All legal entities, sole proprietorships and partnerships, as well as branches in Taiwan of parent companies from abroad, which have an income of TWD 50,000 (USD 1,706) or more, must acquit taxes on their profits derived from Taiwan at a rate of 15%. Businesses also have to pay the VAT, which is generally set at 5% on all the transactions inside the country.
In this article, our company formation consultants in Taiwan explain the taxation system in Taiwan.
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Residence rules in Taiwan
For taxation purposes, a person is considered to be a resident of Taiwan if he or she:
- Lives in Taiwan and resides in the country; or
- Does not live in Taiwan, however, he or she stayed in the country for 183 days or more during a tax year. Our Taiwan company formation advisors can provide more details on this matter. We can also assist you to set up a company in Taiwan.
A person is considered to be a non-resident in case he or she does not meet either if the above-mentioned criteria.
For individuals, Taiwan has a progressive taxation system, according to which persons are taxed between 6% and 40% from their income. Please mind that you will become liable for taxation once you are the holder of a residence permit, as you will most likely work here or have a business activity.
The tax year in this country is the same as the calendar year.
Any foreign citizen who is a non-resident, however, who works in Taiwan for more than 90 days during a year has to acquit his or her income tax at a rate of 20%, which is deducted by the employer. If you will immigrate to Taiwan, you will become liable for taxation here.
Taxes on dividends in Taiwan
Taiwan has an imputation system which is meant to avoid the double taxation for dividends. According to this system, when a local company distributes its after-tax profits as dividends to persons who are residents of Taiwan, the distributing entity also allocates the profit-looking company income tax paid on the dividends for the shareholders as an imputed tax credit.
The private shareholders then can utilize the imputed credit to offset their private income tax responsibility.
Therefore, the profit-looking entity income tax acquitted by a domestic company becomes an advance taxation payment for the shareholders. Our Taiwan company registration agents can offer further information on this subject.
According to the partial imputed taxation credit system which has replaced the total imputed taxation credit system, only 50% of the imputed taxation credit can be utilized to offset a resident shareholder’s private income tax responsibility.
If you have more questions about the Taiwan income tax, or for help to open a company in Taiwan, please feel free to contact our friendly staff.