In Taiwan, employers have a responsibility to withhold and remit various taxes and social security contributions on behalf of their employees. This includes income tax withholding and social security contributions.

Income Tax Withholding

Employers are required to withhold income tax from employee salaries. This is based on a progressive tax rate system that ranges from 5% to 40% for residents. Non-residents, on the other hand, are subject to a flat tax rate of 18% on gross salary income. The withheld income tax needs to be remitted to the National Taxation Bureau by the 10th of the following month after salary payment.

Social Security Contributions

Employers also have a responsibility to contribute to several social security programs. These contributions are made alongside those of the employee. The programs include Labor Insurance, National Health Insurance (NHI), Labor Pension, and Employee Stabilization Fund (ESF). Contribution rates for each program vary and are typically a percentage of the employee's salary, shared between the employer and the employee.

It's important to note that specific contribution rates and program details can change. Therefore, it's advisable to consult the latest information from Taiwan's Ministry of Labor or National Taxation Bureau for the most accurate figures.

In Taiwan, a progressive income tax system is used. For 2023, the tax brackets and rates are as follows:

• 0 – 560,000 NTD: 5%
• 560,001- 1,260,000 NTD: 12%
• 1,260,001 – 2,520,000 NTD: 20%
• 2,520,001-4,720,000 NTD: 30%
• Over 4,720,001 NTD: 40%

Residents are taxed on worldwide income, while non-residents are taxed only on income sourced from within Taiwan.

Social Security Contributions

Labor Insurance covers occupational accidents, injuries, and disability. This is mandatory for employees, with contribution rates varying depending on industry risk. National Health Insurance (NHI) provides universal healthcare coverage. Contributions are mandatory and calculated as a percentage of an employee's monthly salary with a cap. Employers must contribute 6% of an employee's salary to a mandatory pension fund. Employee contributions are optional.

Itemized Deductions

Taiwan allows for several itemized deductions, including:

• Charitable Contributions
• Insurance Premiums (within limits)
• Medical Expenses
• Calamity Losses
• Home Purchase Interest or Rental Expenses (within limits)

Standard Deduction

Employees can choose between a standard salary deduction (limited to 207,000 NTD or their total salary income, whichever is lower) or itemizing deductions.

In Taiwan, the standard VAT rate stands at 5%. Certain services qualify for zero-rating, mainly relating to export and international transport services.

VAT Exemptions

Specific services are exempt from VAT in Taiwan. These generally include medical care services, educational services, financial services, and certain cultural and social welfare services.

VAT Filing and Registration

VAT returns are generally filed on a bi-monthly basis in Taiwan. However, businesses eligible for zero-rated VAT may be able to file monthly. Enterprises with a fixed place of business in Taiwan must register for VAT. Foreign businesses providing electronic services to Taiwanese consumers exceeding an annual sales threshold of 480,000 New Taiwan Dollars (NTD) must also register.

VAT on Cross-Border Services

Taiwan imposes VAT on the supply of electronic services by foreign businesses to Taiwanese consumers when sales exceed the stipulated threshold. This ensures a level playing field.

Taiwan provides a range of tax incentives to attract foreign investment and stimulate domestic business growth. These incentives can significantly reduce a company's tax burden, making Taiwan an attractive location for businesses of all sizes.

Reduced Corporate Income Tax Rate

Foreign businesses investing in Taiwan can benefit from a reduced corporate income tax rate of 20%. This rate is one of the lowest in the region and applies to profits generated from business activities in Taiwan.

Tax Incentives for Specific Industries

Taiwan offers additional tax benefits for businesses operating in certain industries:

• Research and Development (R&D): Companies can claim tax credits for qualified R&D expenses under the Statute for Industrial Innovation (SII). These credits can be up to 15% of qualified expenses, with a maximum limit of 30% of the company's annual tax liability. Alternatively, companies can choose a three-year credit of 10% of qualifying expenses.
• Innovation and R&D for SMEs: Small and medium-sized enterprises (SMEs) can benefit from tax credits under the Act for Development of Small and Medium Enterprises. These credits can be up to 30% of the annual income tax liability and are based on qualified innovation and R&D activities.
• Specific Technologies: The Taiwanese government offers tax credits for investments in specific technologies like smart machinery, 5G networks, and information and communication security (IT security). These credits can be up to 5% of the investment amount, credited against the company's corporate income tax.

Free Trade Zones and Science Parks

Businesses operating in Taiwan's Free Trade Zones (FTZs) and Science Parks can benefit from additional tax breaks, including:

• Import Duty Exemptions: Companies in FTZs can import machinery, equipment, and raw materials duty-free.
• Reduced Business Tax Rates: Businesses in FTZs that primarily focus on exports can enjoy a zero business tax rate.

These are just some of the tax incentives available to businesses in Taiwan. It's advisable to consult with a tax professional to determine which incentives your business may qualify for and how to claim them.