Taxation of individuals

Individual income tax (IIT) is levied on Taiwan-sourced income of both resident and non-resident individuals, unless exempt under the provisions of the Income Tax Act and other laws.

Individual income tax (IIT) rates

A non-resident alien residing in Taiwan for less than 90 days in a calendar year is subject to 18% withholding tax (WHT) on salary remuneration received from a Taiwan-registered entity. Remuneration received from an entity registered outside of Taiwan is tax exempted.

A non-resident alien residing in Taiwan for more than 90 days but less than 183 days in a calendar year is subject to tax at a flat rate of 18% on Taiwan taxable salary income, regardless of where the remuneration is paid.

A resident alien is subject to the following progressive tax rates for 2022 IIT return filing:

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Income basic tax (IBT)

In addition to regular income tax calculations under the Income Tax Act, Taiwan also imposes IBT, at a flat rate of 20%, on individuals who are tax residents in Taiwan (including expatriates who stay in Taiwan for 183 days or more in a tax year). Foreign-sourced income is included in the calculation of IBT if the following criteria are met:

• The individual is a tax resident of Taiwan.

• Foreign-sourced income is equal to or more than TWD 1 million with basic income exceeding TWD 6.7 million.

Under the IBT Act, a taxpayer must calculate the amount of IBT due on income subject to IBT after adding back certain items and compare the result with the regular income tax payable. If the IBT payable is greater than the regular income tax payable, the taxpayer has to calculate and pay IBT based on the following formula:

• Income subject to IBT = Regular taxable income + add-back items

• IBT = (Income subject to IBT - TWD 6.7 million) x 20%

The add-back items include qualified insurance benefits, income derived from transaction of beneficiary certificates of privately placed securities investment trust funds, non-cash charitable donations, and foreign-sourced income totalling TWD 1 million or more.

Note that although the inclusion of foreign-sourced income increases the IBT burden, any foreign taxes paid on foreign-sourced income may be credited against IBT payable, with certain limitations.

 

Social Contribution  

There are compulsory social security programs that require contributions from employers and employees based on monthly insured salary, which is capped at various amounts. Taiwan social security programs include the Labour Insurance Program (LIP), National Health Insurance Program (NHIP), and Labour Pension Program (LPP). However, foreign individuals are not eligible for participating in the LPP.

Starting from 1 January 2021, under the Second Generation National Health Insurance Program, a supplementary premium of 2.11% is applicable on bonus or incentive payments exceeding the monthly insured salary by four times (capped at TWD 10 million) on an accumulated annual basis for the employee. In addition, Taiwan local employers are required to contribute a supplementary premium of 2.11% on the difference between total monthly taxable salaries and employees’ monthly total insured salaries.

Taxation of legal persons

The corporate income tax (CIT) rate in Taiwan is 20% over 120,000 TWD (exemption).

A non-resident company is taxed on income derived from Taiwan sources. A non-resident company with a fixed place of business (FPOB) or business agent in Taiwan is taxed similarly to a resident company (i.e. subject to filing of an annual CIT return based on the same CIT rate provided above). A non-resident company having no FPOB or business agent in Taiwan is subject to withholding tax (WHT) at source on its Taiwan-sourced income. WHT rates on dividends, interest, and royalties may be reduced if the recipient is a tax resident of a tax treaty country and the relevant treaty provides for a reduced rate.

 
Value Added Tax

Business tax

All sales of goods and services in Taiwan, as well as the importation of goods into Taiwan, are subject to business tax. There are two types of business tax systems: value-added tax (VAT) and gross business receipts tax (GBRT).

Sellers and service providers are generally obligated to pay business tax for the sales of goods or services within Taiwan unless the law provides otherwise. For importation of goods, the business tax will be paid by the goods receivers or buyers via customs. For importation of services sold by foreign companies to Taiwanese buyers, business tax shall be paid by the service buyers. However, the service buyer (corporate entity) will not be required to pay business tax if it is exclusively engaged in taxable transactions subject to either 5% or 0% VAT.

 

Value-added tax (VAT)

VAT is applicable to general industries, and the VAT rate is 5%. Under the VAT system, each seller collects output VAT from the buyer at the time of sale, deducts input VAT paid on purchases from output VAT, and remits the balance to the tax authority.

Gross business receipts tax (GBRT)

GBRT is applicable to specified industries (e.g. financial institutions, small businesses). For investment trust companies, securities and futures firms, short-term commercial paper enterprises, and pawnshops, the rate is 2%. The GBRT rate on revenues derived from the core business operations of banks and insurance enterprises is 5%. For re-insurance enterprises, the rate is 1%.

Foreign e-service providers

Taiwan has formally implemented a VAT mechanism for cross-border sales of business-to-consumer (B2C) electronic services. Under the mechanism, sales of cross-border electronic services by corporate sellers to individual buyers require the foreign companies to register for VAT purposes in Taiwan, file VAT returns, and pay VAT if their annual sales exceed the promulgated threshold of TWD 480,000.