On 18 January 2018, amendments to the Income Tax Act passed third reading by the Legislative Yuan and are retroactively effective from 1 January 2018. The amendments will apply to income earned from January 2018 onwards with respect to the individual income tax (IIT) return.
The salient points of the new tax reform in relation to IIT are summarised as follows:
Individual income tax (IIT)
- Maximum tax rate: 40%.
- The following deductions have increased:
- Standard deduction: 120,000 new Taiwan dollars (TWD) for single taxpayer; TWD 240,000 for married couple filing jointly.
- Special deduction for salary or wages: TWD 200,000.
- Special deduction for disability: TWD 200,000.
- Special deduction for pre-school children: TWD 120,000.
Tax on dividends
- Abolish imputation tax system.
- Dividend income is taxed based on the following two alternatives, whichever is more beneficial:
- Dividend income is subject to IIT progressive tax rate, with 8.5% of dividend income available as tax credits, capped at TWD 80,000.
- Separately taxed using flat tax rate of 28%.
- Standard withholding tax (WHT) rate is 21%. Reduced WHT rates may apply in accordance with applicable tax treaties.
- Surtax on undistributed earnings can no longer be credited against dividend WHT, with the exception of 2018 (i.e. dividends distributed in 2018 can still utilise the tax credit).
Starting from tax year 2018, the Act for the Recruitment and Employment of Foreign Professionals provides preferential tax treatment for foreign individuals who have obtained the Employment Gold Card or Foreign Special Professional Work Permit and are approved to reside in Taiwan for the purpose of work for the first time.
If a foreign special professional meets both of the following criteria, 50% of the salary income in excess of TWD 3 million is exempt from Taiwan income tax and non-Taiwan source income is excluded from the calculation of the individual’s income basic tax (IBT):
- The individual stays in Taiwan for 183 days or more in a calendar year.
- The individual’s annual Taiwan-sourced salary income is in excess of TWD 3 million.