Home >> Tax in Taiwan >> Withholding tax when paying salary and employees
When paying salaries to foreign employees and rent to landlords, here's what you need to know:
1. Withholding tax when paying foreign employees:
If you're an employer with foreign employees in Taiwan, you need to deduct income tax from their paychecks for certain amounts and remit to the tax office.
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If a foreign employee stays in Taiwan for less than 183 days in a calendar year (January 1 to December 31), regardless of their salary, you must withhold 18% of their pay and pay it to the tax authority by the 10th day of salary payment.(see note)
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Once the foreign employee has stayed more than 183 days, they're considered a tax resident of Taiwan. In this case, you don't need to withhold the 18% tax. Instead, if his monthly salary is more than 85,001, you are required to withhold 5%. If his monthly salary is less than 85,001, no need to withhold 5% from his salary.
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The withholding tax acts as a prepayment of income tax for the employee. The tax authority will refund the excess tax when the employee files their income tax return if their tax liability is lower than the withholding tax.
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Note 1: The Taiwan tax authority assigns the task of tax collection to the employer. For non-tax resident employees, the employer is required to withhold 18% of their income when paying their salary. For the non-tax resident employees, the tax rate is flat 18% and the employee does not need to file a tax return as the employer has withheld the full amount.
2. Withholding tax for rent:
Landlord is a company:
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If your company rents office space from another company, the landlord should issue a Government Uniform Invoice monthly. This allows your company to claim back 5% VAT and deduct the rent as an expense. For instance, if the total rent payment is 100,000 including VAT, the actual rent expense is 95,238, and the input VAT is 4,762. In this scenario, you don't need to withhold tax. Your company can claim back the 4,762 VAT and deduct 95,238 as a company expense.
Landlord is an individual:
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However, if your landlord is an individual, your company must withhold 10% of the rent and send it to the Taiwan tax authority. Additionally, your company should withhold 2.11% for Supplemental Health Insurance Premium and remit it to the Health Insurance Bureau.
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Case 1: The agreed rent including the rent pay, tax and Supplemental Health Insurance Premium.
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For example, if the rent on the lease is 100,000, your company should pay 87,900 to the landlord. Then, your company needs to withhold 10,000 for tax and 2,100 for Supplemental Health Insurance Premium. The total rent expense deductible is 100,000.
It's important to remit the 10% tax and 2.11% Supplemental Health Insurance Premium within 10 days after making the rent payment.
Case 2: The agreed rent does not includ tax and Supplemental Health Insurance Premium.
In some cases, the lease agreement specifies that the tenant is responsible for paying the taxes and the Supplemental Insurance Premium. The agreed payment is the amount the tenant actually received. The rent expense is the summary of the payment to the landlord, 10% withholding tax, and 2.11% Supplemental Health Insurance Premium. -
For example, if the lease agreement specifies that your company remit 100,000 to landlord monthly and your company is also responsible for paying the taxes and the Supplemental Insurance Premium.
First, we need to calculate the landlord's actual rent including taxes and supplemental insurance premium:
Actual rent = 100,000 / (1 - 10% - 2.11%) = 100,000 / 0.8789 = 113,778
Then, we calculate the amount to be withheld and the supplemental premium:
Withholding amount = 113,778 * 10% = 11,378
Supplemental premium amount = 113,778 * 2.11% = 2,400
Finally, we compute the actual amount received by the landlord:
Landlord's actual amount = 113,778 - 11,378 - 2400 = 100,000
This matches the amount specified in the lease agreement.
In this case, the total rent expense deductible is 113,778.