Taiwan’s tax reforms: implications on companies and working individuals
Article 3 minute read

Taiwan’s tax reforms: implications on companies and working individuals

21 June 2018

Taiwan’s Legislative Yuan has passed and enacted tax reforms that increase corporate income tax while reducing individual income tax rates.

As highlighted by the government, the three objectives of this round of tax reform are to:

  • establish an income tax system that conforms to international trends
  • maintain a competitive taxation environment
  • retain and attract more talents into Taiwan.

So what exactly are the new tax policies and the implications for foreign companies investing or operating in Taiwan? Keep on reading to find out.

Changes to Taiwan’s corporate income tax rate

Taiwan has officially increased the corporate income tax rate (for foreign-invested enterprises) to 20% from the previous 17%, which brings the overall effective tax rate (ETR) to 39.96% (31.6% with tax treaties) compared to 36.5% (29.04% with tax treaties) prior to the tax reforms.

Despite the increase, the Department of Investment Services in Taiwan stated that the effective tax rate of 31.6% for foreign invested enterprises under tax treaty is still lower than Japan and China at 37% and 32.5% respectively. Hence, this makes Taiwan still relatively competitive in terms of attracting foreign investments.

For certain industries, companies can also enjoy several tax or investment incentives available pursuant to legislation such as the Statute for Industrial Innovation and the Biotech & New Pharmaceutical Development Act.

For small businesses operating in Taiwan, the tax rate is adjusted to 18% for 2018 annual income, 19% for 2019 annual income and 20% for 2020 year onwards if annual taxable income is less than NT$500,000. This will help small companies to reduce some of the financial burdens as they seek to grow their size.

To encourage more foreign companies to reinvest in Taiwan, the government has lowered the surtax for undistributed earnings (SUE) to 5% from the previous 10%. This brings the overall ETR to 24% (compared to 25.3% before) or more tax savings only if the foreign company chooses to retain the annual earnings and invest in the country.

Lower individual income tax rate in Taiwan

A lower individual income tax rate of 40% from the previous 45% now applies, as well as an adjusted amount for deductions and exemptions. If you are handling your employees’ payroll in Taiwan, you need to adjust your company’s payroll systems in order to comply with this new regulation.

You can refer to this table for the adjusted deductions and exemptions:

Deductions and exemptions

 Before

 After

Standard deduction

 NT$90,000

  NT$120,000

Special deduction for employment income

 NT$128,000

  NT$200,000

Special deduction for pre-school children

 NT$25,000

 NT$120,000

Source: Department of Investment Services Taiwan

Here is a list of items that are exempted from taxable income in Taiwan for foreign professionals:

  • round trip air fares
  • home leave vacation pay
  • home moving expenses
  • utility bills
  • cleaning bills
  • telephone bills
  • house rentals
  • repair costs for place of residence and educational scholarships for children.

The aim of this tax policy adjustment is to help foreign executives improve their quality of life in the country and attract more expatriates to Taiwan.

Tax incentives for startup companies

Under the tax reforms, any venture capital enterprises organised as limited partnerships will not have to pay corporate income tax and SUE. Instead, the earnings will be distributed among investors and will be subject to individual income tax.

On top of this, you can also apply for certain tax incentives if your company fulfill the criteria as stated in the Statute for Industrial Innovation, which was amended on November 2017.

Talk to us

The new income tax policies can be beneficial if you have support and guidance from a local expert. If your company needs help to stay compliant with the new tax regulations, TMF Taiwan has a strong team of specialists who support clients located both in Taiwan and internationally.

Want to know more about our services? Talk to us today.

Written by

Angela Wu

Managing Director ,TMF Taiwan
Angela

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