Taiwan Tax - part 2 Taiwan tax calculation

This post is geared to explain how income is taxed in Taiwan, with major differences between Taiwan and Canada taxation systems covered at the end. Please note that this post is general in nature and is not meant to be taken as tax advice. One should always consult with a tax professional to discuss one's specific tax situation.

The following is an overview of taxation in Taiwan as it relates to Canadians:

Tax treaty

• Canada has a tax treaty with Taiwan, and as such the following rules apply instead of either the Taiwan or Canada tax rules:
• Residency - is not based on number of days in the country, instead it is based on the following tests:
• Residence - the country you have a residence available to you, is your country of tax residency. If you have a residence in both countries, or in neither, then need to check the following test
• The place where center of vital interests lie - this is work, business, bank accounts, driver's license, family and the like
• If you are considered a resident of both countries as you have a residence available to you in both places, and vital interests in both, your residency needs to be determined by the competent authorities. Canada and Taiwan will reach a mutually agreeable decision.
• The following are some of the items covered under the treaty
• Income attributable to real estate is taxable where it's situated first
• Dividends - taxed in the country the person is resident in. The company issuing the dividends has to withhold 10% for shareholders holding more than 20%, and 15% in all other cases. This is tax for the country the company is resident in
• Interest income - taxed in the country the person is resident in, but the country it originates in can withhold 10%
• Independent personal services - this covers all professional services (independent scientific, literary, artistic, educational, teaching, physicians, lawyers, engineers, architects, dentists and accountants), essentially being self employed professionals or of any other independent character. This is taxed in the country or tax residence, but may also be taxed in the other country if:
• If there's a place of business in the other country, then income attributable to that country can be taxed there
• If the person is present in the other country for 183 or more in a year, income derived from completing the work in the other country is taxable there
• There are special rules for pensions and annuities

Taiwan personal tax overview

• works on a graduated rate system as in Canada. however, there are two distinct taxes - income tax (Taiwan sourced income) and Income Basic Tax Act (AMT - foreign sourced income). A taxpayer must pay either the income tax or AMT, whichever is higher. There are two separate rules, one for residents and one for non residents. This post will only cover the rules applicable to Canadians in Taiwan. That said, residency is nearly the same for all countries with a treaty and based on 183 for non treaty countries. The general taxation concepts, income inclusions and deductions apply to all, however, withholding rates differ.

Income tax regulations applicable to Canadians:

• Taiwan like Canada taxes worldwide income of residents and Taiwanese sourced income only for non residents.
• A family files a single return which includes the income and deductions for the entire family.
• All income for services provided within Taiwan is considered Taiwan based income regardless of who pays it. The only exception to the rule is income received by a Canadian from a foreign employer, for services provided for that employer where the Canadian is in Taiwan for less than 90 days, and the Canadian employer is not reimbursed by a Taiwanese company for the wages.
• Taxation in Taiwan in based on the calendar year, and must be filed by May 31st of the following year with any taxes payable paid by June 3rd.
• Taxation is based on residency, and residency is dependent on the rules laid out above.
• Withholding taxes for non resident Canadians working for a Taiwanese employer are as follows:
• Income - 18%
• Commissions - 20%
• Interest from Taiwanese sources - 10% based on treaty
• Dividends from Taiwan based entities - 10% or 15% based on treaty
• Withholding taxes for resident Canadians working for a Taiwanese employer are as follows:
• Income - 18% - until residency is achieved and is then reduced based on taxable income and dependents and/or 5%
• Commissions - 10%
• Dividends from Taiwan based entities - 0%
• Interest from Taiwanese sources - 10%
• The graduated tax rates on taxable income in NTD for 2020 are as follows:
• 0 - 540,000 - 5%
• 540,001 - 1,210,000 - 12%
• 1,210,001 - 2,420,000 - 20%
• 2,420,001 - 4,530,000 - 30%
• 4,530,001 and higher - 40%
• Benefits paid for by an employer such as housing, education, living, and transportation, are all taxable regardless of nature. There is one exception provided:
• Where the employee qualifies under "The Scope of Application of Tax Preferences for Foreign Professionals" and the expenses are reimbursed based on actual cost for items such as relocation, company provided housing rental cars and travel costs the amounts may be exempt from taxes. For clarity on this should seek out the advice of a CPA
• Some items exempt from income are as follows:
• Certain death benefits and payments
• Certain allowances received from the government
• Scholarships and subsidies granted by a government or other body for the advancement of studies and/or scientific development, unless the payment is considered for services
• Income of foreign diplomats
• There is no capital gains tax in Taiwan. Instead gains are taxed as ordinary income, unless the type of gain is exempt
• Gains from the sale of Taiwan real estate is taxed separately from income and must file the relevant return with the tax office within 30 days of the title officially transferring to the buyer.
• The gain from sale is calculated as follows sale price of real estate less purchase cost less selling expenses less the increase in land value that is taxed separately (LVIT)
• tax for residents:
• 45% if held less than 1 year
• 35% if held 1-2 years
• 20% if held 2-10 years
• 15% if held more than 10 years
• There is an exemption from tax equivalent to the Canadian principle residence exemption for a gain up to $4 million NTD (~182K CDN), if a person and their family lived there for six years or more and the property was never rented
• tax for non-residents:
• 45% if held less than 1 year
• 35% if held for more than 1 year
• Capital gains from the sale of shares is exempt
• Exemptions and credits for tax residents of Taiwan in NTD:
• 88,000 per family member basic credit
• children and siblings under 20 are considered part of the family for filing purposes. Can claim the basic credit for children over 20 if they are attending school and being supported by their parents, and/or have a disability and cannot earn a living
• 88,000  for ascendants over 60 or those under 60 that cannot earn a living
• 132,000 for ascendant over 70
• For other credits can either claim a flat standard deduction of 120,000 for a single person, 240,000 for a married couple, or an itemized deduction based on whichever is higher. The itemized deductions allowed are as follows:
• donations maximum of 20% of gross taxable income
• Insurance premiums - maximum of 24,000 per person per year, with no cap on NHI premiums
• Medical and maternity expenses - no cap if paid to a private or public hospital or clinic by the person, spouse or children, less any amount covered by insurance
• Can claim natural disaster expenses if not covered by insurance
• Interest paid on mortgage or loan for principle residence - deductible to a maximum of 300,000 less interest income earned
• Rent expense - maximum of 120,000
• From employment income can claim either flat amount of income earned to a maximum of 200,000 per person, or a maximum of 3% of employment income spent on work specific clothes, books and similar items required for the job, training courses related to the job
• Loss on real estate transactions - can be used to offset gains from other real estate transactions in the year or can be carried forward up to 3 years
• 270,000 maximum per family for taxable investment income
• Maximum of 200,000 per year for a physically or mentally disabled family member
• 25,000 maximum per child enrolled in college or university for tuition paid
• 120,000 per child under the age of 5
• 120,000 per member of family that requires long term care
• Note that some of the deductions listed above require special forms and or relevant forms to be able to claim them. There are also certain deductions that are not available once the tax rate on taxable income exceeds 20%, or AMT exceeds 6.7 million

Basic Income tax aka Alternative minimum tax ("AMT"):

• The purpose of this tax is to tax worldwide income not included in the income above. Only residents are subjected to this tax calculation.
• The AMT tax rate is 20%
• AMT tax is calculated if AMT income exceeds 6.7 million
• AMT income is calculated as follows: income subject to personal income tax plus overseas income exceeding 1 million plus income from certain life insurance and annuities plus certain share transactions, non-cash donations deducted from taxable income and dividends taxed using the flat rate

Tax measures applicable to those under "The Scope of Application of Tax Preferences for Foreign Professionals" and the gold card visa

• The first special provision includes an inclusion of only 50% of income over 3 million NTD for the first 3 years or residency. This applies for those that come for work purposes for the first time, the work is considered special professional work, and you didn't have household registration in Taiwan in 5 years.
• Exception for taxation of allowances - where one qualifies and the expenses are reimbursed based on actual cost for items such as relocation, company provided housing rental cars and travel costs the amounts may be exempt from taxes. For clarity on this should seek out the advice of a CPA

The following are the major differences between Canada and Taiwan in terms of taxation:

• The is only one Income Tax Act in Canada that applies to everyone equally, and is strictly based on residency.
• The due date for tax returns in Canada is April 30th for individuals and June 15th for those with self employment income. Tax payments are due April 30th, and installment payments are required once a taxpayer owes more than $3,000 CDN in a year.
• Each person files their own tax returns. A married couple with dependent children either under 18 or over 18 with physical or mental disabilities, calculate credits jointly but file separately.
• Canadian sourced dividends to residents are taxed either as eligible or non-eligible dividends based on the corporate tax rate, to integrate the total tax paid. There is no withholding on dividends paid to residents. Withholding on dividends is required for dividends paid to non-residents based on Canadian taxes or the relevant treaty rate.
• Foreign sourced dividends and interest are taxed as income with a potential credit for foreign taxes paid.
• Capital gains include gains on real estate, farm and fishing properties, shares, and listed personal property with certain exemptions. 50% of the gain amount is included as income and taxed at the graduated rates. Capital gains can be used to offset capital losses with no concept of source, can be carried back up to three years and forward up to 20 years.
• Real estate transactions:
• In Canada all real estate transactions are reported on the personal tax return and where taxable are taxed based on the graduated rate with an inclusion amount of 50% of the gain.
• Principle residence exemption is available to any residence or residences available to the taxpayer that are ordinarily inhabited by the taxpayer. The election to treat a principle residence is done based on year. Can only claim one property in any given year. There is also an election to gain an additional exemption under section 45(2) for up to 4 years for a property converted to a rental property, and a section 45(3) election to elect to defer gains on a rental property converted to a principal residence until such time as the property is sold. There is no minimum holding period, or a different return to file.
• As mentioned in the previous post, there is no requirement for authentication of any documents in Canada. The CRA may request additional supporting documentation for certain claims such as RRSP, tuition, childcare expenses, foreign income, but the requirements are straight forward.
• All foreign earned income is included on the Canadian tax return and taxed based on the graduated rates, with foreign tax credits available for foreign taxes paid.
• There are capital gains exemptions for qualified privately owned company shares, and qualified farming and fishing properties.
• As mentioned in the previous post, in Canada need to complete the tax return on one's own or by hiring a tax professional whereas in Taiwan the government will fill in the tax return.
• The Canada Revenue Agency ("CRA") operates a robust website for personal and business taxes that houses all returns, slips submitted by entities, notices of assessment, statement of accounts and correspondence. Tax software can pull all tax information available from the CRA directly into the software with no need to key it in. 
• All documents requested by the CRA can be uploaded utilizing the CRA secure document submission section in a person's individual tax portal.
• Tax preparers with authorization from their clients can also access all of a client's tax information and slips, and respond and deal with the CRA on the client's behalf, through a dedicated CRA site for preparers.
• Donations can be claimed to a maximum of 75% of taxable income.
• Medical expenses have no cap but can only claim amounts that exceed 3% of taxable income or a minimum of $2,397 whichever is lower.
• Taxation of real estate transactions by non residents are handled as follows:
• Rental income 25% withheld and remitted to the CRA
• Sale or real estate - 25% of selling price withheld by buyer and remitted to the CRA unless a T2062 certificate is requested to lower the withholdings to 25% of the gain.
• Non residents can choose to file or not file their tax returns as the CRA deems the withholdings to meet Canadian tax obligations.

Part 1 covers an overview of the tax systems in Canada the U.S. and Taiwan and can be found here

Part 3 covers tax issued that should be aware of employed and self employed individuals along with those that fully own a Canadian Corporation and can be found here

Feel free to leave any questions or comments below.