December 12, 2024
UNDERSTANDING THE TAX LANDSCAPE IN TAIWAN
INTRODUCTION
Through a network of taxation bureaus located across the nation, the Ministry of Finance (“MOF”), the highest taxing body in The Republic of China (“ROC, Taiwan”), enforces tax laws and regulations. Taiwan’s tax code is generally clear-cut and transparent, and the filing processes are comparatively straightforward in contrast to several other developed economies.
TAXATION AUTHORITY
The Ministry of Finance (“MOF”) oversees taxation in The Republic of China (“ROC, Taiwan”) enforcing laws and regulations through several bureaus across the country. On July 1, 1967, Taipei City was raised to a municipality directly controlled by the Executive Yuan. The Ministry of Finance opted to take over the assigned role of collecting national taxes from the Taipei Revenue Service Office, establishing the National Taxation Bureau of Taipei (“NTBT”). It is responsible of collecting 9 different taxes: Profit-seeking Enterprise Income Tax, Individual Income Tax, Business Tax, Commodity Tax, Estate Tax, Gift Tax, Securities Transactions Tax, Futures Transactions Tax, Tobacco and Alcohol Tax.
TAX RATES & REGULATIONS
CORPORATE TAXES
Corporations with Taiwanese residents must pay income tax on their worldwide incomes. A company is considered a resident corporation if its headquarters are in Taiwan.
Non-resident corporations are solely taxed on income generated in Taiwan through a branch or agent. Effective January 1, 2019, corporate income tax is fixed at 20%. Previously, corporate income tax was fixed at 17% beginning January 1, 2010. Principal forms of business entities are subject to corporate income tax i.e. limited company, company limited by shares branch of a foreign corporation, close corporation, partnership and B2C e-commerce operator that derives income from sources within Taiwan. Companies are required to pay corporate taxes at the following rates:
- Companies with an annual turnover of up to New Taiwan Dollar (“NTD”) 120,000 are subject to a 0% tax rate.
- Companies with an annual turnover of more than NTD 120,000 are subject to a 20% tax.
- The surcharge is imposed at a rate of 5% on undistributed profits from a corporation’s current earnings that remain undistributed at the end of the following year.
VALUE ADDED TAX (“VAT”)
Taiwan imposes value-added tax (“VAT”) under Value-added and Non-Value-added Business Tax Act on all taxable transactions in the Republic of China (Taiwan), regardless of whether both parties are located in Taiwan. The VAT is levied on goods and services supplied within Taiwan’s territory which are as follows:
- Regular rate- 5.0%
- Export sales and services- 0%
- Income from reinsurance premiums- 1.0%
- Nightclubs and restaurants with entertainment- 15.0%
- Coffee shops and bars offering companionship services- 25.0%
- Wholesale agricultural traders or small agricultural product suppliers- 0.1%
- Small-scale businesses- 1.0%
Businesses must typically file their VAT returns every two months, though they can request permission to file every month if they’d prefer.
INDIVIDUAL TAX
Taiwan has distinct income tax rates for residents and non-residents. Residents are individuals who are either domiciled in Taiwan or are not domiciled but reside in Taiwan for at least 183 days in a tax year. Individual income tax rates range from 5% to 40%. Individual with income of:
- income from NTD 0 to 560,000 is liable to tax at the rate of 5%
- income from NTD 560,001 to 1,260,000 is liable to tax at rate of 12%
- income from NTD 1,260,001 to 2,520,000 is liable to tax at rate of 20%
- income from NTD 2,520,001 to 4,720,000 is liable to tax at rate of 30%
- income above NTD 4,720,000 is liable to tax at the rate of 40%.
PROPERTY TAX
Residential buildings are taxed annually at rates ranging from 1.2% to 3.6% of their current assessed value. The tax rate is set by the county or city authority where the building is located.
Taiwan taxes landholdings on an annual basis. Land tax is assessed based on the total value of land owned by a person or company in a certain district. The tax rate ranges from 1% to 5.5%, with a lower flat rate of 0.2% for residential land that meets specific standards.
OTHER TAXES
LUXURY TAX
In May 2011, Taiwan implemented the Specifically Selected Goods and Service Tax often known as the “luxury tax” under Specifically Selected Goods and Services Tax Act, transferring land or buildings within one year of acquisition incurs a 15% luxury tax based on the transaction price. If the property is transferred after one year but less than two years of ownership, a 10% luxury tax will be applied based on the transaction price. Luxury tax applies regardless of whether the seller made a profit or loss from the transaction. The following items are subject to the luxury tax:
- Taxable value of yachts and cars above NTD 3 million
- Taxable values for turtle shells, hawksbills, coral, ivory, furs, and related products exceed NTD 500,000.
- Taxable values of furniture exceeding NTD 500,000.
Most of these commodities are taxed at 10%.
STAMP TAX
The Stamp Tax Act governs documents signed in Taiwan, including those listed below. This applies even when only one of the signatories is in Taiwan.
- Receipts for monetary payments: documents, books, or records indicating receipt of money, including receipts, slips, releases, bank books, payment records, etc. issued to identify monetary payments. This does not include business invoices with monetary receipts.
- Deeds or receipts for the sale of movable property.
- Contracts agreements are those between parties to complete a specific task, such as construction or printing.
- Contracts for sale, transfer, or partition of real estate that must be registered with government offices, including pledges of liens and deeds.
ALTERNATIVE MINIMUM TAX (“AMT”)
Residents are required to pay the higher of the personal income tax or the alternative minimum tax (“AMT”). Personal income tax applies solely on income earned in Taiwan. AMT is applied to global revenue and eligible Controlled Foreign Corporation (“CFC “) income. Married couples must file jointly, unless they have been separated for at least 6 months or have unique circumstances.
OBSERVATION
Taiwan’s government has implemented major tax reforms in recent years in an attempt to address domestic issues and improve the ROC’s international competitiveness; more changes are anticipated in the years to come. Lowering personal and corporate income tax rates, raising normal tax exemption amounts, enacting regulations governing transfer pricing, doubling the loss carry-forward period, and signing double taxation treaties with several nations are some of the recent developments.
HOW WE CAN HELP?
- Our Team can assist corporation in structuring operations to optimize tax liabilities, including profit- seeking enterprises income tax and business tac compliances.
- Our Team can businesses on VAT applicability and rates, including special cases like small- scale businesses and reinsurance premiums.
- Our Team can help start-ups and business design tax- efficient operational models and advise on tax incentives available for new business in Taiwan.
For more information or queries, please email us at
[email protected]
Key Contact
Surendra Singh Chandrawat
Managing Partner
