Taiwan Tax - part 3 Taiwan tax on income

This post is based on the information provided in the previous two posts, and relates towards those earning employment income in Taiwan under three scenarios, as a self employed individual with a business operating in Canada and providing services within Canada only. I will provide minimal discussion on those that work through a wholly owned corporation in Canada, that provides services within Canada only as this is likely the most complicated situation of all. For the following, it is assumed the individual is a Canadian permanent resident or citizen. 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.

First with respect to employment income, the discussion will be based on the following three scenarios:

1. Working remotely in their home countries, and have relocated on their own to work remotely from Taiwan
2. Sent by their employer to work in Taiwan for a division of their employer
3. Willingly relocated to Taiwan and working for a Taiwanese employer

As mentioned in the previous post if one works remotely from Taiwan for under 90 days in a calendar
year, are paid by their Canadian employer, and the employer isn't reimbursed by a Taiwanese company there are no issues and no taxes are payable in Taiwan.

Also, as mentioned in the second post, the following are the factors used to determine residency based on the tax treaty between Taiwan and Canada:

• 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 centre 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.

Let's take a dive right into the scenarios listed above, assuming one is in Taiwan for over 90 days:

Scenario 1

• As your employer did not relocate you, they are likely withholding based on you residing in Canada, meaning deductions for taxes are made based on the provincial and federal payroll tables along with CPP and EI. This can be an issue, as Taiwan views your earnings as being earned in Taiwan, with a requirement to withhold based on the Taiwanese withholding rate.
• If you are deemed to be a resident of Taiwan for tax purposes this can cause an additional issue in trying to recoup taxes paid in Canada. As a Canadian non resident, no tax should have been withheld or remitted to the CRA, and as such you will need to file a return to get a refund of the withholdings. CPP and EI along with other payroll deductions for items such as a pension plan or RRSP will cause additional issues. Canada is only required to provide foreign tax credits and refund based on treaty rates.
• Depending on your position with your employer, and the work performed, you might cause your employer to be considered to have a permanent establishment in Taiwan, and may be penalized as you are not on a Taiwanese payroll.
• If you are going to move voluntarily, and plan on being in Taiwan for over 90 days, it is strongly advisable that you discuss this with your employer, or consider moving to a country that will not tax your Canadian income.

Scenario 2

• In this scenario your employer will be sending you to Taiwan, and if the duration is expected to be over 90 days, they should move you onto a Taiwan payroll for proper deductions.
• As mentioned in the previous post, unless you qualify under the "The Scope of Application of Tax Preferences for Foreign Professionals" for reimbursement of expenses, you should factor in that allowances are taxable in Taiwan.
• This is not so much a tax issue, however, this is a good time to negotiate your salary and any additional benefits you receive to account for any cost of living adjustments required.
• Residency - depending on the duration of your anticipated stay in Taiwan, you should consider where you will be a resident for tax purposes and ensure you minimize any potential tax exposures. If under the treaty you will be considered a tax resident of Canada, you will need to report your worldwide income in Canada, and you will get a foreign tax credit for taxes paid in Taiwan.

Scenario 3

• This is by far the simplest scenario. Under this scenario, you should consider where you will be a resident for tax purposes and ensure you minimize any potential tax exposures.
• Your Taiwanese based employer will handle the withholdings relevant for Taiwan, and will need to provide you with a proper tax form for tax purposes at the end of the year.
• If you are considered a resident of Canada for tax purposes, you will need to have the tax form and Taiwanese tax return, and include the income from your Taiwan tax return on the Canadian return and claim the tax paid in Taiwan as a credit.

Self employed with business operating in Canada and servicing Canada only

• If you are in Taiwan for 90 days or less, there are no issues or tax consequences in Taiwan, same as an employed person.
• Personal residency - this will be the first factor you will need to consider. See above and post two for the determination of citizenship under the Canada Taiwan tax treaty.
• Business residency - If you have a registered office in Canada, and only solicit Canadian business, and it is easily determined that you solicit business based on your operations being in Canada, your business will be deemed to be a resident of Canada.
• Having yourself considered a resident in one country, and your business be a resident of another country; in this case you being deemed to be a Taiwan resident for personal tax purposes, and your business being deemed a resident of Canada for tax purposes can have a lot of unintended consequences. You should seek the advice of a CPA to ensure this is handled appropriately.
• As mentioned in the second post, under the treaty, Taiwan will tax the income generated by your Canadian business, for work performed in Taiwan. If you do not have employees, this is relatively straight forward, but you will need to have your income and expenses signed off on by a Canadian CPA, which you may not be able to obtain. If you have employees this will complicate the accounting for work performed in Taiwan.
• Canada will provide you with a tax credit under the treaty for any taxes paid in Taiwan.
• The above are general issues that you should consider before relocating to Taiwan.

Employed through a wholly owned Corporation operating in Canada and servicing Canada only 

I will only provide two points to consider under this arrangement should you be considered a resident of Taiwan for tax purposes and/or are in Taiwan for over 90 days, as this scenario requires planning on both sides of the border.

• You have the ability to decide whether to remunerate yourself using payroll or dividends, or a combination of both. As such, there will be the question of how much income Taiwan will attribute to the work you complete from Taiwan. In essence you have the ability to have no payroll and remunerate yourself solely by dividends, in which case you will only have income for AMT purposes.
• Personal residency and corporate residency will be an issue based on the same criteria as listed above for self employed.

Overall for employees under scenario 1, self employed Canadians, and Canadians operating a wholly owned corporation, Taiwan is not an ideal destination from a tax perspective. It can lead to many potential tax pitfalls, and despite having a treaty in place, may still result in double taxation. If tax is a factor in your consideration to relocate to Taiwan, you should seek advice from CPAs on both sides of the border to minimize issues.

Taiwan is definitely not a digital nomad friendly country.

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

Part 2 covers the Taiwan tax calculation and can be found here

Feel free to leave any questions or comments below.