Taiwan tax system

Introduction

Taiwan has a relatively well developed taxation system compared to other countries in the world. The taxation system in Taiwan has been gradually shaped over time from a hierarchical system of taxation in 1950 to a more equal system today. This paper will discuss the current taxation system in Taiwan, focusing primarily on income tax, consumption tax, and international taxes, as well as some of the recent changes that have been made in the structure of Taiwans taxation system.

Income Tax

Income tax is the primary source of the governments revenue in Taiwan. All residents of Taiwan are required to pay income tax on their income. For individuals, income tax is calculated on a progressive rate, starting at 5% and increasing as income increases. Non-residents are not subject to the same progressive tax rate and instead pay a flat 35% rate.

Individuals can deduct certain expenses such as medical expenses, life insurance premiums, and donations to certain charities from their taxable income. In addition, individuals can also take advantage of a range of tax credits, such as the WorkingFamily Tax Credit, the Small and Medium Enterprise Tax Credit, and the Employment Promotion Tax Credit.

Consumption Tax

In addition to income tax, individuals in Taiwan are also subject to consumption tax on all goods and services purchased in Taiwan. Consumption tax is levied at a fixed rate of 5%. However, certain items such as food and housing are exempt from the consumption tax.

International Taxes

Individuals who are resident or have sources of income outside Taiwan are required to pay international taxes. These international taxes are based on the tax rates of the country where the income is sourced from. In addition, capital gains are subject to the international taxation system, with different rates applied if the asset was acquired before or after the taxation rules were applied in Taiwan.

Recent Changes to the Tax System

The Taiwanese government has introduced a number of changes to the taxation system in recent years, in an effort to make the system simpler and more efficient. Changes made include the introduction of a flat rate of taxes for both resident and non-resident individuals as well as the elimination of the tax credits and exemptions that previously existed.

Conclusion

Taiwans taxation system has undergone a period of significant reform and development in recent years, with a greater focus on simplifying and modernising the system. Income tax is the primary revenue source for the government, with a progressive tax rate for individuals and a flat rate for non-residents. Consumption tax is applied at a fixed rate, while international taxes vary depending on the country of origin. Recent reforms have included the introduction of a flat rate of taxes and the elimination of certain tax credits and exemptions.

Taiwan’s taxation system is a progressive tax, wherein the higher the income, the higher the rate of taxation. Tax revenue accounts for over 40% of Taiwan’s total gross domestic product.

As of 2020, the personal income tax rate for Taiwan starts from five percent and gradually increases as the taxable income increases. For example, the first TWD 30,000 (or approximately USD 1,000) of income is taxed at five percent, while income exceeding TWD 30,000 (USD 1,000) is taxed at 10 percent. Additional income exceeding TWD 60,000 (USD 2,000) is taxed at a rate of 15 percent, and income above TWD 180,000 (USD 6,000) is taxed at a rate of 20 percent.

In addition to personal income tax, Taiwan imposes other taxes such as value-added tax (VAT), corporate income tax, and capital gains tax. VAT is applied on goods and services at rates of between five percent and ten percent. Corporate income tax applies to all forms of domestic and foreign income from companies, trusts, and partnerships at a rate of 17 percent. Capital gains tax applies to profits from investments, such as stock sales and real estate, and ranges from 10 percent to 40 percent depending on the type of investment.

In addition to regular taxes, Taiwan operates a Social Security Fund (SSF) to provide social security benefits for its citizens. The SSF is financed by contributions from employers and employees, and is used to provide healthcare insurance, pension, unemployment insurance, and other social benefits. There is also a Unified National Health Insurance Fund (UNHIF), which provides medical and health insurance for Taiwan’s citizens and is financed by contributions from employers, employees and the government.

The tax system in Taiwan is complex but efficient, as it provides essential revenue to the government to finance the public services and benefits it provides.