Corporate Income Tax

Corporate income tax (CIT) is levied on worldwide income for resident enterprises in Taiwan. The applicable CIT rate is:

• 0% on the first TWD 120,000 of taxable income
• 20% (increased from 17% effective 1 January 2018) on taxable income exceeding TWD 120,000

Effective 1 January 2018, SMEs having taxable income up to TWD 500,000 are subject to corporate tax at the rate of 18% for 2018, 19% for 2019 and 20% for 2020.

Certain income types are exempt when calculating corporate income tax (covered in Sec 6.6.). All taxpayers subject to corporate income tax are subject to the same rates.

The method of computation is as follows:

Tax Payable = [Total World Wide Income – Exempt Income – Expenses and Other Deductions – Losses - TWD 120,000] x 17%

Alternative Minimum Tax

Taiwan may impose an alternative minimum tax (AMT) in lieu of CIT on resident enterprises in Taiwan when their income surpasses TWD 500,000. Partnerships and sole proprietorships are not subject to this tax.

The alternative minimum tax calculation includes income that would normally be exempt. The alternative tax base includes:

• Normally taxable income
• Capital gains on sale of securities and futures
• Capital gains on land transactions
• Other normally exempt income under various statutes and incentives that have been or will be issued

The method of computation is as follows:

Alternative Minimum Tax = ([Normally Taxable Income + Normally Exempt Income] - TWD 500,000) x 12%

The result of this AMT calculation amount is compared with the result of the normal CIT calculation above. If normal CIT result is greater than the AMT calculation, just the normal CIT will be payable. If the AMT calculation is greater, the normal CIT will be payable plus the difference.

Retained / Undistributed Earnings Tax

Taiwan imposes a 5% surtax on retained earnings (reduced from 10% effective 1 January 2018) if they are not distributed in the subsequent fiscal year.

For the purpose of the surtax, the following will not be considered as retained earnings:

• Losses from previous years and of the following year
• Net dividends or net earnings distributed from earnings in the current year
• Approved reserves and statutory reserves or non-distribution of earnings required under a treaty between Taiwan and other jurisdictions, or otherwise required under Taiwan law or order from Taiwan authorities

Effective 1 January 2018, the surtax can no longer be used to offset withholding tax liabilities on dividends received by non-resident shareholders in subsequent years. However, as part of transition, credit is allowed for the retained earnings tax paid on dividends declared in 2018.

Dividend Imputation System

Resident enterprises in Taiwan were required to record an imputation tax credit on dividends and surplus earnings distributable to shareholders in an imputation credit account that is separate from its accounting books. This account was used so when dividends were distributed, the credit could be passed to the recipient. Effective 1 January 2018, the imputation tax system for dividends has been abolished, with the credit account no longer required.

The following organizations were exempt from maintaining imputation credit accounts:

• Partnerships and sole proprietorships
• Educational, cultural, public welfare or charitable institution or organization
• Other organizations which are not permitted to make distributions of surplus profits or earnings under provisions of Taiwan regulations or its articles of incorporation

Resident Corporate Shareholder

Taiwan resident enterprises are not taxed on dividends when they are received from other Taiwan resident companies, but dividends received from non-resident enterprises are taxed at the ordinary corporate income tax rate of 20%.

When a resident enterprise receives dividends from another Taiwan resident enterprise, the imputation tax credit associated with those dividends was applied to their imputation credit account balance and imputed to their shareholders for future dividend distributions.

Resident Individual Shareholder

Taiwan individuals are subject to individual income tax on gross dividends received, but were allowed to use the imputation tax credit associated with those dividends to offset the income tax liability. In 2014, amendments were introduced to restrict the use of imputation tax credit to 50% of the corporate tax paid by the company from their individual income tax.  

Non-resident shareholder

Non-resident shareholders were not allowed to use imputation tax credits.

Capital Gains Tax

Taiwan does not have a general capital gains tax. Capital gains are treated as normal income and taxed at the normal rate of 17% or the alternative minimum tax rate. However, there are certain exemptions, such as gains on securities and futures, and gains from the sale of land acquired before 1 January 2016.

With respect to securities, a 15% capital gains tax was to be implemented for  active traders with share transactions exceeding TWD 1 billion. However, its implementation was delayed and the tax was ultimately repealed.

With respect to land, a land value increment tax applies for property acquired before 1 January 2016. For land and other immovable property acquired on or after 1 January 2016, a new capital gains tax is introduced at rates depending on how long the property was held. For resident taxpayers, the rate is 45% of the actual gain if the property is held less than 1 year, 35% if held 1 to 2 years, 20% if held 2 to 10 years, and 15% if held more than 10 years. For non-resident taxpayers, the rate is 45% if held less than 1 year, and 35% if held for longer periods.

Value-Added Tax (VAT)

VAT is levied on the importation of goods and the provision of goods and services in Taiwan. The standard VAT rate is 5%. The ultimate tax payable is equal to VAT at sale less any VAT input credits.

Zero Rate VAT

Certain transactions are subject to VAT at a zero rate. These include

• Goods exported from Taiwan
• Services related to export or services provided in Taiwan but used in a foreign country
• Goods sold by duty free shops
• Goods or services sold to a bonded zone business entity for operational use
• International transportation - non-resident transport enterprise will only enjoy zero rate VAT
• when engaging in transport in Taiwan territory if reciprocal treatment, or exemption from similar taxes, is given to Taiwan resident transport enterprises operating in the foreign country of the non-resident enterprise
• Vessels and aircraft used in international transportation and deep sea fishing
• Sales of goods and maintenance services for vessels and aircraft used for international transportation and deep sea fishing
• Goods sold by a bonded zone business entity to a taxable zone business entity and exported directly without being transported to the taxable zone
• goods sold by a bonded zone business entity to a taxable zone business entity for export and placed in a bonded warehouse or logistics center administered by an enterprise inside a free trade zone or by customs

VAT Exemption

Taiwan provides VAT exemptions for numerous types of transactions. The following outlines some of the key transaction types. It is not an exhaustive list.

• The sale of land
• Water supplied to farmland for irrigation
• Medical services and medicine provided by hospitals and clinics
• Educational services provided by schools, kindergartens, and other approved educational institutions
• Authorized educational textbooks for use in schools and other institutions
• Newspapers, magazines, newsletters, television and broadcasting programs produced and sold by legally registered publishers, news agencies, and television and broadcasting stations
• Services provided by post and
• telecommunication offices

If an enterprise sells exempt goods or services, they may apply for approval to waive the exemption. The waiver lasts for at least 3 years.

These exemptions are also applicable to gross business receipts tax (covered below).

Gross Business Receipts Tax (GBRT)

Taiwan imposes business turnover tax on the gross revenue from sales or services by certain business types that are not subject to VAT.

The types of business that are subject to GBRT and rates include:

• Banking, insurance, investment trusts, securities and futures, and pawnshop enterprises; 2% for core business, 1% for reinsurance premiums, and 5% for non-core business
• Special food and beverage service enterprises; 15% or 25%
• Small-scale enterprises with less than TWD 200,000 in monthly gross revenue; 1%
• Certified massage enterprises; 1%
• Agricultural consignees and sellers; 0.1%

For the enterprises outlined above that are engage in non-financing activities, application can be made to Taiwan's Ministry of Finance for approval to be subject to VAT instead of GBRT.

While the GBRT base is normally gross monthly revenue, the tax authorities may prescribe a minimum amount of TWD 40,000 to TWD 80,000 per month based on industry. The prescribed amount is re-assessed every 3 months.

In general, there is no input credit to offset GBRT. However, if an enterprise can evidence VAT paid when filing its return, a special deduction of 10% of the input VAT may be deducted for GBRT purposes. If GBRT due is less than a prescribed minimum amount, then no deduction is allowed. In addition, if the deduction would be greater than the GBRT due, it can be carried forward to subsequent periods.

Capital Duty/Fee

Taiwan levies a capital duty on registered capital when a company establishes in Taiwan. The rate is 0.025% or a minimum of TWD 1,000.

Tonnage Tax System

Taiwan employs a tonnage based tax system whereby a maritime transportation enterprise based in Taiwan can choose to have their transportation income taxed based on the tonnage of their fleet instead of the normal income tax calculation covered above.

Non-transportation income of the enterprise must still be taxed based on the income tax methods covered above.

Securities Tax

Transactions of securities, including bonds, shares and any other securities are subject to securities transaction tax. The tax is based on the transaction price and the rates are 0.3% for shares and 0.1% for corporate bonds and other government approved securities. The tax is to be collected by the buyer (collecting agent) at the time of transaction, and remitted to the national treasury on the following day together with a completed payment slip. If the collecting agent fails to collect or remit the tax due, a fine of one to ten times the amount of tax due may be imposed.

Taiwan government issued bonds are exempt. An exemption also applies for corporate bonds and bank debentures until 31 December 2026, as well as exchange traded funds that principally invest in bonds.

A temporary one-year reduction was introduced in April 2017 providing for a 0.15% for day trading of shares on the Taiwan securities market.

Futures Tax

Transactions of futures are subject to futures transaction tax. The tax is payable by both parties of a transaction and is based on the futures contract price or the premium paid.

The tax rates for various futures are:

• Stock index futures - 0.004%, although a reduced rate of 0.002% applies from 1 April 2013 to 31 December 2018
• Interest rate futures - 0.0000125% to 0.00025%
• Option contracts or option contracts on futures - 0.1% to 0.6%
• Other futures contracts - 0.0000125% to 0.06%

Special commodity and service tax (Luxury tax)

Taiwan imposes a luxury tax on the sale, manufacture, and import of the following:

• Residential property that is held for less than two years
• Passenger vehicles, yachts, aircraft, helicopters, and light vehicles that cost more than TWD 3 million
• Wildlife products, furniture, and nonrefundable memberships that cost more than TWD 500,000

The tax rate is 10% of the total price including other charges and taxes/duties of the special commodity or service. For residential property held less than a year the rate goes up to 15%.

For residential property acquired on or after 1 January 2016, a new capital gains tax regime is introduced and the luxury tax for property held for below 2 years no longer applies. (See ‘Capital Gains’ under Section 8.1. for details)

Tax exemptions can be obtained under certain conditions, such as non-voluntary transfer, inheritance, etc.

Stamp Duty

Stamp duty is chargeable on certain documents used for evidencing transactions in Taiwan. Such transaction evidencing documents include receipts for monetary payments, contracts or deeds for the purchase or sale of movable properties, contracting agreements, and contracts or deeds for the sale, transfer or partition of real estate. Either fixed duties or ad valorem duties are imposed, and the amount varies based on transaction type and amount.

Transfer tax / Deed Tax

Taiwan levies a deed tax on the transfer of titles to real estate. However, the tax may be exempt if the property is subject to land value increment tax (see below).

The tax is based on the deed price of the property which is determined by the local government where the property is located. The rates depend upon the nature of the transaction, and include the following:

Land Value Tax

Taiwan levies a land value tax, which is similar to a property tax, but is based solely on the land value itself. The rates are 0.2% of the land value for residential purposes, and 1% to 5.5% for other uses.

Land Value Increment tax

Taiwan levies a land value increment tax on both unrealized and realized gains on the value of land owned or sold.

The base of the tax is the prescribed market value of the land less the declared value or price paid by the original owner less qualifying deductions for land improvement expenses. The gain is then adjusted for change in Taiwan's consumer price index.

The gains are then taxed at rates ranging from 20% to 40% depending on the percentage increase in value. A special rate of 10% is used if the land in questions was used as residence by the owner.

The payment of this tax depends on the nature of the transaction.

• If consideration is made for the transfer the original owner pays the tax
• If there is no consideration made for the transfer, the buyer pays the tax
• If the purchase is mortgaged, the buyer pays the tax
• If lien right is established for the land, the lien right assigner or original owner pays the tax

For land acquired on or after 1 January 2016, a new capital gains tax regime is introduced and the land value increment tax no longer applies. (See 'Capital Gains' under Section 8.1. for details)

Customs Duty

Taiwan levies import duties and taxes based on the total shipping value of the goods, including the cost of the goods, insurance costs, and the freight costs (CIF). Goods imported to Taiwan will also be subject to VAT at a rate of 5%, trade promotion tax, and may be subject to additional excise taxes.

Taiwan's duty rates are typically ad valorem and range from 0% to 30%, with an average rate of 6.25%, although some agricultural products may be based on quantity. Goods subject to 0% rate include primarily information and communications technology products, such as laptops and other electronics.

Taiwan levies a trade promotion tax at a rate of TWD 0.04 based on the CIF value of the imported goods. This tax is waived if the resulting amount less than TWD 100.

If the CIF value of the imported goods does not exceed TWD 3,000, they are exempt from customs duty. However, goods valued at TWD 3,000 or less, or goods subject to 0% duty, are still subject to VAT, trade promotion tax, and other applicable excise taxes.

Excise Duties

Taiwan levies excise duties in the form of a commodities tax and separate tobacco and alcohol tax.

Commodities Tax

The following commodity types are subject to commodities tax:

• Rubber tires
• Beverages
• Sheet glass
• Cement
• Oil and gas
• Appliances
• Vehicles

The commodities tax is levied regardless of whether the products are imported or manufactured in Taiwan and the ad valorem tax rates range from 8% to 30%, and in some cases based on metric tonnage or kiloliters.

Under any of the following conditions, these commodities can be exempt from commodities tax:

• They are raw materials used for manufacturing other taxable commodities;
• They are goods for export
• They are goods for exhibition only
• They are goods for military use with the approval of the Ministry of National Defense or for troop morale

Tobacco Products

Tobacco products are taxed in Taiwan at a rate of TWD 590 per kilo, with the exception of cigarettes, which are taxed at TWD 590 per 1000 sticks. A health and welfare tax is also imposed at the same rates.

Alcohol Products

Alcohol products include any beverage with an alcohol content exceeding 0.5% by volume, or other alcohol that can be used in the production of beverages. The tax rates range from TWD 2.5 to TWD 185 based primarily upon the alcohol content amount.

As with commodities tax, tobacco and alcohol products tax is levied regardless of whether the products are imported or manufactured in Taiwan.

Employer Obligations

Employee welfare fund

Factories, mines, and companies with 50 or more employees in Taiwan are required to establish a welfare fund for its employees. A welfare committee must be set up to administer the fund and ensure distributions are for the benefit of employees.

The amounts which must be contributed to the fund include:

• 1% to 5% of the companies registered capital when it is established
• 0.05% to 0.15% of the companies monthly revenue
• 0.5% of each employees monthly salary or wages
• 20% to 40% of the sales proceeds from the sales of scrap or waste material at the time of the sale

The amounts that include a range are at the discretion of the employer.

Labor Insurance

Labor insurance is mandatory for companies with 5 or more employees, and voluntary for those with less. Labor insurance applies to both local Taiwan employees and foreign nationals legally working in Taiwan.

Labor insurance premiums are based on the employee's monthly salary or wages with rates and caps set by the Taiwan government. The rate is 9.5% for ordinary insurance plus a 1% premium for the employment insurance program. Employers, employees, and the government all contribute to the insurance, generally at rates of 70%, 20%, and 10%, respectively.

The monthly salary or wage base is capped at TWD 45,800.

Occupational Injury Insurance

Occupation injury insurance is mandatory and contributed entirely by the employer. The rates depend on the specific industry and range from 0.1% to 1.06%, and are based on the employee's monthly salary.

National Health Insurance

National health insurance is mandatory for all employees including foreign nationals working in legally working in Taiwan.

National health insurance premiums, like labor insurance, are based on the employee's monthly salary or wages with rates and caps set by the Taiwan government. The current rate is 4.69%. Employers, employees, and the government all contribute to the insurance, at rates of 60%, 30%, and 10% respectively.

The monthly salary or wage base is capped at TWD 182,000.

In addition, a 2% supplemental premium is imposed on other income received by the employee exceeding TWD 2,000, including bonuses, income from a professional practice, dividends, interest income, rental income and part time income.

Pension Fund

Taiwan has both a new and an old labor pension system which employers must contribute two. Under the old system most employees did not qualify, and when the new pension system was implemented employees were allowed to opt to join the new system or remain in the old system. Any new employees since July 1st 2005 are automatically enrolled in the new system.

For employees that remain under the old system, employers are required to contribute between 2% and 15% of the employee's monthly salary to the Fund.

For employees that are under the new system, employers are required to contribute 6% of the employee's monthly salary to the Fund, up to a maximum base salary of TWD 150,000. Employers can contribute more if they want, and employees are allowed to contribute up to 6% of their monthly salary as well.

Individual Income Tax

Enterprises are required to withhold individual income tax on wages and salaries paid to their employees.