Located in the Western Pacific Ocean at southeastern coast of mainland China, Taiwan has long faced economic issues and impediments due to its complex relationship with China where most countries around the world do not consider it to be a separate independent country but rather as a part of China. Due to this, the ties between Taiwan and China have remained strained over the years. The currency of Taiwan is new Taiwan Dollar (TWD) and their official language is Mandarin Chinese.
Taiwan and China signed a trade deal together in June 2010 known as the ECFA or the Economic Cooperation Framework Agreement based on which the tariffs between the two countries on traded goods and services across the Taiwan Strait were reduced since then. Further a Cross Strait agreement was signed between the two countries on 25th August 2015 the main objective for which was to end double taxation which will be validated by the relevant authorities in the two countries.
Corporate Income Tax (CIT) rates in Taiwan
The Taiwanese government implemented a tax rate of 20% in the year 2018 on all corporations. However certain for-profit organizations who had a total taxable income of less than TWD 500,000 but greater than TWD 120,000 were subject to 18% CIT rate in 2018, 19% CIT rate in 2019 and then 20% CIT rate in 2020. Therefore, all resident companies in Taiwan are taxed on their worldwide income, with those below taxable income of less than TWD 1200000 being exempt form all taxes and those with taxable incomes of 120001 and above being subject to upto 20% of taxes.
Non resident companies are taxed on incomes which arise out of sources based in Taiwan. However, a non-tax resident company which has a fixed place of business (FPOB) or a fixed business agent in Taiwan, will be taxed as a resident. If a non-resident company does not hold a fixed place of business in the country, they will be charged the withholding tax at sources on their Taiwan sourced earning.
For corporations, a profit retention tax is also in place and on any profits that are not distributed by the end of the following year a 5% tax rate will be charged. However, foreign companies who have branches in Taiwan are not subject to this tax.
Other Corporate Taxes
In Taiwan, the import of any goods as well as the sales of goods and service are subject to a business tax. This business tax is the further divided in two types:
- Value added tax (VAT) and
- the gross business receipts tax (GBRT).
The value added tax or VAT is applicable to all general industries at the rate of 5%. The GBRT is applicable to few specific industries such as financial institutions and small business for which the rate of tax is 2%.
Corporations in Taiwan are also subject to a commodity tax. This varies from 8% to 30%. The tax on beverages for example could be 8% or 15% while the tax on vehicles ranges from 15% to 30%.
Taxes on Personal Income (PIT)
In Taiwan, individual tax is applicable on both, the residents, and the non-residents of the country unless they are exempt under the provisions of Income Tax Act.
Any non-resident individual who resides in the country for less than 90 days in a full calendar year is subject to an 18% withholding tax on the salary they receive from a Taiwan based legal entity. If the salary is received from non-Taiwan based legal entity then, the salary is exempt from taxes. However, if the individual lives in Taiwan for more than 90 days but less than 183 days in a full calendar year, then they are subject to a flat rate of 18% regardless of the fact whether the salary was received from a Taiwan based or a non-Taiwan based entity.
A resident of Taiwan is subject to a progressive personal income tax with the tax rates varying with the level of personal income during a tax year. The following are the rates of taxes for individuals with a resident status:
For those earning up to TWD 540.000 the tax rate is 5%
For those more than TWD 540.001 but less than 1210,000 the tax rate is 12%
For those earning more than TWD 1210,001 but less than TWD 2420,000 the tax rate is 20%
For those earning more than TWD 2420,001 but less than TWD 4530,000 the tax rate is 30%
For those earning more than TWD 4530,001 and above, the tax rate is 40%
A basic income tax (BIT) is also applicable in Taiwan on tax residents and expatriates who stay for 183 days or longer in Taiwan at a flat rate of 20% on basic income. The formula to calculate basic income has been given as:
Income subject to IBT = Regular taxable income plus add-back items