Taiwan to raise tax exemption, deduction thresholds in 2024
Date:2023-11-08 Read
Taipei, Nov. 23 (CNA) Taiwan's individual income tax exemptions and standard tax deductions are to be raised in 2024, in time for the tax season in May 2025, the Ministry of Finance (MOF) announced on Thursday. In a proposal approved by the Cabinet Thursday, the MOF noted that through the end of October, the consumer price index (CPI) had risen 5.5 percent this year, exceeding the 3 percent threshold for adjusting tax exemption and deduction levels. As a result, the ministry said, individual income tax exemptions will rise from NT$92,000 to NT$97,000 (US$3,078). In addition, the standard tax deduction for single filers will be raised from NT$124,000 to NT$131,000 and from NT$248,000 to NT$262,000, according to the ministry. The special deduction for wage and salary earners and persons with disabilities, meanwhile, is to be increased from NT$207,000 to NT$218,000. According to the ministry, the combined tax reductions are expected to benefit 6.62 million households in Taiwan, and will lower government revenue by NT$17.5 billion. 2023 tax year adjustments Separately on Thursday, the MOF announced that the annual tax-deductible allowance for basic living expenses during the 2023 tax year will be raised to NT$202,000 per person, an increase of NT$6,000 from last year. At a 5 percent tax rate, the NT$6,000 increase in the allowance will provide an extra NT$300 in income tax savings for a single filer, or NT$1,200 for a family of four, the ministry said. Taiwan's 2017 Taxpayer Rights Protection Act stipulates that people should not be taxed on the amount they need to cover their basic expenses, which is set at 60 percent of median disposable per capita income in the preceding year. In 2022, the median annual income was NT$336,850. According to the MOF, the adjustment to the tax-deductible allowance for basic living expenses will benefit around 2.35 million households and decrease government revenue by NT$18.9 billion. Resource: https://focustaiwan.tw/business/202311230018
The CFC Rules for Individuals to Be Enforced from January 1, 2023
Date:2022-11-21 Read
The National Taxation Bureau of the Southern Area (hereinafter "The Bureau"), Ministry of Finance indicated that the controlled foreign company (hereinafter "CFC") rules for individuals will be enforced from January 1, 2023. The Bureau provided an overview of the CFC rules for individuals in response to frequently asked questions from the public. The Bureau explained that the CFC rules for individuals were established by Article 12-1 of the Income Basic Tax Act. Whether an individual is subject to the CFC rules is determined by their residency of the R.O.C. in a taxable year in accordance with the Income Tax Act. If an individual is a non-resident of the R.O.C. in a taxable year in accordance with the Income Tax Act, the individual is not subject to the CFC rules. Next, a foreign enterprise is treated as a CFC if the enterprise fits the CFC definitions of control requirements and establishment in a low-tax country or jurisdiction. Control requirements are further classified into "equity control" or "substantial control". The former means that individuals and their related parties directly or indirectly hold 50% or more of the shares or capital of a foreign enterprise. The latter means that individuals and their related parties have a significant influence on the personnel, finance, or business operation of a foreign enterprise. Furthermore, even though a foreign enterprise fits the definitions of CFC, there are two exemption thresholds for an individual to exempt from the CFC rules once the CFC is eligible for one of the thresholds below. First, a CFC conducts substantial operating activities. Second, a CFC earns the current-year earnings of no more than NT$7 million. However, if the sum of the current-year earnings or losses of all of the CFCs under the control of the individual, his or her spouse, and dependents who file a joint consolidated income tax return in accordance with the Income Tax Act exceeds NT$7 million, the current-year earnings of each CFC shall be subject to the CFC rule for individuals. In sum, if an individual is a resident of the R.O.C. in a taxable year in accordance with the Income Tax Act, and a foreign enterprise fits the definitions of CFC which is also not eligible for the exemption thresholds, then when that individual along with his or her spouse and relatives within the second degree of kinship who directly holds 10% or more of CFC shares, the individual shall calculate CFC business income and include it with the amount of other overseas income in the basic income of the current year. As for the calculation of CFC business income, it equals the amount that the current-year earnings of the CFC, deducting from the legal reserve or restricted distributable earnings and the losses of past years assessed by the tax authority, times individual's direct holding ratio and holding period. For example, assume Company A, without conducting substantial operating activities, is established in a low-tax country or jurisdiction. Individual X owns 60% shares of Company A on April 1, 2023, which means Company A is a CFC of Individual X for meeting equity control of the control requirements. The earnings of Company A in 2023 are NT$36.5 million, and the legal reserve of Company A is NT$3.65 million. Individual X shall calculate overseas business income NT$14.85 million 【=（NT$36.5 million – NT$3.65 million）× 60% × (275/365) days】 to file in the basic income of the taxable year 2023. The Bureau pointed out that the earnings retained in the CFC would not be subject to tax until the earnings were distributed before the implementation of the CFC rules. However, the undistributed earnings shall be regarded as distributed and calculated as CFC business income after the implementation of the CFC rules. Besides, to eliminate double taxation, the amounts of dividends or earnings from a CFC that has been calculated as CFC business income and subject to tax shall not be included in the basic income again when an individual receives dividends or earnings afterwards. The CFC rules for individuals only change the time point of taxation rather than levying additional taxes. The Bureau would like to remind people to pay more attention to the CFC rules and related regulations to maintain their rights and interests. Press Release Contact: Ms. Cheng Second Examination Division TEL: 06-2223111 ext. 8040 Resources: Ministry of Finance, R.O.C.
Taiwan to raise tax exemption, deduction thresholds
Date:2021-12-02 Read
Taipei, Nov. 24 (CNA) Taiwan's individual income tax exemptions, standard tax deductions and special deductions thresholds are to be raised in 2022, in time for the tax season in May 2023, the Ministry of Finance (MOF) announced on Wednesday. The adjustments will see the personal tax exemption rise to NT$92,000 (US$3,309) from NT$88,000. For taxpayers aged 70 or over, or with a spouse or lineal ascendant 70 or older, the personal exemption will increase from NT$132,000 to NT$138,000, according to the ministry. In addition, the standard deduction for single filers will be raised to NT$124,000 from NT$120,000, and to NT$248,000 from NT$240,000 for married couples filing jointly. The special deduction for wage and salary earners and persons with disabilities, meanwhile, is to be increased from NT$200,000 to NT$207,000. Also, gift and inheritance tax exemptions are set to be raised by NT$240,000 and NT$1.33 million to NT$2.44 million and NT$13.33 million, respectively. The changes to deduction and exemption thresholds have been triggered due to increases in the consumer price index (CPI). Since the last adjustments in 2017, the CPI has risen by more than 3 percent, with the MOF legally obligated to make adjustments based on the average 12-month CPI data. Furthermore, the government has been forced to make greater concessions on inheritance and gift taxes due to the CPI rising by 11.09 percent since the last adjustment to these rates in 2009. According to the MOF, the upward adjustments will lower the government's tax revenues by NT$9.57 billion. Reference: https://focustaiwan.tw/business/202111240024 Taxation Administration, MOF, R.O.C.
Double Taxation Agreement between South Korea and Taiwan
Date:2021-12-01 Read
The Ministry of Finance states that the Agreement between the Taipei Mission in Korea and the Korean Mission in Taipei for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter referred to as the Income Tax Agreement between Taiwan and Korea) was signed on November 17th, 2021. Each Party to the Agreement will notify the other in writing of the completion of the procedures necessary to implement this Agreement in their respective territories. The Agreement will enter into force on the date when the later Party’s notification is received and will apply to tax cases beginning on or after the first day of January after the year in which the Agreement enters into force. The Ministry of Finance points out that the Income Tax Agreement between Taiwan and Korea has been promoted and consulted by both sides for years before a consensus was reached. This Agreement was entered into with reference to international model tax conventions. Its main objective is to ensure that the income derived by the residents (including people and enterprises) of a Party is subject to tax in the other Party with a proper measure to the reduction of or exemption from that other Party’s taxation in order to eliminate double taxation. With such an Agreement in place, it may reduce the tax burden of people and enterprises from both sides, provide a mechanism for dispute resolution, and enhance other areas of tax cooperation. The Ministry of Finance notes that Taiwan and Korea has a close economic and trade relationship. In 2020, the bilateral trade between Taiwan and Korea amounted to US$35.74 billion. Taiwan and Korea have become each other’s 5th largest trading partner. As of the end of July of 2021, Taiwanese enterprises invested a total amount of approximately US$2.04 billion in Korea, and Korean enterprises invested a total amount of approximately US$1.51 billion in Taiwan. The appropriate measures for tax reduction or exemption provided by the Income Tax Agreement between Taiwan and Korea will promote industrial cooperation and technical exchanges, boost the competitiveness of enterprises from both sides, create employment opportunities, enhance economic growth so as to benefit both sides in a reciprocal way, and create win-win situations. The Income Tax Agreement between Taiwan and Korea is the 2nd Income Tax Agreement that Taiwan concluded with Northeast Asian countries after Japan. The signing and entry into force of this Agreement will strengthen the treaty network of Taiwan in Northeast Asia, which can help Taiwan conclude Income Tax Agreements with other countries in the future and improve its international competitiveness. The Ministry of Finance will, based on the principles of equality and reciprocity, continue to initiate the conclusion of Income Tax Agreements with countries with close economic and trade relationships so as to broaden our tax treaty network as well as create a fair, stable, and reasonable tax environment. Reference: Taxation Administration, MOF, R.O.C.
The Agreement between the Taipei Economic and Cultural Representative Office in the Kingdom of Saudi Arabia and the Council for Saudi Chambers of Commerce and Industry for the Avoidance of Double Taxation with Respect to Taxes on Income and the Prevention of Tax Evasion entered into force on November 1st, 2021 and will be applicable on January 1st, 2022
Date:2021-11-19 Read
The Ministry of Finance states that the Agreement between the Taipei Economic and Cultural Representative Office in the Kingdom of Saudi Arabia and the Council for Saudi Chambers of Commerce and Industry for the Avoidance of Double Taxation with Respect to Taxes on Income and the Prevention of Tax Evasion (hereinafter referred to as the Income Tax Agreement between Taiwan and Saudi Arabia) was signed on December 2nd, 2020. After both sides completed the notifying procedures necessary for entering into force of this Income Tax Agreement, it entered into force on November 1st, 2021 and will be applicable on January 1st, 2022, making it the thirty-fourth comprehensive Income Tax Agreement for Taiwan. The Income Tax Agreement between Taiwan and Saudi Arabia will reduce barriers to cross-border trade and investment and will provide a more friendly tax environment for the carrying out of the trade and investment, industrial cooperation, and technical exchange between the two sides. The Income Tax Agreement between Taiwan and Saudi Arabia includes 28 Articles. Its main objectives are to ensure that the income derived by a resident of a territory (e.g., Taiwan) is taxed with a reduced tax rate or is exempted from taxation in the other territory (e.g., Saudi Arabia) for eliminating double taxation and providing a dispute resolution mechanism so as to prevent or resolve disputes resulting from cross-border taxation. The contents of this Income Tax Agreement are summarized as follows: a. Persons Covered: Residents, as those persons defined in accordance with domestic tax laws of Taiwan or Saudi Arabia, including individuals and enterprises. b. Taxes Covered: Income tax, the taxes covered by this Income Tax Agreement also includes the Zakat of Saudi Arabia. c. Main measures of tax exemption or reduction for Business Profits: If an enterprise of Taiwan or Saudi Arabia carries on business in the other territory without constituting a permanent establishment (hereinafter referred to as PE) therein, business profits of that enterprise are exempted from taxation in that other territory. The term PE includes: 1. Physical PE: e.g., a place of management, a branch, an office. 2. Project PE: a project that continues to exist for a period of more than six months. 3. Service PE: the furnishing of services for a period or periods exceeding in the aggregate six months within any twelve-month period. 4. Agency PE: a person acting on behalf of an enterprise of a territory and habitually exercising an authority to conclude contracts in the name of that enterprise in the other territory. However, an enterprise shall be deemed as not to have a PE if its maintenance of a fixed place of business (e.g., logistic warehouse) in the other territory is solely for the purposes of storage, display, or delivery of goods or merchandise, for purchasing goods or merchandise, or for collecting information etc. as long as these activities are of a preparatory or auxiliary character. d. Main measures of tax exemption or reduction for Income from Investment: Dividends: the tax charged is not to exceed 12.5% of the gross amount of the dividends. Income from Debt-Claims (Interest): the tax charged is not to exceed 10% of the gross amount of the interest; certain interest is exempted from taxation. Royalties: 4% of the gross amount of the royalties as a maximum is applied to the payment for the use of, or the right to use industrial, commercial, or scientific equipment; 10% of the gross amount of the royalties as a maximum is applied to the payment for the use of, or the right to use intangible assets, or for other royalty cases. e. Main measures of tax exemption or reduction for Capital Gains: Gains from the alienation of shares of a resident of a territory shall, in principle, be exempted from taxation in the other territory except for such shares owned by that resident amounting to at least 25% of the total issued shares of the issuing company which is a resident of the other territory at any time during the seven-year period immediately preceding the alienation of such shares. f. Dispute Resolution - Mutual Agreement Procedure: Residents of either territory may, within the stipulated duration, present their cases to the competent authority of either territory and ask to open a mutual agreement procedure in order to resolve or prevent disputes resulting from cross-border taxation where the following circumstances occur: 1. Disputes on the application of the Income Tax Agreement between Taiwan and Saudi Arabia; 2. Disputes on the corresponding adjustments for transfer pricing cases; 3. Efforts to conclude Bilateral Advance Pricing Agreements, to minimize risks that affiliated enterprises would be facing in the future under transfer pricing auditing, so as to increase tax certainty. The Ministry of Finance notes that Saudi Arabia ranks fifteenth among Taiwan’s global trade partners, and Taiwan was Saudi Arabia's eleventh-largest export market in 2020 according to statistics provided by the Ministry of Economic Affairs. The trade relationship between Taiwan and Saudi Arabia is close. The entry into force of the Income Tax Agreement between Taiwan and Saudi Arabia may be useful for reducing the tax burden of Taiwanese companies who carry on business in Saudi Arabia. Where a Taiwanese company furnishes technical service to a Saudi company without establishing a fixed place of business in Saudi Arabia and the period during which the Taiwanese company maintains its employees or other personnel in Saudi Arabia for furnishing such service is no more than six months within any twelve-month period, the tax rate on the service income will be zero if the relevant provisions of the Income Tax Agreement between Taiwan and Saudi Arabia are met (where the withholding tax of 15% would otherwise be applied to that case in Saudi Arabia in the absence of this Income Tax Agreement). In addition, the Income Tax Agreement between Taiwan and Saudi Arabia will apply equally and reciprocally to both sides’ residents. Saudi Arabia’s companies carrying on businesses similar to the above-mentioned will enjoy the same preferential tax treatment in Taiwan. Furthermore, since Saudi Arabia provides no unilateral tax relief under its domestic tax laws to eliminate double taxation, through the Income Tax Agreement between Taiwan and Saudi Arabia which provides Saudi Arabia’s companies with a mechanism to resolve their double taxation, this mechanism can greatly reduce the tax burden of Saudi Arabia’s companies, increase their willingness to invest in Taiwan, and deepen the cooperative relationship for both sides’ investment and trade. The Ministry of Finance emphasizes that the Income Tax Agreement between Taiwan and Saudi Arabia is the first comprehensive Income Tax Agreement that entered into force between Taiwan and the Islamic countries in the Middle East and sets up a meaningful benchmark among Taiwan’s Income Tax Agreements. In recent years, Saudi Arabia has promoted an important economic policy “Saudi Vision 2030,” actively expanding infrastructure, enhancing inbound investment shares from foreign investors, and increasing fiscal revenues from non-oil sectors. The entry into force and application of this Income Tax Agreement enables Taiwanese companies to enjoy reasonable and stable taxation when entering markets in the Middle East, to resolve or prevent double taxation disputes, and to remove tax obstacles from carrying out cross-border economic activities. All of these may assist these Taiwanese companies to isolate tax considerations from their decisions regarding where to carry on their cross-border economic activities, so that the decisions on the development and business structures of these companies may be based on the considerations such as economic resources allocations or market mechanisms. The Ministry of Finance will based on equality and the principle of reciprocity, continue to promote the conclusion of Income Tax Agreements with countries of close economic and trade relations with Taiwan as well as New Southbound policy countries and countries in the Indo-Pacific region who share the same interests with Taiwan so as to provide Taiwanese companies with better protection of their taxation under their global investment arrangements. Resources: MOF, R.O.C.