Tax System In Taiwan: How It Works
Ah, Taiwan – a fusion of ancient traditions and modern skyscrapers.
But, while its night markets and majestic landscapes lure you, there’s the less exciting, yet equally essential tourist tax system to grasp.
Dive in to discover the fiscal side of your Taiwanese adventure.
Individual Income Taxes In Taiwan
All individuals based in Taiwan will need to pay income taxes at one point or another. The first NT$90,000 that an individual earns are not subject to taxes. Beyond that, all of your income will be taxed.
What Is Income Tax?
Income tax is imposed by governments on the earnings of all individuals and businesses in their jurisdiction. This is usually deducted at source i.e. your employer will deduct this at their end before you receive your salary.
Only income that is earned from a Taiwanese source is subject to the income tax. All other income might be subject to different taxes.
The amount generated from taxes is used for government projects and goes in to Social Services and other welfare schemes.
What Is The Tax Rate In Taiwan 2023?
For the most recent financial year i.e. 2023, Taiwan has tax rates ranging from 5% to 40% of the total income earned by an individual.
If you make up to NT$560,000, you will be charged 5% income tax. Anyone making more than NT$4,720,001 will have to pay 40% of their income as tax.
Progressive Tax
As of the last update in 2021, the brackets and rates are as follows:
| Income Range (NTD) | Tax Rates |
| Upto 540,000 | 5% |
| 540,001 – 1,210,000 | 12% |
| 1,210,001 – 2,420,000 | 20% |
| 2,420,001 – 4,530,000 | 30% |
| 4,530,001 – 10,310,000 | 40% |
| Over 10,310,000 | 45% |
Taiwan has a system of progressive income taxation. This means that people with higher income or those making more money will be charged higher tax rates as well. This is achieved by creating tax brackets to group taxpayers into certain income ranges.
This system ensures that lower income taxpayers end up bearing a relatively smaller tax burden as compared to high income individuals.
How Much Will I Make After Taxes?
If you wish to calculate the exact income you will be taking home after all deductions, this shouldn’t be too difficult.
Simply calculate your social security deductions (or others applicable in your country), and calculate your tax payable depending on the income bracket you fall in.
There are also several tax calculators available online that can automate this process for you. Bear in mind though, that these calculators can only be used for your own reference and to get a ballpark figure and should not be used as the final word when filing your tax returns!
Taiwanese Tax Classes
The taxation system in Taiwan is based on an individual’s residence status. The rates of income tax differ for tax residents and foreigners.
What Are Tax Classes In Taiwan?
Your residency status will be determined by the number of days you spend in Taiwan, regardless of whether that stay is continuous or not.
Tax residents are those who live in Taiwan for more than 183 days in the calendar year (does not have anything to do with actual citizenship or residence status).
Tax residents will need to pay taxes on the income that they earn from all sources either within or outside Taiwan.
Foreign sourced income will be included in this calculation if it exceeds NT$ 1 million, with the basic income being more than NT$ 6.7 million.
While foreign-sourced income will increase your tax burden, as long as you have paid taxes on it in another country, it can be credited against the amount payable in Taiwan. There are certain limitations to this though.
On the other hand, foreigners are liable to pay taxes only on the incomes they earn from Taiwan registered companies or sources. Foreigners’ salaries are subject to a withholding tax at an 18 to 20% rate depending on the type of income.
Withholding tax is final and they need not file their personal income tax return. However, if foreigners earn income from other sources like rental or interest income from Taiwan, then they will need to file their tax return.
Income tax rates for tax residents range from 5% to 40% depending on the individual’s income.
Income Tax Declaration
If you are working in Taiwan, whether full time or part time, you should be familiar with the ins and outs of income tax and how to file your return.
The tax year in Taiwan follows the calendar year i.e. from January 1st to December 31st. Your returns will be due on May 31st each year, and usually the government does not allow any extensions on this.
You can file your returns electronically through the taxing authority’s online software. It is also worth noting that if you are married, you will need to file joint returns with your spouse (as long as both of you have resided in Taiwan for more than 183 days in the calendar year).
How To Pay Less Taxes
There are certain exemptions and deductions applicable to the tax returns that an individual files. You must attach original receipts for each item if you wish to itemize deductions in your income tax return. There is also a maximum deduction limit for individuals and married couples.
Some of the items for which you can claim deductions include donations (to officially registered organizations), insurance premiums that you pay out, medical and maternity expenses, losses due to disasters, rental expenses etc.
There are also several special deductions available to an individual for savings and investment, disability (either physical or mental), tuition for each child attending college, pre-school children as well as an individual in the house requiring long term care.
It is interesting to note that the tax deductions mentioned in this section are not available to non-residents.
You should also aim to settle your tax liability timely i.e. by the deadline of May 31st each year. For each day that you are late in tax settlement starting from June 1st, you will be charged interest on the outstanding balance.
Other Taxes
There are also certain other types of taxes that are levied on individuals in Taiwan that are worth noting and remaining mindful of. These include the withholding tax, stamp tax and value added tax.
What Is Withholding Tax In Taiwan?
A withholding tax is also a kind of income tax that is paid to the government by the employer rather than the employee. This means that it is deducted at source before the income is paid out to the recipient.
The withholding tax rate differs depending on the kind of income e.g. salaries, dividends, interest income etc. It is also different for tax residents and non-residents.
What Is Stamp Tax In Taiwan?
Stamp tax in Taiwan is levied on all contractual agreements, real estate transactions, payment receipts and sale deeds of movable property. The rates for each differ.
Usually, the person issuing or signing the document will bear the responsibility of actually paying the stamp tax. However, if both parties wish to keep a copy of the original document, both of them will be required to pay the stamp tax.
How Much Is VAT In Taiwan?
The VAT system in Taiwan closely resembles that of many other European countries. VAT is usually levied on goods and services at every stage of the supply chain. The regular VAT rate is 5%.
Taxes For Seconded Employees In Taiwan
A secondment arrangement is one where an individual has an employment contract and relationship with a company outside Taiwan, but has been seconded to work in Taiwan for a group company for a certain period of time.
Their original employment contract remains in place, while they might sign a temporary local contract in Taiwan too, detailing their role here.
If the individual’s income is paid by the company in the home country, then they will have to pay taxes back home and not be liable to pay any in Taiwan. However, the company will need to clearly state all such terms in the contract and assume responsibility of all risks associated with the employee’s work.
Conclusion
While Taiwan’s landscapes, culture, and cuisine steal the spotlight, being savvy about its tax system ensures a hiccup-free journey.
Now, with a clear financial map in hand, you’re set to explore Taiwan with added confidence. Enjoy every moment!
Tax Triumph!
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