Taiwan tax system for LC by Shares: audit, reporting and optimization of taxation of Taiwanian Limited companies and individuals: VAT, income tax and capital gains. Tax treaties of Taiwan.
Basic taxes (briefly)
|Corporate tax (in detail)||Income tax is paid at the rate of 20%. Additional tax on profits not distributed by the end of the next fiscal year is levied at the rate of 5%|
|Capital gains tax. Details||Profits from the sale of assets, in general, are included in the general taxable base, however, special taxes are provided for transactions with real estate|
|VAT. Details||The VAT rate is 5%. This tax generally applies to transactions in various sectors of the economy. GBRT applies in special cases, in particular to financial institutions, small businesses. GBRT rate is 5% for banks and insurance companies|
|Other taxes||Social Contributions, Property Tax, Land Gains Tax, land value increment tax, Real Estate Transaction Tax, Securities Transactions Tax, Inheritance and Gift Tax|
|Government fee||There is no annual fee in Taiwan, but instead there are various registration fees at the stage of incorporation of company.|
International tax agreement
|Australia, Austria, Belgium, Canada, Denmark, Eswatini ('Swaziland'), France, Gambia, Germany, Hungary, India, Indonesia, Israel, Italy, Japan, Kiribati, Luxembourg, Malaysia, Netherlands, New Zealand, North Macedonia, Paraguay, Poland, Senegal, Singapore, Slovakia, South Africa, Sweden, Switzerland, Thailand, United Kingdom, Vietnam|
|Argentina, Bahamas, Bermuda, Cayman Islands, Guernsey, Isle of Man, Jersey, Liechtenstein, San Marino, Virgin Islands (British)|
Personal Income Tax
Residents and non-residents are both subject to income tax on Taiwan-sourced income.
Tax residents pay tax at progressive tax rates:
- For income up to TWD 540,000 at the rate of 5%;
- From TWD 540,000 to 1,210,000 – 12%;
- From TWD 1,210,000 to 2,420,000 – 20%;
- From TWD 2,420,000 to 4,530,000 – 30%;
- Over TWD 4,530,000 – 40%.
In addition to the regular income tax, there is an income basic tax (IBT). The base of this tax includes foreign-sourced income if a Taiwanese tax resident’s foreign-sourced income exceeds TWD 1 million and the total income exceeds TWD 6.7 million.
The tax rate is 20%. If IBT exceeds the amount of the regular income tax, then the excess of the IBT over the regular income tax is payable in addition to the regular income tax. IBT is calculated using a special formula (total income excluding special deductions minus TWD 6.7 million is multiplied by 20%).
Gains from the sale of assets and dividends are included in the taxable income.
The salary of non-residents is taxed at 18%, other kinds of income at 20%, dividends – at 21%.
Corporate Income Tax
Corporate income tax is paid at the rate of 20%.
An additional 5% profit retention tax is levied on profits that remain undistributed by the end of the next financial year.
Taiwanese companies receiving tax-exempt income must calculate the income basic tax (IBT). The base of this tax, in general, includes all the company's income minus TWD 500,000. The tax rate is 12%. If IBT exceeds the amount of corporate income tax, then the difference between IBT and corporate income tax must be paid in addition to the corporate income tax amount.
Gains from the sale of assets are normally included in the general tax base, however transactions with immovable property are subject to special taxes. Gains from the sale of Taiwanese marketable securities are not subject to corporate income tax, but are included in the IBT base. If the securities have been held for more than three years, 50% of capital gains from their sale can be exempted from taxation.
Dividends from Taiwanese companies are tax exempt.
CFC rules were introduced into Taiwanese tax legislation at the end of 2016, but they have not come into effect yet.
A foreign company is considered a controlled foreign company (CFC) if the share held by a Taiwanese company in its capital, directly or indirectly, solely or jointly with related parties, exceeds 50%.
The CFC rules apply if the foreign company is from a low-tax jurisdiction (where corporate income tax is less than 70% of the Taiwanese tax), or from a jurisdiction where foreign-sourced income is not taxed or is only taxed upon receipt.
The lists of the relevant countries will be published by the Ministry of Finance.
There are exemptions for companies with active business and profits below certain thresholds.
Payment of dividends is subject to 21% withholding tax.
Withholding tax on interest payments is levied at 20%, on interest on some financial instruments – at 15%.
Withholding tax on royalties is paid at 20%. However, such payments can be exempted from
withholding tax by a special approval from the government.
The tax may be withheld on certain other payments of income.
Tax rates can be reduced under double tax treaties (DTT).
VAT and GBRT (Gross Business Receipts Tax)
The VAT rate is 5%. This tax generally applies to transactions in various sectors of the economy.
GBRT applies to specified industries, in particular financial institutions and small businesses.
The GBRT rate is 5% for banks and insurance companies.
The rate is 1% for reinsurers and 2% for some investment companies.
Social Security Contributions
Social security contributions are paid by employers and employees.
Labour insurance contribution is 10.5% of the monthly salary of up to TWD 45,800, of which 70% is payable by the employer and 20% by the employee (10% by the government).
Employers also pay an additional 1% for unemployment insurance.
Health insurance contribution is 5.17% of the monthly salary of up to TWD 182,000, of which 60% is payable by the employer and 30% by the employee (10% by the government). The contribution is calculated both for the employee and his/her dependants according to special rules.
Employers pay an additional 2.11% health insurance contribution on the difference between the employee's monthly salary and the monthly remuneration on which mandatory health insurance contributions are levied.
Employees also pay an additional 2.11% health insurance contribution on certain bonuses.
Labour pension contribution is payable by the employer at the rate of at least 6% of the monthly employment remuneration of up to TWD 150,000.
The annual land tax is paid at the rates from 1% to 5.5%, tax on commercial properties – at the rates from 3% to 5%, tax on non-commercial properties – at the rates from 1.2% to 3.6%.
The tax base is determined by the regulatory authorities.
LVIT (Land Value Increment Tax)
The tax is paid by the seller of the land on the increase in the official value of the land during the ownership period, adjusted for inflation.
The tax rates range from 20% to 40%, or a special rate of 10% applies.
Property Transfer Tax
The tax is paid on the profit from the sale of immovable property (the difference between the market value and the acquisition costs, expenses, and the increase in the official value of the land during the ownership period).
The tax rate is 20% for Taiwanese companies; for foreign companies – the rate is either 35% when holding properties for more than a year or 45% when holding properties for less than a year.
The tax is paid on immovable property transactions at rates from 2% to 6%, depending on the type of transaction.
Stamp duty is payable on various documents at different rates (usually from 0.1% to 0.4%) or as a fixed sum.
Securities Transactions Tax
The tax is levied at the rate of 0.3% on proceeds from the sale of shares in Taiwanese companies.
The tax on transactions with bonds is temporarily suspended.
Inheritance and Gift Tax
Inheritance tax is levied at progressive rates from 10% to 20%. There are exemptions.
Gift tax is levied at the same rates, however, the amounts to which the tax applies are different. There are certain exemptions.
International tax treaties
Taiwan has signed 32 Double Tax Treaties (DTC) and 10 Tax Information Exchange Agreements (TIEA) with the following jurisdictions:
32 DTC: Australia, Austria, Belgium, Canada, Denmark, Eswatini ('Swaziland'), France, Gambia, Germany, Hungary, India, Indonesia, Israel, Italy, Japan, Kiribati, Luxembourg, Malaysia, Netherlands, New Zealand, North Macedonia, Paraguay, Poland, Senegal, Singapore, Slovakia, South Africa, Sweden, Switzerland, Thailand, United Kingdom, Vietnam.
10 TIEAs: Argentina, Bahamas, Bermuda, Cayman Islands, Guernsey, Isle of Man, Jersey, Liechtenstein, San Marino, Virgin Islands (British).
Taiwan has certain foreign exchange controls. In particular, there is an obligation to declare certain transactions that exceed the established thresholds.
Certain foreign exchange transactions require permission from the Central Bank.
Taxes of Taiwan
|Min. rate for corporate tax||20%|
|Capital gains tax||Regular rate|
|Exchange control||There are some foreign exchange controls|