New Rules Will Apply to Tax Return Filing in May 2019

On February 07, 2018, the President promulgated the following amendments to the Income Tax Act.  These amendments apply to income tax filings for May 2018, and are applied retroactively to January 01, 2018.

This batch of amendments will affect individuals and profit-seeking enterprises both domestic and offshore. The following is a brief list of the key changes:

  1. Individual Consolidated Income Tax (hereinafter “individual income tax”)
  2. The highest rate for Individual Income Tax has been lowered from 45% to 40%. Under the new law, net income above NT$10,000,000 is no longer taxed at 45%.
  3. Income tax for dividends distributed to an individual residing in Taiwan (domestic shareholders) may be taxed according to whichever is preferable of the two methods:
  4. Consolidate dividends with other income to which the progressive tax rates apply. Under this method, 8.5% of the dividends is tax-deductible, but the deduction is capped at NT$80,000 per filing.
  5. Tax dividends separately at 28%; dividends must still be reported in conjunction with other types of income. Under this method, dividends are not tax-deductible.

 

  1. Income tax for profit-seeking enterprises (Hereinafter “business income tax”)
  2. Repeal the imputation system for integrated tax

A profit-seeking enterprise is not required to establish a shareholder deductible tax account starting from 2018.

  1. Modified tax rate for profit-seeking enterprise

 

Taxable Income Prior to 2018 Starting from 2018
Over NT$500,000 17% 20%
Between NT$120,000 to NT$500,000 17% 1.     2018: 18%

2.      2019: 19%

3.      Starting from 2020: 20%

Below NT$120,000 Not taxed Not taxed

 

  1. Tax rate for undistributed surplus earnings for a profit-seeking enterprise will be lowered from 10% to 5%. Undistributed surplus earnings for the 2018 tax year (filed on or after May 2020) shall be taxed at 5%. The purpose of this is to help enterprises retain and accumulate surplus earnings for future transformation.

 

  1. A sole proprietorship or a partnership does not need to pay business income tax; the amount of the business income shall be directly attributed to the consolidated income tax filing for the sole proprietor or partnership partners.

 

  • Foreign Shareholders
  1. Increase the rate for withholding of dividends or earnings for foreign shareholders from 20% to 21%.
  2. Starting from January 1, 2019, the amount withheld from dividends or surplus earnings for foreign shareholders shall not be used to deduct the additional business income tax collected for the amount of undistributed surplus earnings in such dividends or surplus earnings.                                                           

 

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