U.S. Expats in Taiwan and Taxes

Taiwan is an island nation sometimes referred to as the Republic of China (not to be confused with the People’s Republic of China). Aside from being one of the most densely populated places in the world, it offers natural beauties in its mountains and forests, as well as amazing historical architecture.

If you are planning to become a U.S. expat in Taiwan, or have been one for a while, it’s important to know the tax laws of the country and the potential impact on your U.S. tax return. Expat taxes can get complicated. Fortunately, we have outlined the key points below.

Photo by: See-Ming Lee

Taxation in Taiwan

Let’s start by understanding who is required to pay taxes in Taiwan. Both residents and non-residents are taxed only on Taiwan-source income. Foreigners who are present 183 days or more during a calendar year are considered residents for tax purposes.

The tax rates in Taiwan are progressive:

• Employment income for residents – Progressive from 5% to 40%
• Employment income for non-residents – Flat rate of 18%
• Interest income – Generally same as for employment income
• Dividend income – Generally same as employment income; no withholding for residents, but 20% for non-residents
• Capital gains – Generally 15%

Taiwan and the U.S. do not have a social security tax agreement in-place. Therefore, certain U.S. expats will be required to pay into both social security programs.

How Living in Taiwan Impacts US Taxes

As a U.S. citizen or permanent resident (Greencard), you are required to file U.S. taxes even if you live in Taiwan. Plus, if you have assets in foreign financial accounts (e.g., foreign banks), there are informational reports you may be required to file. For example, U.S. Expats Living in Taiwan with $10,000 or more in foreign banks must file the FBAR (now known as FinCen 114).

Fortunately, the U.S. government provides various forms of tax relief that can lower or eliminate U.S. tax obligations

• The Foreign Earned Income Exclusion – It allows you to exclude a certain amount of income earned outside the U.S.
• The Foreign Housing Exclusion/Deduction – This one relates to additional income that can be excluded for household-related expenses tied to living abroad.
• The Foreign Tax Credit – It allows you to offset foreign taxes paid against U.S. tax obligations.

In most cases, the foreign earned income exclusion is preferable to the foreign tax credit if you live in a country with a lower tax rate than the U.S. (assuming your income is not above the applicable threshold). However, it’s a good idea to speak with an expat tax specialist to discuss the best application of these tax reliefs.

FATCA and Taiwan

The U.S. government is increasingly interested in knowing about the foreign assets held by its citizens and residents. As a result, it has been busy inking deals with other countries whereby foreign financial institutions (FFIs) will be required to:

• Identify accounts of U.S. persons;
• Report certain information to the IRS regarding those accounts;
• Withhold a 30% tax on certain payments to non-participating FFIs and account holders unwilling to provide the required information

As of the publication of this article, roughly 100 countries have either signed intergovernmental agreements with the United States or are in discussions. It is important to know that Taiwan does have a FATCA agreement in-place with the U.S.

If you have any questions regarding your U.S. expat taxes, contact us today. We are here to help.