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Jun 2007
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In Brief:
Taiwan imposed an Income Basic Tax ("IBT"), effective on 1 January 2006. The calculation includes net taxable income as calculated under the Income Tax Law with certain income and expenditure items listed under the IBT Act. Taxable income may include overseas source income as a measure to reduce inequalities of wealth and income from outside Taiwan. According to the IBT Act, the inclusion of income sourced overseas by a tax resident individual will be delayed until 1 January 2009, or possibly even 2010, depending on the economic situation. A resident taxpayer is required to pay the higher amount of tax calculated under the IBT Act and Income Tax Law ("ITL"). |
The IBT Act became effective on 1 January 2006. The IBT Act is predominantly designed to preserve Taiwan's revenue basis, mitigate tax avoidance for high-income earners and reduce the inequalities of wealth and income from earnings sourced outside of Taiwan.
With effect from 2006, a taxpayer classified as tax resident is required to include the following income and expenditure items with net taxable income calculated under the ITL to determine how his/her income tax liability under the IBT:
- Proceeds paid out from life insurance and annuity insurance policies in and after year 2006. However, death benefit payments up to NT$30,000,000 are excluded from the calculation;
- Capital gains from the trading of unlisted securities. Capital losses can be deducted from the capital gains derived in the same year, the excess of unutilised capital losses can be carried forward for a period of 3 years following the year the losses were incurred;
- Income derived from beneficiary certificates of privately placed securities investment trust funds. Losses can be deducted from the gains derived in the same year. The excess of unutilised losses can be carried forward for a period of 3 years following the year the losses were incurred;
- Non-cash donations made, e.g. land; or contributions made to public institutions, which are claimed as itemized deductions under the ITL;
- Employee stock bonuses - the excess of market value of the stock over its par value on the date it becomes disposable; and
- Other income items - similar in nature to the above mentioned items for which exemptions and deductions have been created by recent changes in relevant laws; or subsequently announced by the Ministry of Finance ("MOF").
Income derived from sources outside Taiwan and which is currently excluded from gross consolidated income (as well as income which is exempted under the Act Governing Relations with Hong Kong and Macau) maybe included in the calculation of IBT from 1 January 2009 or delayed until 1 January 2010, depending on the economic situation. However, if the aggregate of the two mentioned sources of income in a filing unit is less than NT$1,000,000, it may be excluded from the calculation of IBT. On the other hand, if the aggregate amount of overseas source income is more than NT$1,000,000, the total amount will be included in the calculation of IBT.
An amount of NT$6,000,000 will be deducted from the Total Basic Income [net taxable income + items (i) through (vi)]. The current IBT rate announced by the MOF is 20% and is applied to the Total Basic Income calculated. A resident taxpayer has to calculate their tax liability both under the ITL and IBT Act, and pays the higher amount.
Note: This bulletin is designed for the information of readers. Whilst every effort has been made to ensure accuracy, information contained in this bulletin may not be comprehensive or may not yet be passed into law. Recipients should not act upon it without seeking professional advice. |
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