Global Watch - Taiwan: Foreign source income is to be included in income basic tax for Taiwan tax resident 

 

Background
     
Taiwan imposed IBT, effective on 1 January 2006.  The calculation includes net taxable income as calculated under the Income Tax Law ("ITL") with certain income and expenditure items listed under the IBT Act.  An amount of NT$6,000,000 will be deducted from the Total Basic Income (net taxable income + items 1 to 7 listed below).  The current IBT rate announced by the MOF is 20% and is applied to the Total Basic Income calculated.  A resident taxpayer is required to pay the higher amount of tax calculated under the IBT Act and ITL.
 

Expenditure items to be included in the IBT are:

1. Income, which is derived from sources outside the Republic of China and is excluded from gross consolidated income, as well as income which is exempted in accordance with Paragraph 1, Article 28 of the Act Governing Relations with Hong Kong and Macau.  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 basic income.
    
2. 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.
    
3. Capital gains from 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.
    
4. 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.
    
5. Non-cash donations made, e.g. land; or contributions made to public institutions, which are claimed as itemized deductions under the ITL.
    
6. Employee stock bonuses, the excess of market value of the stock over its par value on the date following the date of acquisition.
    
7. 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 MOF.

Topics in discussion
     
Due to current economic situations, the MOF has raised concerns and proposed possible tax reforms in the near future, encompassing below areas:

1. Despite the announced ruling on 15 September 2008 regarding income derived from sources outside the Republic of China is to be included in the IBT effective from 1 January 2010, it may be deferred to a later date.
    
2. Either increase the exemption and deduction amount for Taiwan tax purposes or reduce the Taiwan individual income tax rate.