Taiwan Tax Season May 2024: A Brief Introduction on Tax Obligations for Tax Residents and Non-Tax Residents
Similar to the other jurisdictions, tax filing can be a complex and headache-inducing topic, especially for Taiwanese people living abroad for extended periods, or those who frequently travel to and from Taiwan and have resided there for a while. Before filing income taxes in the tax season, many might wonder whether they need to file a tax return with the Taiwanese government.
Generally, the first step is to determine whether one is considered a tax resident of Taiwan. Taiwanese personal income tax relies on factors such as whether a person has a domicile in Taiwan and the number of days they stay in the country, to determine their tax residency. This categorization further divides into two different systems: general tax filing and withholding at source. Below is a detailed introduction to help you determine your tax residency status.
What Conditions Qualify Someone as a Taiwanese Tax Resident?
In Taiwan, the definition of a tax resident is closely related to one's living conditions and duration of stay, rather than necessarily having Taiwanese nationality. To help people determine their tax residency status, the Ministry of Finance previously issued a directive stating that, from 2013 onwards, a Taiwanese tax resident is defined as follows:
Having household registration and regularly residing in Taiwan, including:(A) Residing in Taiwan for a total of ≥31 days within a tax year.(B) Residing in Taiwan for 1≤ total days < 31 within a tax year, but whose life and economic center is in Taiwan.
Not having a domicile in Taiwan but staying in Taiwan for a total of 183 days or more within a tax year.
The aforementioned condition of having one's life and economic center in Taiwan requires a comprehensive assessment in practice. Factors to consider include family and social relationships, involvement in political, cultural, and other activities, occupation, business location, and asset management location. The most common conditions include having health insurance in Taiwan, having a spouse or children still living in Taiwan, or holding a key position in a company in Taiwan.
Reminder: If you live in a country that has a tax treaty with Taiwan (e.g., most EU countries), special rules (e.g., tie-breaker rules) may apply when determining if you're a Taiwanese tax resident.
Conversely, if someone does not meet any of the above conditions, meaning they don’t have long-term residency or household registration in Taiwan, they are likely considered a “non-tax resident.” In practice, as long as a taxpayer has household registration and is residing in Taiwan, they will be considered a Taiwanese tax resident. For more on filing requirements, please refer to the following explanation.
What are the Filing Methods for Taiwanese Tax Residents and Non-Tax Residents?
If you are classified as a Taiwanese tax resident, in principle, you must file an individual income tax return for income sourced from Taiwan every May. This follows a progressive tax rate from 5% to 40%, where higher income leads to a higher tax (as originally expected by the government).
It's important to note that even if you are identified as a Taiwanese tax resident, while foreign-sourced income (including from Hong Kong and Macau) isn't subject to the individual income tax, and instead, it is covered by an alternative minimum tax system with a 20% rate if the threshold is met, so it's not entirely tax-exempt.
On the other hand, if you are considered a non-tax resident with “Taiwan-sourced income,” in principle, most income types are subject to withholding. The payer typically withholds tax at the applicable withholding tax rate when making a payment, completing the non-tax resident's tax obligation without further filing requirements. (However, some exceptions, like property sales in Taiwan, require additional filing.) This is relatively less burdensome.
Additionally, under certain conditions, non-tax residents might qualify for specific tax benefits to reduce tax liability in Taiwan or even gain full exemptions! We’ll explore related tax benefits in later chapters.
Conclusion
Understanding your tax residency status in Taiwan and your associated filing obligations is crucial. Whether you're a tax resident or non-tax resident, by planning in advance according to the primary countries and types of income, you can potentially save a significant amount on taxes and ensure compliance with Taiwan's tax regulations. If you have any doubts, it's advisable to consult a professional tax advisor for more assistance and information.
