Taxation Issues Freelancers in Taiwan Should Note
Freelancers have become increasingly common in Taiwan today, encompassing professions such as yoga instructors, fitness coaches, photographers, designers, and more. They often work based on their professional skills, taking on projects independently and managing their own time and work content rather than receiving fixed salaries from employers. Due to the nature of their work, Taiwanese freelancers should file relevant personal income taxes or even business income taxes and business taxes re their service revenues. Below we would like to introduce the relevant taxation issues regarding the type of service income as well as the corresponding tax obligations.
What Types of Income Do Freelancers Receive?
In practice, when freelancers receive income from companies, the company often provides them with a labor compensation form (referred to as a “labor form”) as proof of their expenditure (i.e., allowing the company to list it as a cost expense).On the other hand, when individual freelancers receive this labor form, they should report their personal income tax based on the information provided on the labor form. While there is no fixed format for the labor form, it should generally contain information about the income recipient and the income category, including Income from Professional Practice (Income code: 9A), Income Derived from Published Articles, Copyright Books, Musical Compositions, Musical Productions, Dramas or Remuneration for Speeches and Lectures etc. (Income code: 9B), and salary income (Income code: 50). Different income categories have different tax-exempt amounts and methods of taxable income calculation.
How Should Freelancers Calculate Their Taxable Income?
If the income category falls under Income Code 9A (I.e., Income from Professional Practice), the freelancer's income cost expenses typically need to be accounted for and recorded according to actual cost expenses, with relevant accounting documents (e.g. contracts, invoices or payment voucher) retained for verifying the income amount. However, there may be situations where proof of cost/expense amount is unable be provided( e.g. lack of proper bookkeeping or retaining relevant proofs), in which case freelancers can calculate their income based on their professional income and the annual standards set by the Ministry of Finance (different occupation codes have different deduction rates), subtracting the calculated cost expenses from the professional income.
For example, if a freelancer's profession falls under the category of performers (e.g., dancers, comedians, voice actors, stunt performers, musicians, magicians, etc.), with a 45% inputted fee ratio, and their annual performance income is 1 million, their annual income for the year should be calculated as 550,000 ( = 1 million * [1–45%]), and they need to include such income amount in their annual comprehensive income tax filing.
On the other hand, if the income category falls under income code 9B (e.g., income derived from Published Articles, Copyright Books or Remuneration for Speeches and Lectures etc.), there is a tax-exempt amount of NTD$ 180,000. If the income exceeds 180,000, the freelancer can attach accounting documents for cost expense verification or deduct 30% inputted fee ratio of the residual income directly (for non-self-publishers), resulting in the inputted Income from Professional Practice and incorporating it into the comprehensive income calculation.
For example, if a freelancer earns $300,000 from speeches, their income for the tax year would be $84,000 ([300,000–180,000 tax-exempt amount]*[1–30%] =84,000).
If the income category falls under income code 50 (salary income), which includes employment relationships and various allowances such as salary, wages, bonuses, dividends, and subsidies, a special deduction for salary income (NT$207,000 for the 2023 tax year) can be applied.
Practical Considerations
In practice, freelancers often receive cash directly from their clients. However, please note that the method of income acquisition does not affect subsequent tax reporting obligations, meaning any form of income should be included within the scope of tax reporting. In other words, regardless of whether freelancers obtain income through any platform or directly receive cash from clients, they should, in principle, report personal income tax according to the relevant regulations mentioned above.
Additionally, freelancers with studios/business premises and hired employees may also consider whether to establish a company to comply with tax regulations and reduce their tax burden. Through a corporate structure, freelancers can enjoy different tax incentive policies and separate their personal and corporate finances, reducing the relevant tax risks.
However, before making such decisions, freelancers should carefully assess their business situation, financial condition, and legal regulations, and seek advice from professional accountants or legal advisors to ensure making the correct choice and maximizing tax benefits.
