Taiwan operates a progressive tax system for individual income, alongside mandatory social security contributions covering health insurance, labor insurance, and pensions. Employers play a crucial role in this system by withholding income tax from employee salaries and contributing to various social security funds on behalf of their workforce. Understanding these obligations is essential for compliant operation within the country. The tax year in Taiwan aligns with the calendar year, running from January 1st to December 31st.
Compliance with Taiwan's tax regulations involves navigating various requirements, including accurate calculation of taxable income, timely withholding and payment of taxes, and proper reporting to the relevant authorities. Both employers and employees have specific responsibilities regarding income tax and social security contributions, which are designed to fund public services and social welfare programs.
Employer Social Security and Payroll Tax Obligations
Employers in Taiwan are required to contribute to several social security programs for their employees. The primary programs include National Health Insurance (NHI), Labor Insurance (LI), and the Labor Pension System (LPS). Contribution rates and calculation bases vary for each program.
National Health Insurance (NHI)
NHI is mandatory for all residents, including employees. Contributions are shared between the employee, employer, and the government. The employer's contribution is a significant portion. The contribution is calculated based on the employee's monthly insured salary.
- Employer Contribution Rate: Typically 60% of the total contribution rate.
- Employee Contribution Rate: Typically 30% of the total contribution rate.
- Government Contribution Rate: Typically 10% of the total contribution rate.
- Total Contribution Rate: The total rate is set annually. For reference, the total rate has been 5.17% in recent years.
- Calculation Basis: Monthly Insured Salary, capped at a certain amount.
Labor Insurance (LI)
Labor Insurance provides benefits for occupational injuries, general accidents, maternity, disability, unemployment, and old-age pensions. It is mandatory for most employees.
- Employer Contribution Rate: Typically 70% of the total contribution rate.
- Employee Contribution Rate: Typically 20% of the total contribution rate.
- Government Contribution Rate: Typically 10% of the total contribution rate.
- Total Contribution Rate: The total rate is the sum of the Labor Insurance rate and the Occupational Accident Insurance rate. For reference, the LI rate has been 12% in recent years (including 1% unemployment insurance), plus an occupational accident rate that varies by industry risk (average around 0.2%).
- Calculation Basis: Monthly Insured Salary, capped at a certain amount.
Labor Pension System (LPS)
The LPS is a defined contribution system. Employers are required to contribute a minimum percentage of the employee's monthly salary to their individual pension account. Employees can also voluntarily contribute an additional amount.
- Employer Mandatory Contribution: Minimum 6% of the employee's monthly salary.
- Employee Voluntary Contribution: Up to 6% of the employee's monthly salary.
- Calculation Basis: Monthly Salary.
Employers are responsible for calculating these contributions based on the employee's declared salary and the official contribution rates and caps set by the relevant authorities.
Income Tax Withholding Requirements
Employers are required to withhold individual income tax from the salaries and wages paid to their employees. The amount to be withheld depends on the employee's residency status, income level, and whether they have filed a withholding declaration form.
Resident Employees:
For employees who are Taiwan residents (residing in Taiwan for 183 days or more within a tax year), withholding is typically calculated based on a withholding table or a fixed rate if the employee opts not to use the table.
- Withholding Table Method: Based on the employee's monthly salary, number of dependents, and whether they are single or married, using a progressive table.
- Fixed Rate Method: Employees can choose to have a fixed rate of 5% withheld, provided their monthly salary does not exceed a certain threshold. If it exceeds the threshold, the withholding table must be used.
Non-Resident Employees:
For employees who are not Taiwan residents (residing in Taiwan for less than 183 days within a tax year), a fixed withholding rate applies to their salary income.
- Withholding Rate: 18% on gross salary income.
Employers must remit the withheld taxes to the tax authorities by the 10th day of the following month.
Employee Tax Deductions and Allowances
Employees in Taiwan can reduce their taxable income by claiming various personal exemptions and deductions when filing their annual income tax return. While employers handle withholding based on gross income and basic declarations, the final tax liability is determined by these deductions and allowances.
Key exemptions and deductions include:
- Personal Exemptions: A fixed amount for the taxpayer, spouse, and dependents (children, parents, etc.).
- Standard Deduction: A fixed amount that can be claimed instead of itemizing certain deductions.
- Itemized Deductions: Includes items like charitable contributions, insurance premiums, medical expenses, disaster losses, mortgage interest, and rent expenses (subject to limits).
- Special Deductions: Includes deductions for salary income, property transaction losses, savings and investment income, disability, education expenses, preschool children, and long-term care.
The specific amounts for these exemptions and deductions are announced annually and are subject to change. For reference, amounts in recent years have been:
| Item | Amount (NTD) (Approximate) | Notes |
|---|---|---|
| Personal Exemption | 92,000 per person | Higher for individuals aged 70 or over |
| Standard Deduction | 124,000 (Single) | 248,000 (Married Filing Jointly) |
| Special Deduction: Salary | 207,000 | Maximum amount |
| Special Deduction: Savings | 270,000 | Maximum amount for interest income |
| Special Deduction: Education | 25,000 per child | For children in college/university |
| Special Deduction: Preschool | 120,000 per child | For children aged 5 and under |
These amounts are used by the employee when filing their annual tax return to calculate their final tax liability, and any over-withheld tax is refunded.
Tax Compliance and Reporting Deadlines
Employers have specific deadlines for remitting withheld taxes and reporting employee income.
- Monthly Withholding Remittance: Taxes withheld from salaries must be paid to the tax authorities by the 10th day of the month following the month of payment.
- Annual Withholding Statements: Employers must prepare and submit annual withholding statements (Form 50) for all employees by the end of January each year, detailing the total salary paid and tax withheld during the previous calendar year. Employees also receive a copy of this statement.
- Annual Income Tax Filing (Employee): Employees must file their individual income tax return between May 1st and May 31st each year for the income earned in the previous calendar year.
Failure to comply with these deadlines and requirements can result in penalties and interest.
Special Tax Considerations for Foreign Workers and Companies
Foreign individuals working in Taiwan are taxed based on their residency status.
- Non-Residents: Individuals residing in Taiwan for less than 183 days in a tax year are taxed at a flat rate of 18% on their Taiwan-sourced salary income. They are generally not eligible for personal exemptions or deductions.
- Residents: Individuals residing in Taiwan for 183 days or more in a tax year are considered residents and are taxed on their Taiwan-sourced income using the progressive tax rates applicable to residents. They are eligible for the same personal exemptions and deductions as Taiwanese nationals.
Foreign companies employing individuals in Taiwan, even without a registered entity, may trigger permanent establishment rules and have employer obligations. Utilizing an Employer of Record service can help foreign companies manage these complexities, ensuring compliance with local labor laws, payroll processing, tax withholding, and social security contributions without needing to establish a legal entity in Taiwan. Tax treaties between Taiwan and other countries may also affect the tax obligations of foreign workers, potentially providing relief from double taxation.
