183 days in the tax year;
– have an employment relationship with a Taiwanese entity; or
If an individual does not satisfy any of the above conditions, they will be classified as a non-resident for Taiwanese individual income tax purposes. An individual who is classified as a non-resident for Taiwanese individual income tax purposes will only be subject to taxation on their Taiwan-sourced income.
In order to claim foreign sourced Income exemption, certain requirements must be met including but not limited to maintaining bank accounts and filing specific forms & supporting documents. It’s advisable that you seek professional help to confirm your foreign sourced Income exemption qualification.
Allowances & Deductibles In Taiwan
Taiwan offers a number of tax deductions that can reduce your tax liability. deductions are available for a wide range of expenses, including medical expenses, education expenses, Insurance premiums and charitable donations. Taiwan also offers a number of exemptions, which can further reduce your tax liability. Note that non-residents do not benefit from any of the below tax deductions.
Tax deduction table:
|Housing||Rent or Mortgage on house||unlimited|
|Medical||Expenses on medical care||unlimited|
|Insurance||Cost of insurance premiums||unlimited|
|Accidents||Cost of accidents||unlimited|
|Property value||Losses from property transactions||Limited to gains from sale|
|Bank interest||Interest earned from bank deposits||270,000 NTD|
|Disability||For disabled or handicapped residents||207,000 NTD per person|
|Child tuition||Child tuition expense||25,000 NTD per child|
|Pre-school||Deduction for children up to age 5||120,000 TWD per child|
|Care for dependant||Deduction for caring for a dependant||120,000 TWD per dependant|
|Foreigner exemption||Deduction for foreign residents||92,000 TWD + 92,000 TWD per dependant|
|Living expense||Deduction for basic living expenses||192,000 TWD|
|Work training||Deduction for work training costs||3% of salary|
|Work attire||Deduction for work clothing costs||3% of salary|
|Work tools||Deduction for work tools costs||3% of salary|
Taiwan’s tax system is designed to encourage investment and economic growth. As a result, the government offers a number of incentives for businesses to invest in Taiwan. These incentives include tax holidays and preferential treatment for foreign investors. If you are thinking about investing in Taiwan, it is important to consult with a qualified tax advisor to maximize your tax benefits.
Social Security & Contributions in Taiwan
Taiwan’s social security system is funded by contributions from employers and employees, as well as government subsidies. The main social benefits include Labor Insurance Program (LIP), National Health Insurance Program (NHIP), and the Labor Pension Program (LPP).
Taiwan has a multi-tier pension system, which includes a basic pension, an occupational pension, and a voluntary pension. The basic pension is for all citizens aged 65 and over, and the occupational pension is for people with at least 20 years of contributions. Taiwan also offers voluntary pensions, which are typically investment-based products that offer tax incentives. In addition to pensions, Taiwan’s social security system also provides medical insurance, disability insurance, and survivors’ insurance.
Taiwan’s medical insurance system covers all residents, regardless of employment status. Taiwan’s disability insurance provides benefits for people who are unable to work due to illness or injury. Taiwan’s survivors’ insurance provides benefits for the spouses and dependent children of deceased workers.
Double Taxation in Taiwan
Taiwan uses the credit method to avoid double taxation of income. This means that foreign taxes paid on foreign-sourced income may be credited against total Taiwan income tax liability. However, the credit is limited to the incremental taxes derived from the foreign-sourced income. In other words, if foreign taxes paid exceed Taiwan taxes due on the same income, the excess cannot be carried over or used as a credit against other Taiwan tax liabilities.
Taiwan’s double taxation avoidance agreements generally follow the Organization for Economic Cooperation and Development (OECD) Model Convention and contain provisions for the exchange of information and assistance in the collection of taxes. Under these agreements, Taiwan typically allows a credit for foreign taxes paid up to the amount of Taiwan tax payable on the same income. In some cases, a Taiwanese company may also be entitled to a deduction for foreign taxes paid. The regulations governing double taxation avoidance are complex, and taxpayers should seek professional advice to ensure compliance with Taiwan’s tax laws.
How NNRoad Can Help
NNRoad is a global Employer of Record & PEO provider with a base in Taiwan. We are able to advise you and your dispatched or payroll employees in Taiwan on their individual income taxes. For more information on our HR and payroll related services in Taiwan, please visit our Taiwan services page or contact us directly.