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Taiwan

General Information

Country Name: Republic of China (Taiwan)
Currency: New Taiwan Dollar (TWD)
Primary Tax Authority: Ministry of Finance (MOF)

Key Legislation

  • Constitution of the Republic of China: Provides the foundational legal framework for taxation.
  • Income Tax Act: Regulates personal and corporate income taxation.
  • Value Added Tax Act: Governs VAT.
  • Social Insurance Act: Regulates social insurance contributions.
  • Tax Collection Act: Governs tax administration, including assessment and appeal processes.

Fiscal Authority Allocation

Taiwan has a centralized tax system, with the Ministry of Finance (MOF) overseeing most tax collection and administration.

Taxes Collected by Central Authorities:

  • Income tax (personal and corporate)
  • VAT
  • Customs duties
  • Social insurance contributions

Taxes Collected by Local Authorities:

  • Property tax (local portion)
  • Certain local business taxes

Revenue Sharing Mechanisms:

Most tax revenue is collected and managed by the central government, with some revenue shared with local authorities based on established formulas and agreements.

Corporate Income Tax (CIT)

  • Standard CIT Rate: 20%.
  • Taxable Income Definition: Resident corporations are taxed on worldwide income. Non-resident companies are taxed on Taiwanese-sourced income.
  • Deductible Expenses: Business-related expenses, including salaries, utilities, and cost of goods sold, are deductible.
  • Loss Carryforwards: Losses can be carried forward up to five years.
  • Tax Incentives: Tax credits for investments in high-tech industries and certain regions.

Value-Added Tax (VAT)

  • Standard VAT Rate: 5%.
  • Reduced Rate: None.
  • Exemptions: Certain goods and services, including healthcare and education, are exempt from VAT.
  • Refunds: VAT refunds are available for registered businesses, including exporters.

Personal Income Tax (PIT)

  • PIT Rates: Progressive rates from 5% to 40%. The top rate applies to income exceeding TWD 10,000,000 (for tax year 2023).
  • Taxable Income Thresholds: Income below TWD 540,000 is tax-free; higher incomes are taxed progressively.
  • Deductions and Exemptions: Various deductions are available, including for dependents, mortgage interest, and education expenses.
  • Treatment of Foreign Income: Residents are taxed on worldwide income. Relief through tax credits or exemptions is provided under Double Tax Treaties (DTT).
  • Special Rules for Expatriates: Certain expatriates may benefit from special tax regimes or exemptions.

Additional Mandatory Contributions

Social Insurance Contributions:

  • Rate: Contributions are made to the Taiwanese social insurance system.
  • Contribution Rate: Approximately 11.5% of gross salary (employer and employee combined).
  • Mandatory Participation: All employees and self-employed individuals are required to participate.

Withholding Taxes

  • Dividends: 21% withholding tax, with reduced rates under DTT.
  • Interest: 15% withholding tax, potentially reduced under DTT.
  • Royalties: 20% withholding tax, with reduced rates available under DTT.
  • Payments to Non-Residents: Generally subject to withholding tax, with reduced rates under DTT provisions.

Transfer Pricing Rules

Taiwan follows OECD guidelines for transfer pricing. Companies must maintain documentation for related-party transactions and comply with the arm’s length principle.

Special Tax Regimes

  • Free Zones: Taiwan has several free trade zones offering tax incentives for businesses operating within these areas.
  • Investment Incentives: Tax incentives for investments in technology and renewable energy.

Other Taxes

  • Property Tax: Levied by local authorities based on property value.
  • Customs Duties: Applied to imports based on the Customs Act.

Double Taxation Agreements (DTAs)

Taiwan has signed 30 DTAs to avoid double taxation and provide reduced withholding tax rates on dividends, interest, and royalties.

Compliance and Reporting

  • Corporate Tax Filing Deadline: Annual corporate income tax returns must be filed within five months of the end of the fiscal year.
  • VAT Filing: VAT returns are filed monthly or quarterly, depending on turnover.
  • Penalties for Non-Compliance: Penalties for late filing and non-compliance include fines and interest on unpaid amounts.

Recent Developments

  • Tax Reforms: Taiwan is undertaking reforms to simplify the tax system and enhance compliance.
  • Economic Challenges: Adjustments to tax rates and increased scrutiny of tax evasion are part of efforts to stabilize the economy.
  • Digital Economy Taxation: Taiwan is exploring measures to effectively tax digital services and cross-border e-commerce.

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