Taipei

Taxation in Taipei, Taiwan

What are the tax rates in Taipei, Taiwan? How are corporations taxed? Here’s Teleports overview of personal, corporate and other taxation topics in Taipei, Taiwan.

Personal taxation in Taipei

Effective personal income tax rate

Annual income$25,000$40,000$80,000$125,000$200,000
Rate8%10%16%21%28%

Teleport city rankings for personal income tax

Personal taxation puts Taipei in position 17 of all Teleport Cities.
WORSTBEST

Basis

Individual income tax is levied on the Taiwan-source income of both resident and nonresident individuals.

Filing status

The income of the taxpayer, the taxpayer’s spouse and dependents must be consolidated and reported on a single tax return.

Rates

The tax rates for resident individuals are progressive up to 45% (increased from 40% as from taxable year 2015). Nonresidents are subject to withholding tax at a rate of 18% on wages and salaries and 20% on commissions, bank interest, royalties, fees for professional services, rental income and prizes. A 15% withholding tax is levied on interest on short-term bills; interest on securitized certificates; interest on corporate bonds, government bonds or financial debentures; interest derived from repurchase transactions involving these bonds or certificates; and gains derived from structured products. The rate is 20% in all other cases.

Deductions and allowances

The taxpayer may elect to take the standard deduction or itemize deductions. If the total deductions on an itemized basis exceed the standard deduction amount, a taxpayer may choose to itemize deductions rather than take the standard deduction. Deductions are available for insurance premiums, mortgage interest, rental expenses up to a specified amount, charitable donations, etc. A nonresident taxpayer is not entitled to personal exemptions and deductions.

Taxable income

Taxable income includes salaries or wages (and any allowances, bonuses or similar compensation); severance pay; professional fees; income from self-undertaking in farming, fishing, animal husbandry, forestry and mining; rental income from property in Taiwan; and dividends, interest and royalties derived from sources in Taiwan. Any income of the taxpayer’s spouse or dependents living at home is included in assessing total tax liability. Under the imputation system, dividends received by an individual shareholder are taxed only once, as part of personal income.

Capital gains

Capital gains generally are subject to individual income tax, but gains from the sale of land are subject to real property tax rather than individual income tax.

Other taxes on individuals

Real property tax

See “Real property tax” under “Other taxes on corporations,” above.

Inheritance/estate tax

Estate and gift tax is levied on the worldwide assets of Taiwanese-domiciled individuals. If a Taiwanese national does not have a Taiwan domicile, but has a residence in Taiwan, worldwide assets are subject to Taiwan estate and gift tax, provided the total length of stay within two years before the gift transfer date or date of death exceeds 365 days.

Compliance for individuals

Penalties

A late payment penalty of 1% of the unpaid amount calculated every two days, up to a maximum of 15% of the unpaid amount, will apply and late payment interest will begin to accrue 30 days after the payment due date. For underreported income, a maximum penalty of two times the underpaid tax amount applies, which may be increased to three times the unpaid tax amount if an income tax return is not filed.

Filing and payment

A resident (or nonresident that is in Taiwan for more than 90 days) individual must file an income tax return and pay any tax due between 1 May and 31 May of the year following the tax year.

Corporate taxation in Taipei

Teleport city rankings for corporate income tax

Corporate taxation puts Taipei in position 70 of all Teleport Cities.
WORSTBEST

Royalties

The withholding tax on royalty payments made to a resident is 10%. The rate is 20% on royalties paid to a nonresident, unless the rate is reduced under a tax treaty. However, royalties paid in respect of qualified intellectual property licensing approved by the relevant authorities may be exempt from income tax.

Basis

Taiwan companies (including Taiwan subsidiaries of foreign companies) are subject to income tax on their worldwide income. A profit-seeking enterprise with its head office outside Taiwan (such as a branch of a foreign company) is considered nonresident for tax purposes. Such an enterprise is subject to profit-seeking enterprise income tax on only its Taiwan-source income, at the same rate as applies to domestic companies.

Taxation of dividends

Taiwan operates an imputation system to prevent the double taxation of dividends. Under the system, when a Taiwan company distributes its after-tax profits as dividends to individual resident shareholders, the distributing company also allocates the profit-seeking enterprise income tax paid on the dividends to the shareholders as an imputed tax credit. The individual shareholders then can use the imputed credit to offset their individual income tax liability. Consequently, the profit-seeking enterprise income tax paid by a Taiwan company becomes an advance tax payment for its shareholders.

Residence

A profit-seeking enterprise is resident in Taiwan if its head office is in Taiwan.

Capital gains

Capital gains are treated as ordinary income and taxed at the standard profit-seeking enterprise rate. Gains derived by a profit-seeking enterprise from the sale of land before 1 January 2016 and the sale of shares of a domestic company are exempt from income tax but are subject to land value incremental tax (LVIT) and alternative minimum tax (AMT), respectively (see below under “Alternative minimum tax” and “Real property tax”).

Participation exemption

Taiwan companies are not taxed on dividends received from investments in other Taiwan companies, but foreign dividends are subject to income tax at a rate of 17%.

Interest

The withholding tax on interest paid to a resident is 10%. A 15% withholding tax applies to interest paid to a nonresident on short- term bills; interest on securitized certificates; interest on corporate bonds, government bonds or financial debentures; and interest derived from repurchase transactions for these bonds or certificates. The rate in all other cases is 20%, unless the rate is reduced under a tax treaty.

Surtax

To neutralize a company’s dividend distribution decision, a 10% surtax is imposed on undistributed profits. Nonresident shareholders (including corporations and individuals) may use the 10% surtax as an offset against dividend withholding tax. As a result of the partial imputed tax credit system, if a Taiwanese company distributes earnings to nonresident shareholders, only 50% of the paid 10% surtax credit can be used to offset the dividend withholding tax.

Foreign tax credit

A foreign tax credit is available for income tax paid in other countries on income derived outside Taiwan. The credit may be used to offset the enterprise’s Taiwan income tax liability, but it may not exceed the incremental tax liability that would result if the foreign-source income was added to Taiwan taxable income and taxed at the applicable domestic rate.

Technical service fees

Payments made to an offshore company for technical services provided to a Taiwan entity are subject to a 20% withholding tax if they payments are considered Taiwan-source income. It may be possible to obtain “apportionment treatment,” with only the part of the income deemed to be from a Taiwan source subject to the 20% withholding tax. Alternatively, if the costs associated with the provision of the services are difficult to calculate, the service provider can request a hypothetical taxable income of 15% of total business turnover for services provided (10% for certain transport industries), which will be taxed at the 20% rate, resulting in an effective tax rate of 3% or 2%, respectively. Approval of the National Taxation Bureau is required in both cases.

Alternative minimum tax

A profit-seeking enterprise with a fixed place of business or business agent in Taiwan is subject to a separate alternative minimum tax (AMT) calculation if it earns certain income that is tax exempt or enjoys certain tax incentives under the Income Tax Act or other laws, and the enterprise’s basic income exceeds NTD 0.5 million. The AMT rate is 12%.

Other taxes on corporations

Capital duty

There is no capital duty, but a one-time fee is charged on registered capital at a rate of 1/4000 or NTD 1,000, whichever is higher.

Real property tax

The land value tax (LVT) is imposed on a taxpayer’s total urban and rural land that has been assigned a land value in each municipality directly administered by the central government or county. LVT is levied at regular progressive rates (from 1% to 5.5%) or special rates.

Social security

There is no social security tax in Taiwan, but factories, mines and all companies with 50 or more employees must establish funds for employee welfare. When an enterprise is founded, 5% of its registered capital, or amounts equal to 0.05% to 0.15% of monthly revenue, or 20% to 40% of the proceeds from the sale of scrap or waste materials at the time of each sale, must be set aside and added to the employee welfare fund.

Other taxation in Taipei

Value added tax

Filing and payment

A BT return must be filed every two months and payment must be made at the time the return is filed. Penalties apply for evasion.

Rates

The basic rate of the BT is 5%. The following items are zero- rated: exports, export-related services, items sold by duty-free shops, goods sold to export-oriented entities within a tax-free export zone or science-based industrial parks and goods sold to a bonded factory or warehouse. Exempt status applies to healthcare services, land sales and approved textbooks and academic writings, etc.

Taxable transactions

Business tax (BT) is imposed under two systems: the VAT system and the Non-VAT (special BT) system.

Registration

Under the Company Act, a business entity must register with the Ministry of Economic Affairs and other competent authorities before conducting business in Taiwan. The tax laws also require a business entity to register for each of its operations having a fixed business location in Taiwan. However, if a foreign company provides supervision, installation, testing and other technical cooperation services in Taiwan, it may apply to the tax office for an exemption from the tax registration requirement.

Anti-avoidance rules

Transfer pricing

Taiwan has transfer pricing rules requiring transactions between related parties to be conducted on arm’s length terms. The rules provide a specific definition of related parties, which includes direct and indirect control, as well as control over a board of directors. The following transfer pricing methods are accepted: comparable uncontrolled price, comparable uncontrolled transaction, resale price, cost plus, comparable profits, profit split or other methods provided by the Ministry of Finance. Taxpayers are required to prepare contemporaneous documentation of related party transactions. The tax authorities can adjust the income of taxpayers in appropriate cases. Penalties may be imposed for failure to comply with the arm’s length principle and the documentation requirements. Advance pricing agreements are possible.

Penalties

Penalties are imposed for late filing and failure to file a return. A late filing penalty is calculated at 10% of the tax payable and capped at NTD 30,000, but may be increased to 20% of the tax payable, capped at NTD 90,000, if the taxpayer fails to file an income tax return after receiving a reminder from the tax office. A late payment penalty of 1% of the unpaid amount calculated every two days, up to a maximum of 15% of the unpaid amount, will apply, and late payment interest will begin to accrue 30 days after the payment due date. For underreported income, a maximum penalty of two times the underpaid tax amount applies and may be increased to three times the unpaid tax amount if an income tax return is not filed.

Thin capitalization

A profit-seeking enterprise, such as a subsidiary or a Taiwan branch of a foreign company, is subject to thin capitalization rules. Interest expense from related party debt exceeding a 3:1 debt-to-equity ratio is not deductible for tax purposes. Companies in the financial industry, such as banks, financial holding companies, insurance companies, securities firms, etc., are not subject to the thin capitalization rules.

Rulings

A taxpayer can apply to the tax authorities for a ruling to confirm its tax position or clarify a tax issue. The Ministry of Finance publishes a list of all public tax rulings.

Filing requirements

A calendar-year company must pay provisional income tax in an amount equal to 50% of the preceding year’s tax liability between 1 September and 30 September. However, if the company’s income tax return is examined and certified by a CPA, or if a blue return is filed, the company can opt to pay the provisional tax at an amount calculated on the basis of its operating income for the first six months of the current tax year.

Consolidated returns

Consolidated returns may be filed by qualifying financial holding companies that hold at least 90% of the outstanding issued shares of domestic subsidiaries for 12 consecutive months during a tax year, as defined by the Financial Holding Law. Under the Mergers and Acquisitions Law, after a qualified merger, acquisition or spinoff transaction, if a company owns 90% or more of the total issued shares of another company for 12 consecutive months during a tax year, the company can file a consolidated return.

Controlled foreign companies

There currently are no CFC rules in Taiwan, but the Ministry of Finance is considering the introduction of such rules.

Tax year

The tax year for profit-seeking enterprises is the calendar year; approval must be obtained to use a different fiscal year.

Disclosure requirements

See above under “Transfer pricing.” Compliance for corporations:

Investment basics

Foreign exchange control

Taiwan has liberalized its foreign exchange controls, and all foreign exchange transactions are administered by the central bank. A limit of USD 50 million is imposed on inward and outward remittances converted into or out of NTD for any single corporate entity, and the limit is USD 5 million for resident individuals. Additional amounts of inbound and outbound remittances must be preapproved by the central bank.

Accounting principles/financial statements

Taiwan GAAP accounting standards apply. Listed companies and many financial institutions regulated by the Taiwan Financial Supervisory Commission (FSC) were required to adopt IFRS in 2013 when completing their financial statements; unlisted public companies had to adopt IFRS by the end of 2015. As from 2016, private companies must adopt the Business Entity Accounting Act, which has been revised based on IFRS.

Principal business entities

These are the unlimited company, hybrid unlimited company, limited company, company limited by shares, branch of a foreign corporation and representative office.

Withholding tax

Dividends

No withholding tax is imposed on dividends paid to a resident shareholder. A 20% withholding tax is imposed on dividends

Other

Companies are subject to a securities transaction tax and a futures transaction tax. Securities transaction tax is levied on the transfer of securities (except for government bonds). The tax rate is 0.3% of the shares and share certifications and 0.0000125%-0.6% for futures transactions.

Transfer tax

Deed tax is levied on the transfer of title to real estate through a sale, an exchange, an acceptance of a dien right, a donation, a subdivision or an occupancy, except where the LVIT applies. The tax is based on the deed price of the property as prescribed by the local government, with the rate ranging from 2% to 6%.

Stamp duty

Stamp tax applies to various types of documents at the following rates: 0.4% of all cash receipts paid by the recipient (0.1% for money deposited by bidders for the deposit of bid bonds); NTD 12 per deed of sale of movable property; and 0.1% of the contract amount for job contracting agreements and contracts for the sale, exchange, donation or division of real estate, paid separately by the contracting parties.