US Citizen here planning to move to Taiwan. I have been told by that there is a tax on income received from outside Taiwan if over 6.7M NTD per year. I do fall into this category as I have a US business S-Corp that generates more than that amount per year. I was told by an associate in Taiwan, to just not report it, but I feel uncomfortable with that, since I file a US Tax Return every year and if I was ever asked by tax authorities in Taiwan to furnish that it would be kind of hard to say no⊠right?
So⊠some questions.
Is anyone paying this Alternative Minimum Tax on non-Taiwan income? As a US Citizen filing taxes every year should I just assume that Taiwan Tax Bureau could ask me for that or get it from US government?
Itâs 20% right? As a US citizen would I be paying this 20% to Taiwan and then be able to deduct the amount from my US Tax burden in the form of a Foreign Tax Credit? Honestly if I could do that Iâd be happy to have the money go to Taiwan vs. the IRS, but I donât want to pay 20% on top of the 37.5% I am already paying to the IRS.
When calculating the AMT Tax does Taiwan Tax Bureau consider if the income is a salary, ordinary business income or dividends? 95% of my income is from the S-Corp which is considered to be âOrdinary Business Incomeâ, not dividends (which the IRS classifies as coming from a C-Corp). My salary from my US company is quite low.
You should assume Taiwan tax authorises can get it at some point, but in practice I find it unlikely.
Not 100% how it works with tax credits as there is no tax treaty between Taiwan and us.
But, quick google would show you do not need to pay the AMT as you pay income tax at 37.5% in the US(which is higher than the 20% in TW, and thus 100% covered by the foreign income tax credits received)
It makes no difference, dividends, salary income, etc. are all covered by AMT.
Anyway, if you give it a couple of hours you can find the answers you need on google. PWC and KPMG have some pretty easily accessible info on the above and your case is quite simple so do not think you need to consult anyone.
Thanks for the link! I found the provision that covers what I was talking about under Article 13.
|Article 13||The amount of basic tax of an individual shall be the amount of basic income as calculated in accordance with Article 12 and Paragraph 1 of the preceding article with a deduction of NT$6,000,000 and then multiplied by the tax rate of twenty percent. However, in the case where income tax has been paid on the income under Subparagraph 1, Paragraph 1 of Article 12, in accordance with the tax laws of the source country of that income, such tax paid may be credited against the basic tax, to the extent that such tax credit shall not exceed the amount of basic tax which, computed by the above mentioned method, is increased in consequence of inclusion of such income.
When a taxpayer applies for tax credit as described in the preceding paragraph, he or she shall present the evidence of tax payment issued by the tax office of the said source country for the same assessment year and attested by an overseas agency of the Republic of China or consulate or other organizations recognized by the Government of the Republic of China in the said locality.
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So, it seems (if my interpretation is correct) that I would keep paying 37.5% to the IRS and would not owe anything in Taiwan? This makes sense as it prevents people from opening some shell company in Bahrain or other non-taxing country to get around paying income taxes in Taiwan, but those in equal rate or higher rate tax jurisdictions (like the US and EU) wonât owe anything additionally to Taiwan for income not generated within Taiwan.
or other organizations recognized by the Government of the Republic of China in the said locality.
@davidl99 David, it matters (èŠç) what is the type of your income back in US. I was told by both Tax office and an accountant that if you live in Taiwan, your foreign-sourced salary will not fall under AMT but still Income Tax (æćŸçš ), unless you can prove that ALL of that salary was earned on work that you did while not in Taiwan and you did no work in Taiwan. If the income is from foreign-source dividend, and you are owner of the business then same as above applies - I was told thatâs because Taiwan Tax Office will check ownership of the company. However, if you are minority shareholder, it might be different, but I was told by a consultant that it will be âup to Tax Office interpretationâ.
I would be curious to hear how did it go for you in the end.
A number of years ago, at foreign hire orientation at tsmc, this Issue was presented. They basically said, you should report it but they have never heard of Taiwan ever inquiring about this or enforcing it. Take that for what it is worth.
Me too. I would like to know if anyone has a good reason to believe Taiwanâs Tax bureau would not see business ownerâs shareholder profits as falling under the Income Tax rate. It seems like @davidl99 with his situation those owner profits from his S-Corp would not be under the AMT Tax status. Would you have any good sources on this?
Iâve been doing this for years and they accept the filing and the documentation year after year. I know others are doing the same thing. It seems to work.
Not saying you will get caught, but youâre misrepresenting your income if you declare it as overseas income, so you should at least be aware itâs tax evasion.
Since youâre doing the work youâre paid for while sitting at a desk in Taiwan, the income tax act considers it âincome from sources in the Republic of Chinaâ.
Article 8
The term âincome from sources in the Republic of Chinaâ used in this Act refers to income of the following categories: [âŠ]
Remuneration for services rendered within the territory of the Republic of China
Q: What is the scope of individual overseas income?
A: According to the Income Basic Tax Act, individual overseas income shall be that not derived from the sources in the ROC under the provision of Article 8 of the Income Tax Act
Article 8 has a scope ambiguity - does âwithinâ mean âwhile inâ or âfor a beneficiary inâ? And to clear up my own ambiguity, beneficiary being either payment source or ârecipientâ of your work.
The former. There are many sources of overseas income which would apply to âbeneficiary inâ. The key question is, is the value youâre being compensated for created here in Taiwan or overseas? Value created in this scenario is the hours of work you put in.
They have been presented with the papertrail, including the documentation for dividends issued. They do not have a problem with me doing this. Slight caveat, that the funds arenât directly remitted to Taiwan from overseas, but another corporation in a tax-friendly domicile which pays out dividends. But whatever.
And they are aware of their own tax law, particularly Article 8.
Are they aware youâre doing the work your company receives money for in Taiwan? If they see dividends from a foreign company, they may be assuming all operations are taking place overseas.
Your situation is different than the typical DN who receives payments directly. Thereâs also relatively new legislation for controlled foreign companies which may apply to you however.
Yes they are very aware of the situation. The Article 8 refers to people/companies with a physical presence in Taiwan. For instance, if you are employed here you need to be paid here. A common scheme back in the day was to be paid the minimum amount for an ARC in Taiwan (48k ish) and the rest of the salary to an overseas bank account. This closes that gap. Itâs not for Digital Nomads/freelancers.
Which you are though. There are of course many schemes, which is why e.g. the controlled foreign entity tax laws came into existence, so people donât just pretend their income is not taxable locally. These tax laws exist pretty much everywhere, with the typical result that if you simply run a shell company overseas, you owe tax on its income locally.
