Tax Base
For any individual having income from sources in Taiwan, income tax is levied in accordance with the Income Tax Act.
Tax on Non-Residents
An individual is considered non-resident in Taiwan if he/she is not domiciled in Taiwan and stays in Taiwan for less than 183 days in a taxable year. In general, income tax of non-residents is collected through withholding at source. However, non-residents who have income not subject to withholding tax should file an income tax return before their departure from Taiwan. No matter what income non-residents have, they are not entitled to any personal exemptions or deductions.
If an individual stays in Taiwan for less than 90 days in a taxable year, income received from a foreign employer is exempt from Taiwan income tax (if an individual's residence state has an applicable treaty with Taiwan, generally the criteria could be prolonged to 183 days).
Tax on Residents
The term "resident" as used in the Income Tax Act, refers to:
- A person who has domicile within Taiwan and habitually resides within the territory of Taiwan; or
- A person who is not domiciled in Taiwan but resides within the territory of Taiwan for 183 days or more during a tax year.
A resident individual must file an income tax return between May 1 and May 31 of the following taxable year and pay any tax due. The tax return must include income, as well as exemptions and deductions of the taxpayer's household members, including the taxpayer, his or her spouse, and dependents.
Personal Exemptions
When a resident files an income tax return, he/she can deduct personal exemption per household member. Personal exemptions increase by 50% if the taxpayer, his/her spouse and lineal ascendants are 70 years of age or older. For the 2023 individual income tax return, the personal exemption is NT$92,000 for each household member, or NT$138,000 for each taxpayer, spouse, and lineal ascendant, who are 70 years old and above.
Deductions
A taxpayer may select either the standard deduction or itemized deductions and may, in addition thereto, declare special deductions in their household. The amounts of the deductions allowed for the 2023 individual income tax returns are disclosed as follows (if the amount of total itemized deductions exceeds the amount of the standard deduction, an optimal selection is to claim the itemized deductions):
- Standard deduction: NT$124,000 for a single taxpayer and NT$248,000 for married persons filing jointly in 2023.
- Allowable itemized deductions:
- Contributions and donations: Contributions and donations made by the taxpayer, his/her spouse and dependents to educational, cultural, public welfare or charitable organizations or associations up to 20% of the gross consolidated income are deductible. However, there is no limit on the deduction of donations or contributions made for the support of national defense or troop-cheering or contributions to the government.
- Insurance premiums: Premiums paid by or for the taxpayer, his/her spouse and lineal dependents for life insurance, labor insurance, national pension insurance and insurance for military personnel, public servants or teachers are deductible up to NT$24,000 per person per year. However, there is no limit on the amount of premium paid for national health insurance.
- Medical and childbirth expenses: Medical and childbirth expenses incurred by the taxpayer, his/her spouse or dependents are deductible provided that payments so made are paid to public hospitals, private hospitals or clinics specially appointed under national health insurance, or hospitals having complete and accurate accounting records as recognized by the MOF. However, no deduction is granted for the portion (of such expense) reimbursed by insurance.
- Losses from disaster: The losses incurred by the taxpayer, his/her spouse and dependents from a disaster caused by force majeure. However, no deduction is allowed for the portion of the loss for which insurance benefit or relief has been received.
- Interest on a home mortgage: The interest payable on a loan from a financial institution by a taxpayer, his/her spouse and dependents for a primary residence may be deducted from his/her consolidated income, up to NT$300,000 per year per tax return. However, if a special deduction for savings and investment has been taken in the same tax return, the amount of the special deduction must be subtracted from the above mortgage interest. The deduction for home mortgage interest is limited to a single residence.
- Rent for housing: Rent for housing in Taiwan paid by a taxpayer, his/her spouse and lineal dependents used as a residence rather than for business purposes or to carry out professional services may be deducted from consolidated income up to NT$120,000 per year per tax return. However, no deduction is available for taxpayers who have taken the deduction for home mortgage interest on the same tax return.
- Special deductions:
- Loss from property transactions: The amount of loss from property transactions incurred by a taxpayer, his/her spouse and dependents is deductible up to the declared amount of property transactions income in the same year. However, if no income or insufficient income derived from property transactions in the same year is available for deduction, the loss may be carried forward to the next three years.
- Special deduction of salaries/wages: Deduction for a taxpayer, his/her spouse and dependents’ salaries/wages can be claimed for up to NT$207,000 per person per year for 2023.
- Special deduction for savings and investment: Interest derived from deposits in financial institutions, income from trust funds in the nature of savings, or earnings and dividends derived at the time of transfer, gift, distribution of estate or upon giving up the tax-deferring right or delivering the stock to the custodian, on tax-deferred publicly issued and traded stock acquired on or before December 31, 1998 by taxpayer, his/her spouse and dependents may be deductible up to NT$270,000. However, this deduction does not apply to tax exempt interest on postal pass-book savings under the Post Savings and Remittances Act or interests subject to separate taxation as stipulated in laws/regulations.
- Special deduction for the disabled: If the taxpayer, his/her spouse or dependents has/have a disability certificate(s) or identification, or being a mentally ill patient as defined in Subparagraph 4, Article 3 of the Mental Health Act, a deduction of NT$207,000 per year for the year 2023 may be made for each such person.
- Special deduction for educational tuition: If a child of a taxpayer is studying in a college or university, a deduction of up to NT$ 25,000 per student per year may be made for his/her educational tuition. However, the tuition of the Open University, vocational colleges, the first three years of five-year vocational colleges and students who have accepted government subsidies are excluded.
- Special deduction for pre-school children: A deduction of NT$120,000 per child per year may be made for taxpayers who have children under or equal to five years of age.
- Special deduction for long-term care: Starting from 2019, the taxpayer, his/her spouse or dependents who is a qualified person with physical and mental incapacity and need long-term care services prescribed by the Ministry of Health and Welfare, a deduction of NT$120,000 per year may be made for each person.
- However, the special deductions for pre-school children and long-term care are not applicable to taxpayers whose consolidated individual income tax rate, after the amount of the deductions mentioned above have been deducted, is greater than or equal to 20%, or to those who opt for the single tax rate of 28% on dividend income computed separately from their consolidated income, or to those whose annual total amount of basic income is greater than NT$6,700,000.
Tax Rates
The net taxable income of an individual is subject to the following progressive tax rates for year 2023:
| Net Taxable Income of year 2023 (NT$) |
Tax Rate |
Progressive Difference (NT$) |
| 0 - 560,000 |
5% |
0 |
| 560,001 - 1,260,000 |
12% |
39,200 |
| 1,260,001 - 2,520,000 |
20% |
140,000 |
| 2,520,001 - 4,720,000 |
30% |
392,000 |
| 4,720,001 and above |
40% |
864,000 |
Income Tax on Dividend
By abolishing the partial imputation tax system on dividends, a new dividend tax regime was put into practice in 2018. Such regime allows resident taxpayers be able to choose either to incorporate dividend income into their consolidated income to calculate their tax based on progressive income tax rates, with a tax credit of 8.5% of the total dividend amount, with the credit ceiling set at NT$80,000 per household; or to opt for the single tax rate of 28% on dividend income computed separately from their consolidated income.
According to Article 44-1 of the Business Mergers and Acquisitions Act, in cases where a company is dissolved due to the merger or division, the individual shareholders who acquire the shares of the surviving company or the newly incorporated company after the merger or division can choose to defer the dividend income tax. The individual shareholders’ dividend income tax calculated in accordance with the provisions of the Income Tax Act will be deferred for the first two years after the year of receiving dividend, but levied evenly afterwards for the next three years.
The Calculation of Income from Salaries/Wages
From January 1, 2019, the means to calculate wage income from salaries/wages for residents is based on a lump-sum deduction or an itemized expense deduction, including occupational clothing expenses, upgrading training fees, and occupational tool expenditures, with an upper limit of 3% of the salaries/wages each. The taxpayer can choose the best option.
Illustration of Income Tax Computation
Assumptions (for year 2023):
- Taxpayer files a joint income tax return with his/her spouse (both are under the age of 70). They have a child under the age of 20.
- Taxpayer receives Taiwan source wages NT$5,000,000 and chooses a lump-sum deduction of NT$207,000 for calculating wage income which will be NT$4,793,000.
- The standard deduction is claimed.
- The child studies in a college, and the tuition is NT$32,000 per year.
Unit: NT$
| Item |
Resident |
Non-resident |
| Taiwan-source taxable income/total amount paid |
$4,793,000 |
$5,000,000 |
| Minus: |
|
|
| Personal exemption (NT$92,000 × 3) |
276,000 |
(Not Applicable) |
| Standard deduction |
248,000 |
(Not Applicable) |
| Special deduction for educational tuition (NT$25,000 × 1) |
25,000 |
(Not Applicable) |
| Net taxable income |
4,244,000 |
5,000,000 |
| Tax rate |
30% |
18% |
| |
1,273,200 |
|
| Less: Progressive difference |
( 392,000) |
( - ) |
| Tax liability |
$881,200 |
$900,000 |
Note: Withholding tax paid during a year may be used as a credit to offset the tax liability of resident taxpayers. Non-resident taxpayers are taxed by withholding at source.
Taxation of Stock Options
Stock options of Taiwan companies
For employee stock options issued by Taiwan companies, the spread (i.e. the fair market value of the stock on the exercise date over the exercise price) of the options is categorized as "other income" of an employee. This income should be reported in the employee's individual income tax return in the year of exercise.
According to Article 19-1 of the Statute for Industrial Innovation, where a company employee exercises employee stock options and acquires such shares, the employee may opt to defer the assessment of the income tax payable up to an annual total of NT$5 million worth of the acquired shares as calculated at the market price prevailing in the year of share acquisition or the year of share disposal until the year of transfer after the year he/she acquires the shares. Such employee who holds the shares and stays employed at the company for two years or more from the date he/she receives the shares may opt to include the entire transfer price or the aforementioned market price, whichever is lower, in their income for the year of transfer and declare their income tax.
Stock options of foreign companies
For employee stock options issued by foreign companies to its expatriates providing services in Taiwan or to employees in the subsidiary, branch or representative office of the foreign companies, the spread (i.e. the fair market value of the stock on the exercise date over exercise price) of the foreign stock is categorized as "other income" of an employee and the taxable income should be calculated according to the following formula:
If an employee does not render services in Taiwan from the grant date to the vesting date, there is no Taiwan-source income accordingly.
Alternative Minimum Tax (AMT)
As of January 1, 2006, the AMT has been effective and is applicable to resident individuals. An individual need not report AMT if he/she is not deemed to be a Taiwan resident, or did not claim investment tax credit, or did not have any add-back items taken as tax reduction/exemption under the laws (e.g. Income Tax Act) in the same tax year, or the basic income amount is less than NTD6,700,000. From January 1, 2021, income derived from transactions of stocks, certificates of entitlement to new shares, certificates of payment and documents of title to shares issued or private placed by companies not listed on the stock exchange or traded on over-the-counter markets (hereinafter referred to as “Securities not listed on SE or traded on OTC markets”) has been counted in the basic income amount, but those companies approved by the central authority in charge of relevant enterprises as high-risk innovative startups and incorporated for less than five years have been excluded.
AMT should be reported and calculated based on one tax filing household as follows:
Basic Income Amount ＝ Regular Net Taxable Income as Prescribed in the Income Tax Act ＋ Overseas Income ＋ Life and Annuity Insurance Payment Received by the Beneficiary Where The Beneficiary and the Proposer of the Insurance are Different (In The Case of Payment Made upon the Death of the Insured Person, the Part of Which Aggregate of Payment Made in Filing Unit is Equal to or Less Than NT$33,300,000 May be Excluded from the Basic Income) ＋Income Derived from Transactions of Securities not listed on SE or traded on OTC markets and Beneficiary Certificates of Privately-Placed Securities Trust Funds ＋ Non-Cash Donation
The relevant rule to calculate the basic income amount and basic tax amount is as follows:
- Overseas Income ≧ NTD1,000,000
- A Filing Household's Total Overseas Income Per Year ＜ NTD 1,000,000: The overseas income need not be included in the basic income amount.
- A Filing Household's Total Overseas Income Per Year ≧ NTD 1,000,000: The full amount of overseas income should be included in the basic income amount.
- Basic Income Amount ＞ NTD 6,700,000
- Basic Income Amount ≦ NTD 6,700,000: There is no basic tax amount.
- Basic Income Amount ＞NTD 6,700,000: Basic Tax Amount ＝ (Basic Income Amount - NTD 6,700,000) × 20%
- If the basic tax amount as calculated above exceeds the regular tax payable after deducting investment tax credits, the individual must pay the difference. The difference shall not allow for deductions claimed regarding investment tax credit granted under the provisions of other laws.
- Basic Tax Amount ＞ Regular Income Tax Payable
- Regular Income Tax Payable ＝ Income Tax Payable Calculated Based on the Income Tax Act - Investment Tax Credit as Provided Under Other Laws and Regulations
- Basic Tax Amount ≦ Regular Income Tax Payable: There is no basic tax amount.
- Basic Tax Amount ＞ Regular Income Tax Payable: Based on the creditable amount of foreign tax paid.(In regard to the relevant regulations of foreign tax paid, please refer to the following.)
- Creditable Amount of Foreign Tax Paid ＜ The Difference Between Basic Tax Amount and Regular Income Tax Payable
- Creditable Amount of Foreign Tax Paid ≧ (Basic Tax Amount - Regular Income Tax Payable): There is no basic tax amount.
- Creditable Amount of Foreign Tax Paid ＜ (Basic Tax Amount - Regular Income Tax Payable):
AMT Payable = Basic Tax Amount - Regular Income Tax Payable - Creditable Amount of Foreign Tax Paid
- Creditable amount of foreign tax paid shall be referred to as foreign tax paid or the ceiling on the amount of tax credited, whichever is lower.
- The Ceiling on the Amount of Tax Credited = (Basic Tax Amount - Regular Income Tax Payable - Separately Calculated Dividends and Earnings Tax Payable) × Overseas Income/(Basic Income Amount - Net Amount of Regular Income –Total Amount of Separately Calculated Dividends and Earnings)
Calculation Illustration(Year 2023)
Unit: NT$
| |
Example 1 |
Example 2 |
Example 3 |
| Overseas income |
3,500,000 |
3,500,000 |
6,000,000 |
| Onshore income |
|
|
|
| Net taxable income |
2,000,000 |
5,000,000 |
5,000,000 |
| Particular insurance proceeds |
0 |
1,000,000 |
1,000,000 |
| Particular security transaction income |
0 |
1,500,000 |
1,500,000 |
| Non-cash donation |
0 |
500,000 |
500,000 |
| Basic income amount |
5,500,000 |
11,500,000 |
14,000,000 |
Basic tax amount (B)
(Basic income amount - NTD 6,700,000) × 20％ |
－ |
960,000 |
1,460,000 |
Regular tax payable (D)
(Income tax payable - Investment tax credit) |
260,000 |
1,136,000 |
1,136,000 |
B≦D, No AMT.
B＞D, (E) the difference between B and D |
－ |
－ |
324,000 |
| Creditable amount of foreign tax paid (C) |
|
|
216,000 |
| AMT payable(E)－(C) |
|
|
108,000 |
| Total tax payable (D)＋(E)－(C) |
260,000 |
1,136,000 |
1,244,000 |
| |
|
|
Assume tax paid overseas is NTD 300,000. The foreign tax credit ceiling = (1,460,000－1,136,000)×6,000,000÷9,000,000＝216,000 |
Individual Controlled Foreign Company Rule
In order to prevent individuals setting up controlled foreign companies (hereafter CFC) in tax havens to retain earnings rather than distribute them to local individual shareholders in Taiwan to avoid taxation, we have drafted the Individual CFC rules in Article 12-1 of the Income Basic Tax Act by reference to Organization for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting Projects (BEPS) Action Plan 3 to reinforce sound anti-avoidance systems. The article was promulgated by the President on May 10, 2017. Its effective date shall be decided by the Executive Yuan. On January 14, 2022, the Executive Yuan designated that the individual CFC rules shall be enforced from January 1, 2023.
Article 12-1 of the Income Basic Tax Act regulates that a foreign company is regarded as a CFC if it is incorporated in a low-tax jurisdiction and controlled by an individual residing in Taiwan, or with his(her) related parties by holding shares up to 50％ or controlling it substantially. Retained earnings of the CFC shall be attributed as taxable overseas income whether the company profit is distributed to Taiwanese individual shareholders or not.
Income Tax on House and Land Transactions
The tax system of income tax on the consolidated income from house and land transactions was first introduced on January 1, 2016 and amended in 2021. Taking effect from July 1, 2021, the latest regulations of the amendment are briefly introduced as follows:
Tax Scope
Income derived from transactions of the following:
- House or land acquired on or after January 1, 2016.
- The right to use a house by creation of superficies acquired on or after January 1, 2016.
- Presale house with its building location acquired on or after January 1, 2016.
- The shares or capital, where more than half of the total number of shares or the total amount of capital of an enterprise within or outside the R.O.C. are/is directly or indirectly held by an individual, and at least 50% of the value of such shares or capital are constituted by house and land within the territory of the R.O.C.; however, such shall not apply if the shares are stocks in listed, OTC-listed, or emerging stock companies.
Tax Base and Declaration
Tax Base = the Revenue from the Transaction of House and Land－Costs－Expenses－the Total Increment Amounts of Land Value
An Individual shall fill out and file to the tax collection authority-in-charge the tax return within 30 days from the day as set forth below, attached with a photocopy of the contract and other relevant documents:
- The day following the day on which the ownership transfer registration of house or land is completed.
- The day following the transaction day of the right to use a house by creation of superficies.
- The day following the transaction day of presale house with its building location.
- The day following the transaction day of shares or capital that shall be regarded as the transactions of house and land.
Tax Rates
- Residents
- Held no more than 2 years: 45%；
- Held more than 2 years, but no more than 5 years: 35%；
- Held more than 5 years, but no more than 10 years: 20%；
- Held more than 10 years: 15%；
- House and land that have been held for a period of no more than 5 years are transferred because of a job transfer, involuntary separation from employment, or any other involuntary cause announced by the Ministry of Finance: 20%；
- An individual who sells house and land where the house is built in partnership with a business entity, and the share of land associated with the unit has been held for a period of no more than 5 years: 20%；
- The portion of taxable income amount on self-use residence exceeds NT$ 4 million: 10%；
- House and the share of land associated with the house that are transferred for the first time after the completion of construction and have been held for a period of no more than 5 years, where the house and land are acquired through participation in urban renewal by providing land, legal buildings, other rights, or capital in accordance with the Urban Renewal Act or the participation in reconstruction in accordance with the Statute for Expediting Reconstruction of Urban Unsafe and Old Buildings: 20%.
- Non-Residents
- Held no more than 2 years: 45%；
- Held more than 2 years: 35%；
The Tax Preferences
- Self-use Residence
- The individual, his (her) spouse or their minor children have lived in, maintained their household registration at the self-use house, and have owned the house for 6 consecutive years, and the house and land have never been used for lease, business operation, or professional practice in the last 6 years before its sale.
- Tax exemption on taxable income under NT$ 4 million.
- No more than one self-use residence exemption may be claimed by members of a household in six years.
- Self-use Residence Repurchase
A taxpayer, who sells self-use house and land and repurchases another self-use one within 2 years, can apply for a refund proportional to the repurchase price over the sales price times the tax amount as calculated under Article 14-5 of the Income Tax Act. However, if the taxpayer changes the usage or transfers a self-use house or a piece of land within 5 years after claiming the above tax preference, the deducted/refunded tax amounts should be returned.
Complementary Measures
- The tax revenues will be distributed to the expenditures on housing policy and long-term social care services.
- The regulations related to real-estate in the Specifically Selected Goods and Services Tax Act have been suspended since January 1, 2016.
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