Taiwan payroll and tax overview.

Taiwan is an island which lies off China’s coast, between the East and South China Seas. Beyond China, Taiwan’s closest neighbours are Japan, to the northeast, the Philippines, to the south, and Vietnam, to the west. Currently the largest economy of any non-UN state, Taiwan went through rapid industrialisation and economic growth in the mid-20th century, transitioning from a single-party state to a democracy. IMF statistics rank Taiwan as one of the top-25 largest economies in the world, and the country is one of the ‘Four Asian Tigers’, along with Singapore, Hong Kong and South Korea. Over the past 30 years, Taiwan developed as a capitalist, export economy, achieving an average GDP growth of 8%. Important financial interests in Taiwan include the electronics industry, machinery production, the ICT industry, and the financial services sector, while emerging interests include biotechnology and tourism. With a reputation for industrial deregulation and a straightforward business set-up process, Taiwan is attracting investment interest from across the world. Taiwan ranked 11th on the World Bank’s Ease of Doing Business Survey 2017.

Why Invest in Taiwan?

Interested investors should find plenty of promising reasons to target Taiwan:

• Economic potential: In 2015, Taiwan’s GDP amounted to $523.6 billion, with forecasts for growth of 0.75% in 2016. Exports from the country - primarily to China, Hong Kong and the US - remain strong, totalling over $318 billion in 2014.
• Government policies: Taiwan’s government is making the country increasingly business-friendly, lowering restrictions to foreign investment, promoting grants, and delivering support through organisations such as the Small and Medium Enterprise Administration, and the Industrial Technology and Research Institute.
• Financial hub: Taiwan operates in cultural, political and geographic proximity to China, and its vast domestic market. Thanks to its strategic location, Taiwan also offers excellent links to the rest of the region, by air and sea, and represents an ideal base from which to make inroads into Asia.
• Innovation culture: With a culture of investment in innovation, Taiwan has established itself as one of the best locations for R&D in Asia. Taiwan produces 94% of the world’s motherboards, and most of the computer chips used by US companies. Government initiatives have drawn some of the world’s leading tech giants to Taiwan, including Microsoft, Sony, Intel, Dell, and Ericsson.
• Talented workforce: Taiwan hosts some of the best universities in the world, which feed into a diverse talent pool. The average level of education in Taiwan is high, with particularly strong representation in STEM subjects.

Foreign Direct Investment in Taiwan

Taiwan’s Government encourages inward investment to continue to strengthen the economy, with specific incentives aimed at development zones. Taiwan is recognized globally as having a strong entrepreneurial nation and having invested in the development of advanced production processes and manufacturing efficiency. Foreign and local investors are treated equally and are both eligible for investment incentives.

Registering a Company and Establishing an Entity in Taiwan

The company is required to have a legal entity established in order to process a payroll. Certain documents and procedures must be adopted and submitted to the government. It normally takes about three to four weeks for the registration process to be completed. Taiwan Company (Subsidiary) Registration Procedures:

• Application to Department of Commerce, MOEA to reserve a company name
• Application to Investment Commission of MOEA, SPA or EPZA (based on location of the invested company) for approval of foreign investors
• Application to Investment Commission of MOEA to examine and certify foreign equity investment
• Application to relevant authorities for approval of company registration
• Application to local authorities for business license

Business Banking in Taiwan

It is not mandatory to make payments to employees from an in-country bank account. To make payments to authorities, wiring is not applicable; authorities must be paid either by check or cash personally at a local bank.

What Are the Working Days and Working Hours in Taiwan?

The working week in Taiwan is Monday to Friday. The working day for commercial offices is typically from 0900 to 1800.

Basic Facts about Taiwan

General Information

The island of Taiwan was inhabited by an aboriginal civilisation until the 17th century, when Holland and Spain established colonies there. Taiwan changed hands several times over the following centuries, until the Republic of China claimed sovereignty in the 20th century. Today, Taiwan is a self-governing state, having transitioned from a dictatorship to a democracy in the late 20th century. Historically, Taiwan has always been an important business destination - a gateway to China, and Asia, with maritime links to the rest of the world. Bordering the East and South China seas, the Taiwan Strait, and the Pacific Ocean, Taiwan’s climate ranges from tropical to temperate, and experiences rainy seasons along with periods of humid heat throughout the year. With rugged mountain ranges, and gently rolling plains, Taiwan’s environments are diverse and beautiful, and attract tourism from all over the world.

Formal Name: Republic of China

Population: 23 million (Government, Republic of China, 2011)

Capital: Taipei

Primary Language: Mandarin

Chinese Monetary unit: New Taiwan Dollar (NT$)

Main Exports: Electronics, optical and precision instruments, textiles.

GNI per capital: US $42,390 (World Bank, 2010)

Internet domain: .tw

International Dialing Code: +886

If an entity is newly established, an initial registration for both employer and employee to participate in Social Security Schemes will be required. Subsequent to the initial registration, enrolment or termination of Social Security will be required whenever an employee is newly hired or terminated.

Further information can be found via the following governmental Bureaus:

Labor Insurance

Bureau No.4, Sec. 1, Roosevelt Rd., Zhongzheng Dist., Taipei City 100, Taiwan (R.O.C.)

Health Insurance

Bureau No. 140, Xinyi Road, Sec 3, Da An Dist., Taipei City 106, Taiwan (R.O.C.)

Income Tax in Taiwan

The employer is required to deduct withholding Tax when salary related payments are made to the employee.

A resident’s net taxable income is taxed at graduated rates ranging from 5 percent to 45 percent for 2016. The maximum tax rate is currently 45 percent on net taxable income earned over 10,000,001 Taiwan new dollars (TWD). For non-residents subject to tax in Taiwan, the applicable tax rate for the salary income will be fixed at 18 percent of gross salary income.

Resident withholding (W/H) Tax contributions are to be paid by the 10th of the month following the month that the salary is paid. The W/H tax statement is to be filed by January 31st in the following year for the year covered. Interest surcharge will be imputed for late payment of W/H, tax and penalty will be levied for late filing of a W/H Tax statement. Non-resident, contributions for withholding (W/H) Tax and filing for W/H tax statement are to be paid and filed within 10 days following the month the salary is paid. Interest surcharge will be imputed for late payment of W/H, tax and a penalty will be levied for late filing of a W/H Tax statement.

Calculation Example

For regular monthly Taxable income, W/H Tax is deducted based on the statutory W/H Tax table released by the government. The main factors to determine the W/H Tax are the amount of monthly taxable income and number of dependents. For example, with monthly income of NT$190,000 and one dependent, W/H Tax is NT$19,500. For irregular Taxable income, 5% W/H Tax rate is adopted.

Social Security In Taiwan

Labour Insurance is deducted based on the table released by the government. Effective from January 1, 2015, labour insurance premium rate will be adjusted from 9.5% to 10%. For an employee, the deduction is calculated at insured cap x 10% x 20%. The amount borne by the employer is calculated at (insured cap x 10% x 70%) + (insured cap x 0.135%). For example, with insured cap of NT$43,900, premium borne by employee is NT$878 (NT$43,900 x 10% x 20%), premium borne by Employer is NT$3,143 (NT$43,900 x 10% x 70%) + (NT$43,900 x 0.135%)+(NT$43,900x0.025%).

The employer is required to enrol for labour insurance, health insurance and LPA at the on-board date and also deduct labour insurance and health insurance borne by employees from their salary.

For health insurance, the premium borne by employees is calculated at insured cap x 4.91% x 30%, the premium borne by the employer is calculated at insured cap x 4.91% x 60% x 1.7.

For example, with insured cap of NT$182,000 and no dependent, National Health Insurance (NHI) borne by employee is NT$2,681 (NT$182,000 x 4.91% x 30%), premium borne by employer is NT$9,115 (NT$182000 x 4.91% x 60% x 1.7). For supplementary NHI, the employer will need to pay the supplementary premium when total monthly Taxable income exceeds total monthly insured cap. Further, the employer will be required to deduct 2% supplementary NHI, if the accumulated amount of bonus paid during a Tax Year exceeds four times of NHI insured cap of the employee to whom bonus is paid. LPA contribution is calculated at LPA cap x 6%. For example, with insured cap of NT$150,000, LPA contribution would be NT$9,000 (NT$150,000 x 6%).

Social Security payments are to be paid to authorities by the following dates:

• Labour Insurance – 30th of the following month
• Health Insurance – 15th of the following month
• LPA – 30th of the following month

Interest surcharge will be imputed for late payment of Social Security contributions.

Labour Pension Act (LPA)

• Known as the Defined Contribution Pension Plan, enrolment is submitted by the employer with the Labour Insurance Bureau
• Applicable to Employee’s hired after July 1, 2005 (effective date of LPA) or employee’s hired before July 1, 2005, however, you must choose LPA after July 1, 2005;
• It is mandatory for employer’s to contribute monthly at 6% of LPA cap to LPA a/c of each employee governed by Labour Insurance Bureau. The employee may choose to contribute voluntarily at a rate from 1%-6%, however, this is not mandatory
• This is the same as the insured cap, LPA cap is also calculated on the monthly salary and ranges from NT$19,273- NT$150,000

Labour Insurance

• The premium is calculated based on the insured cap and the insured cap varies with monthly salary and ranges from NT$11,00 - NT$43,900.
• The premium is shared by Employee, Employer and the government with 20%, 70% and 10% respectively.
• The premium rate is 10% which is applied to the insured cap for the premium calculation. Dependents cannot be claimed.
• Old age annuity can be claimed at the age of 60 with 15 years of employment.

Health insurance

• The premium is calculated based on the insured cap and the insured cap varies with monthly salary and ranges from NT$19,273 - NT$182,000.
• The premium is shared by the employee, employer and Government with 30%, 60% and 10% respectively
• Dependents can be claimed for, health insurance maximum; up to 3 dependents.

The premium rate is 4.19% effective from Jan 1, 2013 which is applied to the insured cap for premium calculation. Effective from Jan 1, 2013, supplementary health insurance of 2% is to be paid by employee and employer when the conditions governed by the 2nd generation rules prevail.

Reporting Tax in Taiwan

W/H Tax Payment Slip

For W/H Tax Payment Slip the following information is required:

• Employer’s Name
• Tax ID
• Address
• Taxable Income
• W/H Tax
• Number of Employees

Social Security Enrolment and Termination Forms

For social security enrolment and termination forms the following information is required:

• Employer’s Name
• Insurance No
• Tax ID
• Employee Name
• Birth Date, Insured Cap
• Effective Date •Dependents Name
• Birth Date
• ID No

A signature is not required on these documents, however, for social security, the company’s stamp and responsible person’s stamp will need to be affixed on the form. In Taiwan this type of stamp is called a ‘chop’. All documents can be submitted either by the payroll provider or by the client.

New Starts in Taiwan

New employees have to be registered with Social Security authorities. There are no regulations clearly stating the deadline for the employee to be registered with authorities; however, they should be registered at the on-boarding date.

For setting up a new start the following information is required:

• Employer’s Name
• Insurance No.
• Tax ID
• Employee Name
• Birth Date
• Insured Cap
• Effective Date
• Dependents Name
• Birth Date
• ID No

Leavers in Taiwan

Payment for Leavers must be made within 30 days subsequent to the termination of employment. For voluntary termination, the Employer needs to file Termination of Social Security with authorities. For involuntary termination, the employer needs not only to file termination of social security but also report to the government of redundancy with reasons for employee’s termination.

Payroll in Taiwan

Employers in Taiwan have certain withholding obligations to their employees as part of the payroll process. Primary withholding obligations involve individual income tax and social security contributions - along with associated taxes such as VAT and business tax. Individual income tax rates range from 5% to 40% depending on salary, while social security contributions are comprised of the Labour Insurance Scheme and National Health Insurance. Both employers and employees are required to make joint social security contributions as a percentage of salary.

Employees must be issued with payslips for each pay period (these may be issued online), and payroll records must be kept for at least 10 years.