I am in a tricky situation. I will most likely need a lawyer but I would appreciate any advice from you until that point.
I work as a freelancer. I want to file taxes next year but I will likely encounter a few issues:
One - Most of the income received, was received through Western Union.
Two - Some of the income received was in cash, outside of Taiwan. I’m not sure if this income falls under taxable income.
Three - There are no invoices or pay-slips. I haven’t saved the Western Union forms.
Four - I’ve been there during the pandemic too. This means I have to file for past tax years.
My questions/issues:
One - How do I prove income without supporting documents? Do I go to Western Union, ask them for the past documents for tax purposes? These were never designated as “work transfers” but rather “personal transfers.”
Two - Can I wait until the next filing season (May 2024) to file for all the previous years? Should I file for just one year and let them ask about the previous ones?
Three - Is there a pay to pay the back taxes in installments? The tax liability is more than I can afford right now, especially since it’s been a rather slow year so has anyone managed to get to pay it over a longer period of time?
Four - For money I received in person, while OUTSIDE of Taiwan, do I declare them as income?
I know that I’ve broken a few laws already, I’m trying to make the most out of a messy situation. Thank you.
Overseas income is a tricky thing. I don’t know the details but there are lots of cases that may not need declaring at all. Also I believe overseas income has a massive tax exemption (first million or so). Probably best to ask at the tax office.
You probably can save yourself the money for a lawyer. Underpaying taxes is not a criminal offence in Taiwan and most of the times, the tax office should be supportive. You might need to pay a small penalty - but that will mostly be it.
What matters is only where the work was performed: Did you perform services while physically in Taiwan? Then the income you receive for those services is Taiwan-sourced (i.e. local) income.
If you performed services while physically outside of Taiwan, it can be counted as overseas income and a very generous exemption applies (6.7 million per year, I think).
The problem probably won’t get smaller or disappear just by sitting it out. Maybe the fines will increase slightly if you wait another year to file. YMMV.
Regarding the lack of documents: Try to create a spreadsheet with all the income you received during those years and then just present it to the tax office.
Are you sure about that? Taxes in Taiwan are quite low due to various exemptions and progressive tax rates if you didn’t earn that much (could be less than 10% in many cases). And if you really earned a lot: Well, hindsight it is to start putting aside some of your income for the taxman like most of us do (either by deductions managed by their employer or by putting the money aside by themselves)…
I had overseas income ages ago … so I made up an accurate XLS spreadsheet showing income abroad and I used that. It was the only thing I could do. I made a best guess as to the exchange rate, too. Totalled it all up, signed the paper and put it in with the filed taxes. I have no idea what magic they used to calculate the rate but as long as you aren’t the under 183 day rule, you should be okay for a reduced rate/exemptions.
Tax office is a little busy right now, but go down. Smile politely, lots of ‘pai-se’… patience. You should be able to sort this out. There are exemptions on overseas income, so they may apply to you. I took standard exemptions… it’s just way faster and in most years it’s fine. Local families have all sorts of exemptions but for many expats they are just not applicable.
Generally, as long as the tax office officials aren’t frazzled… they will try to help you. I’m going to have to do the same thing in August when I throw a few tricky questions at them! but I think you should visit a CPA if you’re talking more than a few tens of thousands of NT$. Good luck.
Thank you for taking the time to write this detailed reply.
Let me answer each point.
The income was generated while working remotely in Taiwan. I have spent more than 183 days in Taiwan in any given year (2020, 2021, 2022, 2023 soon too).
About this…
So I spent a generous amount of time outside of Taiwan too, and I was paid in cash / WU transfer in that country. The work was not performed then in Taiwan. This means that that income is exempt?
If you didn’t perform any work from within Taiwan, then yes - you can probably declare that income as overseas income and most likely won’t need to pay any taxes on it. Be prepared, though, that the tax office might ask some questions / ask for some proof. So you better have your story straight why your job allows you to stay in Taiwan 183+ days a year while not having to work a single day from within Taiwan.
On the other hand, even if you performed some work from within Taiwan, you should be able to prorate the income based on the number of days you spent inside Taiwan. For example, let‘s say you spent 200 days in Taiwan, then you only need to pay taxes on 200/365, so roughly on 55% of your income. Allowances will also be prorated, though.
So in 2023, I spent about two months in Europe and three months in Malaysia. All the payments received during the time spent outside of Taiwan (those months) is non-taxable in Taiwan from what I understand. My income isn’t fixed. It’s not the same every month. So I don’t know if it makes sense to calculate as a percentage of the total.
Good news, in any case. Will drop my tax bill dramatically.
I think you’ll be required to explain and maybe prove that you conducted the work in question outside Taiwan. That’s the impression I got from the tax office clerk.
Ugh, that’s basically impossible. Basically my income is built around retainers. I sometimes get work, I sometimes don’t, I get paid anyway. It’s hard to impossible to prove that my income of June 2023 was done in Taiwan or Malaysia or wherever the heck I was back then (I traveled to four countries in 2023.)
What’s the worst that can happen here? I don’t want to sound like a dick but all of this seems and feels like the honor system. I never used a Taiwanese bank account. Some of the payments were in cash. How can I actually do this legally without shooting myself in the leg?
Suggest getting the details together (dates, where you were, payment details) and talking with the tax office. As long as you’ve got your story straight and are familiar with the rules (and you seem to be), they’re pretty helpful, at least in Taipei.
There are people who are employed in Taiwan, but paid into a HK/SG bank account and insist that therefore they don’t need to pay any taxes in Taiwan because there is no way the tax authorities can find out about this money.
Is that legal? Probably not.
Will they get away with it? YMMV.
I’d think that here is some kind of reporting done between countries though. The point should be moot because it was for work done outside of Taiwan, still, I’m curious. Not asking anyone on advice on tax evasion. Just curious if there are any rules for pure cash payments, without even a receipt.
I guess you’re supposed to report those as cash payments. If you don’t have proof, what’s the worst the tax office could do - not tax them? (That’s also pretty much the philosophy I took when I didn’t have and didn’t want to get notarized invoices and stuff. “OK, don’t tax me for them then. ”)
That’s the legal answer I think. As to whether that’s the route most people take for cash payments inside and outside Taiwan, I’m not sure.
As I said, feels a bit like the “pinkie swear” system for all these grey areas. Well, I’ll see in May then. Might be cheaper to just hire a tax attorney/a good CPA if that reduces my tax liability legally.
The method of payment doesn’t matter in most jurisdictions - Taiwan is not an exception. Whether you’re paid by bank transfer, gold bars, Bitcoin, cash or something else entirely - the tax liability stays the same.
Otherwise, that would be a great loophole, wouldn’t it…?
In theory, there might be some mechanisms in place - in practice, it’s difficult for most countries to even fight tax evasion within their own borders.
Personally, I do pay my taxes in Taiwan and declare all my income even though I might possibly be able to get away without paying.
Why? Easier to get approved for APRC/Gold Card whatever (when one needs to prove their income). Also, I invest a good chunk of my income through a brokerage in my home country. I don’t want them to close my account some day because I am unable to prove that my funds have been taxed correctly somewhere in the world…
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