I arrived in Taiwan about a month ago and commenced work immediately. After having read information on the “183 day rule” I expected my employer to withhold 20% of my salary until 183 days had passed, then tax me at a regular amount, and when it comes to tax time file and get some money back.
However, they have decided not to to withhold 20% and just tax me 9%. Reason being they say is that if I am going to “get it back anyway, why leave it with the tax office?”
I’m not so sure though if this is OK. Also, shouldn’t I be taxed more like 13%? I just don’t want to get in trouble and have to pay lots of money down the track. I should probably also mention I am not working as an English teacher, and my gross salary is a tad under $60 000 per month.
Please forgive me if this has already been covered… I did search but felt exhausted after reading post after post about tax! Does my head in.
It sounds a bit dodgy to me, and I’d be worried about whether they are filing the withholding at all.
That said, while it is a requirement to withhold at 20% for newly arrived foreign workers, it’s quite easy for an employer not to. The withholding form has a section where for foreign workers you must check a box whether they’ve been here at least 183 days. The withholding desk will gladly accept withholding forms without checking whether or not the information is correct.
The question then becomes, what happens when you go to file your taxes next year? The foreign tax office can and does check your entry/exit record to verify if you are paying the correct tax rate. They might become suspicious at that point if they see that your employer hasn’t withheld at the correct rate, though I don’t know if they can do anything to penalize you for that. The employer on the other hand can have quite stiff penalties for filing at the incorrect withholding rate. (Though in practice, they can often get away with it.)
And yes, though you are in the 13% marginal tax bracket, most of your income will be taxed at the 6% rate and you’ll have standard deductions and exemptions as well. After all that, 9% sounds a tad bit high, but probably not worth worrying about.
I think your greatest worry is whether or not they are withholding at all. If there’s other foreign employees who’ve been there a while, you might want to ask them on the side if they’ve had any problems getting withholding certificates from the employer.
I spoke with the HR people to express my concerns so they phoned the tax office to check on it. Apparently the tax office told them that if they have no reason to suspect I will leave Taiwan before 183 days is up, then it doesn’t matter. Also the they said there are two other locally-engaged foreign staff at my office who haven’t ever had a problem with doing it that way, but I’ll check with those guys too just to be sure.
So if this is as it sounds, it’s good news. And if my 9% is a tad too high, then I suppose I’ll get a nice tax return come filing time!