Taxes in Taiwan part 1 – that will be the topic of today’s article.
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The best time to consider your financial situation is when you are moving to a new country.
Taiwan has a great tax system, and it is easy to pay your taxes on time. There is no need for massive income statements or complicated forms. All you have to do is fill out the documents provided by the government and mail them with your payment. They will automatically calculate how much money you owe, and send you a bill accordingly. The rules for filing taxes are very clear and easy to follow.
Income tax ranges from 5% to 45%, depending on your salary, so if you earn less than TWD 560,000 a year, you only have to pay a flat income tax of 5%. Capital gains are taxed at 10% or 20%, depending on whether it’s short term or long term. The dividend tax is 5%, and there are no taxes on gifts/donations, inheritance, or interest income.
Taiwan has a Value Added Tax (VAT) system in which the rate depends on the product’s category. There are 29 different categories in total, and most everyday goods fall under the ‘multiple items’ category, taxed at 5%. There are four different excise tax rates: 3%, 7%, 10%, and 25%.
If you work in Taiwan and you’re not a citizen or permanent resident, your income and taxes will be handled the same way as any other foreigner’s. Expats who come to Taiwan for business purposes can claim expenses such as plane tickets and transportation fees. The tax year begins on January 1st and ends on December 31st, so all tax returns should be postmarked by February 28th the following year.
However, we have compiled this article to explain the taxes in Taiwan. If you’re reading this, you’ve come to the right platform. And we’re here to serve you the things needed to know about taxes in this country and all that it takes. Would you love to check what we’ve unleashed for you? Read further!
Things to Know about Expat Taxes in Taiwan
Taiwan has a lot to offer expats when it comes to things like affordability, work-life balance, and natural beauty. The island has become an increasingly popular destination for digital nomads looking to kick back in cheap apartments in the sun after months or years of hustling in Europe or America.
But another thing Taiwan is becoming known for among Westerners is its attractive tax breaks for foreign workers. How many countries can claim they allow expats to work in their country without paying any taxes at all?
But this benefit of the doubt only goes so far, and there are still some crucial things you need to know before filing your first income report with the Taiwanese government. So, here are seven things about expat taxes in Taiwan you should know before filing your first return.
Taiwan Has a Progressive Tax System
Taiwan’s tax bracket is based on the amount of money you earn. There are twelve brackets ranging from 3-45%, and they apply to everyone from students, teachers, expats, citizens, etc. The more money you make, the higher your income will be taxed, meaning that if you’re an expat living in Taiwan and making a large amount of money, you could pay up to 45% in taxes.
Only Submit Your Form 16 Once A Year
Most expats assume that Taiwanese employers will be withholding the correct amount of taxes every paycheck and therefore only need to submit their Form 16 once a year. Unfortunately, this is incorrect because each tax bracket (3-45%) has its own corresponding rate.
Meanwhile, this will be applied to all twelve months. Since it takes twelve months, not six, to make enough money to reach the highest tax bracket of 45%, some expats can get stuck with higher taxes than they need to pay.
Saving Money on the Right Deductions
There are some tax deductions that expats can apply for in Taiwan to decrease their taxable income. This is because of how expensive living in Taiwan is, so these deductions help reduce the amount of money you would pay in taxes overall. These tax deductions include children’s education, donations to charities, medical expenses, and home loan repayment.
Getting Help from a Tax Accountant
As an expat living in Taiwan, it can be difficult to understand the intricacies of filing your own taxes. This is why many expats hire a Taiwanese accountant to file their taxes for them instead. They will ensure that you are paying the right amount of taxes for your income bracket, and you can avoid paying too much. Also, if it’s found that you were paying too much in taxes, you can get your money back.
Time to Go Back and File Your Taxes
If you’re an expat living in Taiwan who never submitted their Form 16, it’s time to get them back and submit them (plus the other forms required). If you were an English teacher, for example, it’s possible that your Taiwanese employer deducted taxes from each paycheck.
Moreover, they might not send them to the government. This means that you could be missing out on thousands of dollars (if not more) because you’re paying taxes at a higher rate than you need to.
Expats Living in Taiwan Should Use a Tax Agent
Taiwan has a good tax agency system, and it is free to file taxes with them. However, as an expat living in Taiwan, you might find filing taxes difficult because of all the complicated things involved. For example, there are different rules for residents and non-residents, different tax years, and various forms to complete.
To make things easier for expats, they can hire a local Taiwanese person or company to file their taxes on their behalf. This will save time and money in the long run because you won’t have any mistakes with your taxes.
There’s a Limit to Tax Deductions
There is a limit to how much you can claim as tax deductions, and this differs for each expat depending on their situation and what country they’re from. These limits are designed to resolve any potential suspicion of tax evasion, so expats need to understand that even though they might qualify for a deduction, there is often a limit that will stop them from getting too high of a refund.
Benefits of Paying Tax in Taiwan
There are many benefits of paying your taxes in Taiwan. For one, it is the law – not following laws could land you in prison or with a huge fine. Second, you benefit from paying your taxes by having access to quality public services. Last but not least, being a taxpayer makes you feel good! Here are seven reasons why.
1. Access to Quality Public Services
Paying taxes in Taiwan entitles you to access good public services, including social welfare benefits, medical care, schools, and hospitals. Paying taxes also means contributing to important things – many people care about their healthcare, education, or retirement. These societal benefits can’t be taken for granted – there are many countries where people don’t have access to these benefits.
2. Makes You Feel Part of Society
Paying taxes in Taiwan is also about feeling like you are part of Taiwanese society – it means that you want to contribute and participate in nation-building. This feeling can be empowering, especially when the country faces challenges such as a low fertility rate or environmental issues. In these challenging times, people might need all the help they can get, and when you pay taxes in Taiwan, you are part of a community working together.
3. It Is the Law
Paying your taxes is a legal obligation – if you don’t do it, there could be significant legal consequences. You might also have to pay substantial fines or even go to prison if you don’t pay your taxes. Besides, not paying your taxes in Taiwan is unfair to everyone that does – because you all end up having to contribute more money for the same amount of public services!
4. You Benefit From It Too
When you pay your taxes in Taiwan, it means that you also receive benefits in return: social welfare, healthcare, and other subsidies. In other words, you benefit from paying your taxes, too – it means that you get to share the burden with everyone else.
Moreover, not everyone has the same opportunities to pay their taxes in Taiwan – only people with a formal income have this obligation, so everyone must do. When you pay your taxes, you’re really helping strengthen Taiwan.
5. You Feel Like a Responsible Citizen
Being responsible means caring about your community and taking part in it. When you pay your taxes, you demonstrate that you care about Taiwanese society – which is really important to feeling responsible (and good).
Plus, not everyone has the same opportunities to pay their taxes in Taiwan – only people with a formal income have this obligation. So if you don’t pay your taxes, you are really letting other people down.
6. Enables You to Make Requests
Being a taxpayer also means that you are allowed to make requests for public services, which can be important if you find yourself in need of certain services such as medical care or education. If your request is denied, you have a right to appeal and can ask taxpayers associations or human rights groups for help.
7. Laws Prevent Corruption
In Taiwan, the law is designed to prevent corruption – if you break the law, you run a risk. This means a deterrent against bribery or other forms of corrupt behavior, which help keep society fair and democratic. Corruption has long been a challenge in several countries – it can be hard to fight without well-enforced laws against it.