So based on Article 8, anyone staying past 90 days in a year in Taiwan would be on the hook for Taiwan sourced income. Taiwan sourced income means you are physically located in Taiwan for services rendered, even if the service is taking place in a foreign country and the funds are going into a foreign account.
Does anyone have any experience on how they would go about proving what part of foreign income is actually Taiwan sourced when they go to file taxes? For example if I’m in the US for 3 months and earn 30k freelancing income, and then go to Taiwan for 6 months and earn 20k freelancing income there, my total income for the year might be 50k on my IRS tax forms. If I put 20k as Taiwan sourced income on my tax returns and I get audited, what would I do? Is the onus on me to prove the Taiwan sourced portion? Furthermore the 30k I earned in the US might get paid late, for example 2 months after I enter Taiwan, and it might not have a contract stating the time period (for example advertisement earnings).
Also what happens if I have other sources of income that I don’t work on, but I’m still issued a 1099 MISC form while I’m in Taiwan and it gets aggregated with my other earnings on my IRS tax form? How would I go about proving that this portion is or is not Taiwan sourced income, when all my earning sources are bunched together in 1099 forms?
My advice isn’t tailored to Taiwan, because I don’t have any experience with the Taiwanese tax authorities yet. So take it with a grain of salt for sure.
I think the best way to handle these „uncertain“ situations is to document as much as possible (e.g. when did you work in Taiwan? When did you work in the US? Which project where you working on each time? How much time did you spend on each project in total and how much did you make?). Then use this documentation and come up with a reasonable explanation on how the income is split into foreign and overseas income.
If you show good intentions and don’t try to maliciously „hide“ things or lie on the forms, I think no tax authority will accuse you of malice. Sure, they might ask questions (some more, some less) or might simply reject some things. If they do, sometimes it’s worth to respond with more proof or documentation (i.e. explaining why you did the things the way you did). Sometimes, it might be less effort to accept what they think if the outcome is still acceptable.
I mean there seem to be many foreigners in Taiwan and even in this forum who proudly claim that they‘re paying no taxes because they don’t want to and the tax authorities have no way of finding out. And actually, in many cases it seems like the tax authorities actually don’t seem to care.
So my strategy in your situation would be to do things in a way which you feel comfortable with. Doesn’t mean you have to be over-correct and always do things the way that result in higher taxes, but always make sure that you can confidently stand behind what you’re doing (e.g. there are actual reasons behind the way you split your income) and follow the relevant laws as best as you can.
I mean if even you can’t really say what part of your income is actually „earned“ in Taiwan vs. overseas up to the last dollar - how should the tax authorities manage to? And if they already agree with 80% of your reasoning, they might decide that the trouble of clarifying the remaining 20% is simply not worth their time and effort. I mean let’s face it: At the end of the day, the really uncertain parts of your income might not make that much of a difference in regards to the tax you need to pay. So they aren’t probably going to spend weeks and weeks arguing with you just to collect a couple of grand more in taxes if they know the situation is already complicated enough that investigating further will require them to understand every last piece of detail in your work and revenue streams and spending lots of time on it when there are so many cases of people who are actively hiding parts of their income and just lying about everything…
For best results, probably easiest to hand over your documentation to an accountant in Taiwan and let them verify again and handle all the communication with the Taiwanese tax authorities.
My worry is that they will ask for Form 1040 (which seems more common now: Request for US form 1040), see my worldwide income including foreign sourced, and we’d get into a long debate about what portion is Taiwan sourced based on their and mine interpretations, and in the end is the onus on me to show proof? I’m fine with paying the Taiwan portion of things while I’m physically located in Taiwan, but even I can’t “prove” that with the documents I have if it’s all bunched together on different IRS tax forms. At best I could document it, and the tax bureau could still say, no this isn’t enough proof to separate your Taiwan sourced income vs. international.
The penalty for misreporting is 2x tax owed, and omission is 3x tax owed, this could mean that you lose all your earnings plus additional penalties if the tax bureau disagrees with your classification.
That’s where the accountant / tax lawyer comes in: If you have a good one, they should be able to make sure that whatever you submit doesn’t count as „misreporting“ or „omission“. Maybe they need to send out a couple of letter first clarifying things or they at least advise you where „misreporting“ actually starts.
Again, I‘m not an expert on Taiwanese bureaucracy, but I doubt they would just hit you with a penalty as long as you truthfully declare all information with enough explanation and they just reach another conclusion on some detail. Again, an accountant / tax lawyer should be able to help there (because don’t rely on internet strangers for these kind of topics, right?).
Or maybe someone else can comment in which case the tax bureau actually imposes a penalty.