Introduction to Taiwan Personal Income Tax

1. Overview

Individuals are only subject to income tax on Taiwan source income with income derived from foreign sources being exempt from income tax. Residents, both Taiwanese and foreign nationals, pay tax on net consolidated income calculated as the total income received from all Taiwan sources less exemptions and deductions. Non residents who stay in Taiwan not over 90 days within a calendar year are taxed on their gross income under the withholding tax system without allowance for deductions and exemptions.

For the non resident staying in Taiwan over 90 days but less than 183 days within a calendar year has no other Taiwan source incomes, but salaries from local employers, he/she is basically not required to file the income tax return if the 18% tax on the local salaries is withheld. In practice, however, a non resident may prefer to file annual tax return voluntarily, without allowance for deductions and exemptions, in order to keep a clean tax record in Taiwan.

Residence is determined on the basis of whether a person is domiciled in Taiwan and lives in Taiwan on a regular basis. An individual will also be considered to reside in Taiwan where although not domiciled in Taiwan they reside in Taiwan for 183 days or longer within a calendar tax year.

2. Taxable Income

The types of compensation deemed to be taxable income include:

• Cost of living allowance;
• Expatriation premium;
• Relocation allowance;
• Education for dependent children; and
• Life insurance premiums exceeding $NT2,000 per month paid by the employer on the employee’s behalf.

3. Tax Exempt Income

Tax Exempt Income includes:

• Taxes paid by the employer on the employee’s behalf (but these are not deductible to the employer);
• Housing provided by the employer may be tax-exempt;
• Meals allowance of up to $NT1,800 per month;
• Overtime pay for up to 46 hours per month; and
• Travel expense to allow an expatriate employee to return to the home country.
  

4. Deductions and Exemption

A taxpayer may select either the "Standard Deduction" or "Itemized Deductions" and may, in addition thereto, declare "Special Deductions".

Standard Deduction: For 2011, NT$ 76,000 for a single taxpayer, NT$ 152,000 for a taxpayer and his (her) spouse.

Itemized Deductions, subject to certain limitations, include:

• Charitable contributions;
• Insurance premiums up to NT$24,000 per insured person for life or labor insurance. However, there is no limit to the amount of the premium paid for national health insurance.
• Medical and childbirth expenses;
• Disaster losses incurred due to force majeure, if not otherwise covered by insurance;
• Mortgage interest incurred on self-use residential dwelling up to NT$300,000 per income tax return per year; and
• Rent for housing up to NT$120,000 per income tax return per year. However, no deduction shall be made for taxpayers who have filed the aforesaid mortgage interest on the same tax return.

Special Deductions, subject to certain limitations, include:

• Losses from disposal of properties other than land and securities, not to exceed total gains from disposal of properties in the same taxable year;
• Salary or wage earnerís special deduction up to NT$104,000 per salary or wage earner in 2011;
• Interest income exclusion up to NT$270,000 per income tax return in 2011;
• Deduction for the disabled up to NT$104,000 per disabled person in 2011; and
• Deduction for higher education of children up to NT$25,000 per person.

For 2011, the personal exemption for taxpayer, his (her) spouse and each dependants is NT$82,000.

5. Tax Rate

The new tax brackets and rates of resident individual income tax for 2011 are as follows:

Non resident aliens staying in Taiwan for less than 183 days within a calendar year are taxed at withholding rate on gross income.

6. Alternative Minimum Tax

The Income Basic Tax (IBT) Act is effective from 2006. (Please refer to section of profit-seeking enterprise income tax.) According to the Act, deducted non-cash donation and some income exempted from income tax (e.g. capital gain derived from non-listed stocks, insurance payment received by the beneficiary of a life insurance policy or annuity in which the beneficiary and the proposer are not the same person, the amount of market value in excess of the par value of stock dividend acquired by employees,??) shall be included in the basic income of the individual and subject to IBT. Individualís income derived from sources outside Taiwan is taxable from 2010.

7. Foreign Individual Income Tax

Foreign individuals who are employed and assigned to work in Taiwan are liable for income tax as follows table:

8. Individual Income Tax Filing

Between May 1 and May 31, a taxpayer must file an income tax return for the preceding year.