Understanding Employer Obligations for Withholding Income Tax for Foreign Employees in Taiwan:

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As an employer in Taiwan, it's crucial to understand your tax obligations when hiring foreign employees. One key responsibility is the deduction and remittance of income tax from their salaries based on specific criteria.

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Tax Obligations for Foreign Employees in Taiwan

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1. Foreign Employees Staying Less Than 183 Days

• If a foreign employee resides in Taiwan for fewer than 183 days in a calendar year (January 1 to December 31), the employer are required to withhold 18% of their salary as income tax. This amount must be remitted to the tax authority by the 10th day following the salary payment date.

• Example: A foreign employee arrives in Taiwan on March 1 and leaves on September 15. Regardless of their total salary during this period, the employer must withhold 18% of their earnings.

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2. Foreign Employees Staying More Than 183 Days

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• When foreign employees reside in Taiwan for more than 183 days within a calendar year, they attain tax residency status. As a result, the withholding requirements change:
  (1) For a monthly salary exceeding TWD 88,500 in 2024 (TWD 86,001 in 2023), the employers are required to withhold 5% of their salary. 
  (2) For a monthly salary below this threshold, no withholding is required.

• Example: A foreign employee earning TWD 90,000 per month and staying beyond 183 days in 2024 will have 5% of their salary withheld (TWD 4,500).

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Additional Considerations

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1. withholding tax functions as a prepaid tax
The withholding tax functions as a prepayment toward the foreign employee’s annual income tax liability. Should the actual tax liability be lower than the total withholding amount, the employee can claim a refund when filing their annual income tax return.

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2. Employers act as withholding tax agents for the tax authority.
Under Article 88 of the Income Tax Act, employers act as withholding tax agents for the tax authority. This delegation means that employers are directly responsible for ensuring the correct tax is withheld and remitted.

If an employer fails to withhold the required 18% tax from the salary of a foreign employee who stays fewer than 183 days and the employee departs Taiwan before the tax is paid, the employer becomes liable for the unpaid tax. This underscores the importance of diligently managing tax compliance for foreign employees.

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Case Study: 

Company A hires a foreign employee, David, to work in Taiwan under an employment contract spanning from September 1, 2021, to August 30, 2024. The agreed monthly salary is TWD 150,000.

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1. David’s Tax Status in 2021: Non-Resident

David entered Taiwan on August 20, 2021, and his Alien Resident Certificate (ARC) specifies a stay from September 1, 2021, to August 30, 2024. However, David’s actual stay in Taiwan in 2021 totaled fewer than 183 days. In this case, Company A, as the withholding tax agent, must calculate and withhold tax at the non-resident rate of 18%.

• Example Calculation:
  For David’s September 2021 salary, Company A withholds TWD 27,000 (TWD 150,000 × 18%).

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2. David’s Tax Status in 2022: Expect to be "Resident"

In 2022, David is expected to stay in Taiwan for 270 days, exceeding the 183-day threshold for tax residency. As a result, Company A is permitted to withhold tax at the resident rate for the monthly salary payments.

• Example Calculation:
  For David’s January 2022 salary, his earnings exceed the withholding threshold of TWD 84,501 (2022 standard). Therefore, Company A withholds 5% of his salary, totaling TWD 7,500 (TWD 150,000 × 5%).

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3. Change in Circumstances: Early Departure in 2022

If David resigns and leaves Taiwan on April 30, 2022, without returning, his total days in Taiwan during the tax year will fall below 183 days. In this situation, David’s tax residency status reverts to non-resident, and Company A must adjust the withholding tax accordingly.

• Example Calculation:

  • David’s total salary for January to April 2022 is TWD 600,000 (TWD 150,000 × 4).

  • Non-resident withholding tax for this period is TWD 108,000 (TWD 600,000 × 18%).

  • Resident tax already withheld: TWD 30,000 (TWD 150,000 × 5% × 4).

  • Additional tax payable by Company A: TWD 78,000 (TWD 108,000 - TWD 30,000).

Company A must remit the difference to the tax office and amend the withholding tax filings accordingly.

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Songjer Suggestion: Always Withhold 18% for the First 6 Months

While the tax office permits employers to forgo withholding 18% if a foreign employee holds a valid ARC (Alien Resident Certificate) indicating a stay of over 183 days and is expected to work and remain in Taiwan for more than 183 days, there is a risk involved. If the employee leaves Taiwan before completing 183 days of residence within the calendar year and does not file their income tax return, the employer, as the withholding tax agent, becomes liable for the unpaid 18% tax. To avoid this potential financial burden, Songjer CPA strongly recommends withholding 18% for the first six months of employment, even if the employee is anticipated to meet the residency requirement later. This approach ensures compliance and protects employers from unexpected liabilities.

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