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Taiwan’s tax reform impacts individual taxation

Executive summary 

On 18 January 2018 the Legislative Yuan passed amendments to the Income Tax Act, to promote more competitive and equitable taxation in Taiwan. The amendments will be effective from 1 January 2018.

Key changes

The amendments focus on four key areas:

1. Increase to various deduction amounts

  • „A number of deductions have been increased for resident taxpayers, with the intention of reducing the tax burden for salaried employees, the medium and low-income population and families with pre-school children. 

Item

Before

Adjustment

(NT$)

After

Adjustment

(NT$)

Standard Deduction

(Single Taxpayer)

90,000

120,000

Standard Deduction

(Married Taxpayer)

180,000

240,000

Special Salary Deduction

128,000

200,000

Special Disability Deduction

128,000

200,000

Special Pre-School Children Deduction

25,000

120,000

2. Top individual income tax rate for resident taxpayers reduced to 40%

  • „From tax year 2015, Taiwan resident taxpayers receiving annual net taxable income exceeding NT$10 million (U$34,000) are subject to progressive tax rates up to 45%. From 1 January 2018, the 45% tax bracket has been removed meaning the highest marginal tax rate for resident taxpayers is 40%.

3. Introduction of new dividend taxation for resident taxpayers

  • „Two new tax methods for calculating the tax liability on dividend income received by Taiwan resident taxpayers have been introduced:
  • -Option 1: Combine dividend income with other income to calculate the annual tax liability. In this option, 8.5% of the dividend income, up to a maximum cap of NT$80,000 (U$2,750) per tax return, can be claimed as tax credit to offset the individual’s annual tax liability.
  • -Option 2: Calculate the tax liability for dividend income separately at a flat tax rate of 28% with no tax credit.
  • „A taxpayer can choose the method that provides them with the most beneficial outcome.
  • „The current imputation system on dividend distributions has been abolished to simplify the compliance process.

4. Adjust corporate income tax

  • „The corporate income tax rate has increased from 17% to 20%.
  • „The additional tax on undistributed profits has reduced from 10% to 5%.
  • „The earnings from a sole proprietorship or partnership are no longer subject to corporate income tax but will be subject to individual income tax along with the proprietor’s or partner’s other taxable income.

Next steps

The Tax Reform provides a significant increase in various deductions for individual income tax in addition to reducing the top marginal tax rate for Taiwan resident taxpayers to 40%. 

Companies with globally mobile employees assigned to or from Taiwan should revisit assignment tax cost estimates to better understand the financial impact of the changes and opportunities this presents for the business.  For companies with employees tax equalized to Taiwan, hypothetical tax deductions should be re-calculated and the corresponding payroll deduction should also be adjusted.       

EYG no. 00680-185GBL

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