Taiwan has a taxation system that is designed to raise revenue for public services and social programs. This article will provide an overview of how taxation works in Taiwan, including double taxation agreements, the main taxes expats need to be aware of, tax breaks, how and when to file a tax return as an expat, and tax exit procedures.
How the Taxation System Works in Taiwan
The taxation system in Taiwan is administered by the National Taxation Bureau. The tax system is divided into two types of taxes: direct and indirect. Direct taxes are levied on individuals and businesses based on their income, while indirect taxes are imposed on goods and services.
Individuals are taxed based on their income, with a progressive tax system based on income bands. The tax rates range from 5% to 45%, with the highest tax rate applicable to those earning more than TWD 10,000,000 per year.
Businesses are taxed based on their profits, with a corporate income tax rate of 20%. However, some industries are subject to higher or lower tax rates, depending on the sector.
Double Taxation Agreements
Taiwan has entered into double taxation agreements (DTAs) with several countries, including major trading partners such as the United States, Canada, and the United Kingdom. DTAs are agreements between two countries that aim to eliminate double taxation of income earned in both countries. These agreements help to promote cross-border trade and investment and ensure that individuals and businesses are not taxed twice on the same income.
Under DTAs, residents of one country may be eligible for tax benefits, such as reduced withholding tax rates, when receiving income from the other country. Expatriates who are residents of a country that has a DTA with Taiwan may be able to take advantage of these benefits.
Main Taxes for Expats in Taiwan
As an expat working or doing business in Taiwan, there are several taxes that you need to be aware of. These include personal income tax, corporate income tax, value-added tax (VAT), and business tax.
Personal Income Tax
Expats are subject to personal income tax on their income earned in Taiwan if they are resident in Taiwan for tax purposes. The tax rates range from 5% to 45%, with the highest tax rate applicable to those earning more than TWD 10,000,000 per year.
Expats may be eligible for certain tax reliefs and allowances, such as the personal allowance, which can help reduce their tax liability.
Corporate Income Tax
Expats who are doing business in Taiwan through a company are subject to corporate income tax. The corporate income tax rate is 20%, and the tax is levied on the company’s profits.
Value-Added Tax (VAT)
VAT is a tax on goods and services that is levied at a standard rate of 5%. Certain goods and services, such as medical care and financial services, are exempt from VAT.
Expats who are providing services in Taiwan may be subject to VAT if their annual revenue exceeds a certain threshold. The current threshold is TWD 1.5 million per year.
Business tax is a tax on certain types of businesses, such as restaurants, hotels, and entertainment venues. The tax rate ranges from 1.5% to 5%, depending on the type of business.
Special Tax Breaks for Expats
Expats who are working or doing business in Taiwan may be eligible for certain tax breaks. These include:
Double Taxation Relief
Expats who are resident in Taiwan may be eligible for double taxation relief, which can help reduce their tax liability on income earned abroad.
Taiwan offers investment incentives to attract foreign investment. These incentives may include tax breaks or exemptions for certain types of investments, such as research and development or green energy projects.
Filing Tax Returns
Expats in Taiwan are required to file a tax return annually, regardless of whether they are liable for tax. The deadline for filing the tax return is May 31st of the following year.
Expats can file their tax return online or by mail. They will need to provide their personal information, income earned in Taiwan and abroad, and any applicable tax reliefs or allowances.
Employers are responsible for deducting personal income tax and social security contributions from their employees’ salaries and remitting them to the relevant authorities. Expats who are self-employed or running a business in Taiwan are responsible for paying their own taxes.
Tax Exit Procedures
Expats who are leaving Taiwan to move abroad are required to complete tax exit procedures. This involves notifying the National Taxation Bureau of their departure and settling any outstanding tax liabilities.
Expats who are leaving Taiwan may also be eligible for certain tax refunds, such as a refund of any overpaid tax or a refund of any tax paid on income earned after leaving Taiwan.
Expats should consult with a tax professional to ensure that they are in compliance with all tax requirements before leaving Taiwan.
In conclusion, the taxation system in Taiwan is relatively straightforward, with direct and indirect taxes levied on individuals and businesses based on their income and profits. Expats who are working or doing business in Taiwan should be aware of their tax obligations and take advantage of any tax breaks or incentives that they may be eligible for. Filing tax returns and completing tax exit procedures are important steps to ensure compliance with the law and avoid any potential legal issues. Expats should consult with a tax professional to ensure that they are meeting all tax requirements and taking advantage of any available tax benefits.