US Tax Advice for US Expatriate Living and Working in Taiwan

Tax Guide for US Expats Living and Working in Taiwan

Download Our Expat Tax Guide

Who Is Liable For Income Taxes in Taiwan

Resident and nonresident individuals are subject to consolidated (personal) income tax on income earned from Taiwan sources. Taiwan-source income includes all employment income derived from services performed in Taiwan, regardless of where the compensation is paid.

Individuals are considered residents of Taiwan if they are domiciled and reside in Taiwan or, if not domiciled, if they have resided in Taiwan for at least 183 days in a tax year. The computation of resident days is based on the dates stamped on an individual’s passport. If an expatriate enters and departs Taiwan several times within a calendar year, the resident days are accumulated.

Income subject to tax.  Foreign nationals in Taiwan are subject to Taiwan consolidated income tax. However, the amount of income subject to tax and the applicable rates depend on the length of stay as well as on the individual’s residence status.

An individual’s consolidated gross income is the total of the following categories of Taiwan-source income:

• Business profits, including dividends, profits distributed by cooperatives and partnerships, profits from a sole proprietorship and profits from sporadic business transactions
• Income from a professional practice
• Salaries, wages, allowances, stipends, annuities, cash awards, bonuses, pensions, subsidies and premiums paid by an employer for group life insurance policies that offer payment on maturity, but not including the voluntary pension contribution and the voluntary annuity insurance premiums based on the Labor Pension Act, which are up to 6% of the individual’s monthly wage or salary
• Interest income
• Rental income and royalties
• Self-employment income from farming, fishing, animal husbandry, forestry and mining
• Gains from sales of rights and properties other than land
• Cash or payments in kind received as winnings in competitions or lotteries
• Retirement pay, severance pay, non-insurance old-age pension payments and insurance payments made under annuity insurance based on the Labor Pension Act received by the individual
• Other income

Taxable income of residents is computed by deducting from consolidated income certain allowable exemptions and deductions (see Exemptions and deductions). The income of a taxpayer’s dependents is also included in the taxpayer’s taxable income.

Under a recently issued tax decree, foreign professionals may qualify for preferential tax treatment. For details, see Foreign professionals .

Employment income.  In general, a nonresident staying in Taiwan for no longer than 90 days during a calendar year is not subject to  Taiwan income tax on salary received from an offshore employer, provided the payment is not charged back to any Taiwan entity; otherwise, the income is subject to an 18% withholding tax on salary received from a resident employer.

Nonresidents and individuals who are present in Taiwan less than 183 days during a calendar year are subject to Taiwan income tax on Taiwan-source employment income, regardless of where the income is paid, at a fixed rate of 18% on salary income.

For individuals who stay in Taiwan less than 300 days in a calendar year, salary not borne by a Taiwan entity may be allocated based on the number of days present in Taiwan to determine the amount taxable in Taiwan.

The following benefits are exempt from consolidated income tax for all expatriates:

• Moving expenses paid for expatriates and their families when they report for duty and at the time of repatriation
• Traveling expenses paid for expatriates on home leaves
• Rental payments for a house leased by the employer for expatriates
• Durable furniture purchased by a Taiwan-registered entity

Individuals who qualify as “Foreign Professionals” (see Foreign professionals) are also exempt from consolidated income tax on water, electricity, gas, telephone and cleaning services for expatriates’ houses leased by Taiwan entities.

Investment income.  Dividend and interest income are subject to consolidated income tax and are taxed together with other income at the rates. However, interest income from postal savings accounts is excluded from gross income. In addition, the following types of interest income are subject to withholding tax and are not included in gross income:

• Interest income from short-term commercial paper is subject to a 10% withholding tax for residents and 15% for nonresidents.
• Interest income from beneficiary securities or asset-based securities issued according to the Financial Asset Securitization Act and the Real Estate Securitization Act is subject to a 10% withholding tax for residents and 15% for nonresidents.
• Interest income from public debts, corporate bonds or financial bonds is subject to a 10% withholding tax for residents and 15% for nonresidents.

The rate of withholding tax on other interest for nonresidents is 20%. For dividends, the rate of withholding tax is 0% for residents and 20% for nonresidents.

Rental income and royalties are included in taxable income. For rental income, the rate of withholding tax is 10% for residents and 20% for nonresidents. For royalties, the rate of withholding tax is 10% for residents and 20% for nonresidents.

Other income. The taxable amount of a lump-sum severance payment received in 2011 is calculated in accordance with the following rules:

• If the total amount received in one lump sum is less than NT$169,000 multiplied by the number of service years at the time of separation, the entire amount is tax-exempt.
• If the total amount received in one lump sum is more than NT$169,000 multiplied by the number of service years at the time of separation, half of the excess over NT$169,000 but less than NT$339,000 multiplied by the number of service years at the time of separation is taxable income.
• The excess over NT$339,000 multiplied by the number of service years at the time of separation is taxable income.
• If the individual spent only certain years rendering service in Taiwan among the total service years with an employer, the severance payment may be allocated based on the ratio of the number of years in Taiwan to the total service years in order to arrive at the amount subject to tax in Taiwan.

For severance payments received in installments, the taxable income amount is the total of all payments received in 2011 in excess of the NT$733,000 annual deduction.

The exemption amount for the severance payment may be adjusted if the accumulated consumer price index has increased by at least 3% over the last adjustment.

Effective from 1 January 2009, if a Taiwan entity pays income tax on behalf of its expatriates, such payment is considered a gift to the expatriates from the company and is taxed as other income for the expatriates. A supplementary tax ruling was published in 2010.  This ruling provides that, effective from 12 March 2010, income tax paid by an employer on behalf of its expatriates should be treated as the expatriates’ salary income if the employment contract or other related document states that such tax payments constitute part of the expatriate’s compensation package. If the income tax paid by an employer does not constitute part of the expatriate’s compensation package, it is considered a gift to the expatriate and is treated as the expatriate’s other income.

Foreign professionals.  On 8 January 2008, the Taiwan Ministry of Finance released a tax decree “Preferential Tax Treatment for Foreign Professionals,” which is effective from 1 January 2008.   However, it applies to foreign professionals who began to work in Taiwan before the issuance of the tax decree. The decree provides for the preferential taxability of certain assignment benefits paid in accordance with an assignment agreement for a foreign national who qualifies as a “Foreign Professional.”

To qualify as a “Foreign Professional” and accordingly enjoy certain preferential tax treatment for assignment-related benefits, an individual must satisfy the following conditions:

• He or she must be physically present in Taiwan for 183 days or more during a calendar year.
• He or she must not hold dual nationality of Taiwan and another country.
• His or her annual taxable salary income must exceed NT$1,200,000.
• The individual must have obtained a working permit from the authority in Taiwan in accordance with Article 46 of the Employment Service Act.

Taxation of share-based compensation.  On 30 April 2004, the Ministry of Finance released a tax decree that addresses the taxation of stock options issued by Taiwan companies. Under the decree, on the exercise of a stock option, the difference between the fair market value of the shares at exercise and the exercise price (that is, the option spread) is taxed as other income.

Taiwan employers have a reporting requirement, but not a withholding requirement, with respect to the option spread. Taiwan employers must issue non-withholding statements to employees who exercise stock options.

In addition to the 30 April 2004 income tax decree, the Ministry of Finance issued a separate tax decree on 17 May 2005 to address the taxation of stock options issued by non-Taiwanese companies. Similarly, the option spread is taxed as other income at the time of exercise. The reporting requirement is similar to the requirement applicable to Taiwan companies.

The 17 May 2005 decree also addresses the taxation of stock options exercised by cross-border employees. Under the decree, the option spread can be prorated based on the ratio of the number of days the employee is physically present in Taiwan during the period from the date of grant through the date of vesting to the total days in such period. However, based on the tax authority’s current practice, for Taiwan employees on assignment to foreign countries, if the individuals remain as employees of the Taiwan entity (that is, the Taiwan entity continues the enrollment of National Health Insurance and Labor Insurance for the relevant employees), the proration of stock option income may not be allowed.

During 2007, the Ministry of Finance issued decrees indicating that the income (discount) derived from employee stock purchase plans and income derived from stock appreciation rights should also be treated as other income.

For other types of equity income, no specific Taiwan income tax laws or regulations addressing Taiwan taxation currently exist.

Capital gains and losses.  Taiwan does not currently impose a separate tax on capital gains, except the Land Increment Tax imposed on the sale of land. Losses from the disposal of property are deductible only to the extent of gains from the disposal of property in the same tax year. Net losses may be carried forward for three years.

Capital gains from the sale of a house or apartment are taxed.

Income tax on gains derived from the sale of shares ceased to be imposed, effective from 1 January 1990, and losses are not deductible. A securities transaction tax is imposed on proceeds from the sale of shares at a rate of 0.3%.

Income tax on income derived from transactions in futures is suspended for the time being, and losses are not deductible.

Exemptions and deductions.   A nonresident taxpayer is not entitled to personal exemptions or deductions. Income tax is computed on gross income. The exemptions and deductions described below apply to residents only.

A resident may deduct the personal exemption, and either the standard deduction or itemized deductions, whichever is higher, as well as special deductions, from consolidated gross income to arrive at taxable income.

Personal exemptions. For 2011, a taxpayer is entitled to personal exemptions of NT$82,000 each for the taxpayer, his or her spouse, and each dependent. If the taxpayer, or if married, either the taxpayer or taxpayer’s spouse, is more than 70 years of age, the exemption amount is increased to NT$123,000 per person. The exemption amount is also increased to NT$123,000 for a lineal ascendent dependent who is older than 70 years of age.  The personal exemption amount may be adjusted if the accumulated consumer price index has risen at least 3% over the last adjustment.

Itemized deductions. The following itemized deductions are available:

• The following contributions and donations:

— Up to 20% of gross consolidated income for a taxpayer, his or her spouse, and qualified dependents if given to officially registered educational, cultural, public welfare or charitable organizations.

— Up to 100% of gross consolidated income for a taxpayer, his or her spouse, and qualified dependents if given for national defense or troop support or if contributed directly to government agencies.

— Up to 20% of gross consolidated income for a taxpayer, his or her spouse, and qualified dependents, not exceeding NT$200,000, if given to a political party.

— Up to NT$200,000 if given to qualified political candidates, not exceeding NT$100,000 per candidate.

• Insurance premiums, up to NT$24,000 per person per year (except for the National Health Insurance, which is 100% deductible), for life insurance, medical insurance, labor insurance, national pension, and government employee insurance for a taxpayer, his or her spouse, and lineal dependents.

• Unreimbursed medical and maternity expenses incurred by a taxpayer, his or her spouse, and dependents living with the taxpayer, provided the expenses are incurred in the following recognized institutions:

— Government hospitals.

— Hospitals that have entered into contracts with the government under the national health insurance program.

— Hospitals maintaining complete and accurate accounting records recognized by the Ministry of Finance. Expenses incurred outside of Taiwan may be allowed as deductions only if such expenses are incurred in a foreign public hospital, university hospital, or private foundation hospital. Claims for deductions of expenses incurred in foreign hospitals must be supported by evidence of the officially registered status of the hospitals.

• Uncompensated casualty losses (uninsured portion of losses caused by a natural disaster of force majeur). To claim this deduction, the loss must be appraised by an investigator appointed by the tax authorities within 15 days after the disaster occurred.

• Rental expenses paid by the taxpayer, taxpayer’s spouse and/or lineal dependents for housing located in Taiwan, up to NT$120,000 per household. To qualify for the deduction, the property must be used for residential purposes and not for business purposes. However, the deduction will be disallowed for taxpayers who claim interest payments on loans to purchase owner-occupied dwellings. Taxpayers must provide supporting documents.

• Mortgage interest paid on loans from financial institutions for the purchase of an owner-occupied dwelling (limited to one), up to NT$300,000, after subtracting the special deduction for savings and investments claimed for the same tax year. The dwelling must be a principal residence located in Taiwan.

Standard deduction.  For 2011, a taxpayer may claim a standard deduction instead of the itemized deductions listed above. The standard deduction is NT$76,000 for a single taxpayer and NT$152,000 for a married taxpayer filing jointly.

The standard deduction amount may be adjusted if the accumulated consumer price index has increased by at least 3% over the last adjustment.

Special deductions.  The following special deductions are available:

• Special deduction for salary or wages: The lesser of either total salaries and wages earned or NT$104,000 is deductible by each salary and wage earner included in the same return.
• Special deduction for savings and investments: Up to NT$270,000 for each family unit is deductible for income realized from a savings trust fund and for interest income realized on deposits with financial institutions, on treasury bonds, on corporate bonds and on financial bonds, excluding interest income from postal savings accounts (which is not taxable), from short-term commercial paper (which is subject to a final 10% withholding tax) and from beneficiary securities or asset-based securities issued according to the Financial Asset Securitization Act and the Real Estate Securitization Act (which is subject to a final 10% withholding tax).
• Special deduction for individuals with disabilities: Up to NT$104,000 is deductible for an individual meeting the definition of a person with disabilities or diagnosed as having mental illness under the Mental Health Law.
• Special deduction for property losses: Losses derived from disposals of property are deductible to the extent of gains derived from disposals of property in the same tax year. Any remaining losses may be carried forward for three years.
• Special deduction for tuition fees paid for post-secondary education: Up to NT$25,000 of tuition fees paid for each dependent child less any reimbursement received for post-secondary education is deductible.

The amounts of the special deductions for salary or wages and for persons with disabilities may be adjusted if the accumulated consumer price index has increased by at least 3% over the last adjustment.

The income tax rate brackets may be adjusted if the accumulated consumer price index has risen at least 3% over the previous rate adjustment.  The flat tax rate for nonresident individuals varies according to the type of income. The following are the flat tax rates:

• Salary income and severance and retirement payments: 18%
• Interest income other than those specifically identified in the tax regulation (see Investment income): 20%
• Dividends, commissions, rentals, royalties, gains from winnings in competitions or lotteries and income from independent professional practice: 20%

Alternative Minimum Tax. The Alternative Minimum Tax (AMT) Law took effect on 1 January 2006. The AMT Law applies to both profit-seeking enter prises and individuals.

Under the AMT Law, for residents, the following items are added back to net income as calculated under the general income tax system to determine minimum income (MI) subject to AMT:

• Foreign-source income, if such income for each filing household unit exceeds NT$1 million in a tax year (this item is effective from the 2010 tax year)
• Insurance payments from life insurance policies or annuities contracted on or after 1 January 2006 in which the beneficiary and the purchaser are not the same person (NT$30 million exemption may be claimed)
• Capital gains derived from sales of non-publicly listed stocks and private placement funds
• Deductions claimed for noncash charitable contributions
• The spread between the fair market value and the par value for employee stock bonuses
• Other items published by the Ministry of Finance

The AMT rate for individuals is 20%. A NT$6 million deduction may be claimed from the minimum income (MI) by each filing household unit to arrive at the minimum taxable income (MTI) subject to AMT.

Under the AMT scheme, individual taxpayers calculate both the tax due under the general income tax rules and the AMT rules, and pay the higher of the two amounts. If foreign-source income has been included in the calculation of the AMT, any foreign tax paid on these amounts may be offset against AMT.

Relief for losses.  Except for losses derived from the disposal of properties described in Capital gains and losses , no loss may be carried forward or back.

B. Other taxes

Estate tax.  Estate tax is imposed on the estate of a decedent who was a national of Taiwan or who owned property in Taiwan. If the decedent was a Taiwan national regularly domiciled in Taiwan, tax is levied on all property, wherever located. If the decedent was a foreign national or Taiwan national regularly domiciled outside Taiwan, tax is levied only on property located in Taiwan.

The basis for estate tax is the prevailing value of property at the time of death, less legal exclusions, exemptions and other deductions. Land and buildings are valued at an officially assessed value determined by the relevant government agencies.

In general, an exemption of NT$12 million is allowed for each decedent. The following are other allowable deductions from total taxable property:

• NT$4,450,000 for the decedent’s surviving spouse
• NT$1,110,000 for each of the decedent’s surviving parents, NT$450,000 for each dependent grandparent, dependent brothers and sisters, and lineal descendants, as well as an additional NT$450,000 for each year that each lineal descendant and dependent brother and sister is younger than 20 years of age
• An additional NT$5,570,000 for each qualified handicapped or mentally disturbed heir
• The value of agricultural land and the products on the land if the heirs continue to farm the land for at least five years after the death of the decedent
• A percentage of the value of any estate property that was inherited by the decedent within nine years before his or her death and that was subject to tax
• Taxes and penalties owed, and debts incurred, by the decedent before his or her death
• NT$1,110,000 for funeral expenses
• Direct and necessary expenses to execute the decedent’s will and administer the estate

Certain property is not subject to estate tax. The following exclusions are among the more common:

• Proceeds from life insurance policies with designated beneficiaries
• Furniture, household equipment and other daily necessities, up to NT$800,000
• Patents and literary or artistic works created by the decedent
• Donations to government agencies and enterprises and to privately incorporated educational, cultural, social welfare, charitable and religious organizations
• Tools used in the decedent’s profession, up to NT$450,000
• Property inherited by the decedent within five years before death that was subject to tax

The net estate, after exclusions, deductions and exemptions for 2011, is taxed at a rate of 10%.

The following items may be adjusted if the accumulated consumer price index has increased by at least 10% over the last adjustment:

• Exemptions
• Estate tax rate brackets
• Exclusion amount of furniture, household equipment and other daily necessities, and tools used in the decedent’s profession
• Deductions for the surviving spouse, lineal descendants, parents, siblings, and grandparents of the decedent, standard deduction for funeral expenses, and special deductions for handicapped

Heirs.  The executor of an estate, or the heir in the absence of an executor, must file an estate tax return with the local tax bureau generally within six months after the death of the deceased, and the tax bureau must complete the tax assessment within the following two months. Payment of tax is due within two months after receipt of a tax assessment notice. If the tax due exceeds NT$300,000, a taxpayer may, subject to prior approval, pay it in 18 installments at intervals of no longer than two months or pay the tax in kind.  A taxpayer who is not satisfied with an assessment may seek relief through administrative and judicial reviews.

Gift tax.  Tax is imposed on gifts made by a donor who is a national of Taiwan or who owns property in Taiwan. If the donor is a Taiwan national regularly domiciled in Taiwan, the tax is levied on any donated property, wherever located. If the donor is a Taiwan national regularly domiciled outside Taiwan or a foreigner, tax is levied only on donated property located in Taiwan. 

Gifts are valued based on the prevailing value at the time of donation. Land and buildings are valued at officially assessed values determined by government agencies.

An annual exemption of NT$2,200,000 per donor is allowed for taxable gifts. The following items are excluded from total taxable gifts:

• Donations to government agencies and enterprises and to educational, cultural, religious, public welfare and charitable organizations
• Transfers between spouses
• Marriage gifts of up to NT$1 million given by each parent
• Agricultural land given to the donor’s heir, if the heir continuously uses the land for farming for at least five years after the transfer

The net gift, after exclusions and exemptions for 2011, is taxed at a rate of 10%.

The annual exemption amount and gift tax rate brackets may be adjusted if the accumulated consumer price index has increased by at least 10% over the last adjustment.

A donor must file a gift tax return with the local tax bureau within 30 days after making a gift if the aggregate amount of total gifts during the calendar year, including the current gift, exceed the NT$2,200,000 annual exemption. The local tax bureau must complete the tax assessment within two months after it receives the return. Payment is due within two months after the receipt of a tax assessment notice. If the tax due exceeds NT$300,000, a taxpayer may, subject to prior approval, pay the tax in 18 installments at intervals of no more than two months or pay the tax in kind. A taxpayer who is not satisfied with an assessment may seek relief through administrative and judicial reviews.

C. Social security

No social security taxes are levied in Taiwan. However, nominal labor insurance premiums and national health insurance premiums are imposed on each person employed by a Taiwan business entity.

Tax treaties

Taiwan has entered into comprehensive tax treaties with the following countries.

Australia

Israel

Singapore

Belgium

Macedonia

South Africa

Denmark

Malaysia

Swaziland

France

Netherlands

Sweden

Gambia

New Zealand

United Kingdom

Hungary

Paraguay

Vietnam

Indonesia

Senegal

To learn more about the history, culture, economy and other information about Taiwan

We have been preparing US income tax returns for US Citizens and permanent residents living in Taiwan for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.

We have scores of clients located in Taiwan and know how to integrate your US taxes into the local income taxes you pay.  Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.

As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end.  (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.

There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership.   If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form.  These penalties are due regardless of whether you owe income taxes or not.

There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits.  There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.

If you are self-employed, you will have to pay US self-employment taxes (social security).   If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Taiwan.

We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident.  You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.

Let us help you with your US tax returns, US tax planning and other US tax and legal concerns.  Download our expat tax questionnaire or request a request a consultation by phone, skype or email