Cabinet approves draft amendments to Income Tax Act

  • Date: 2017-10-12
  • Source: Department of Information Services, Executive Yuan

The Cabinet today approved draft amendments to the Income Tax Act that, if approved by the Legislature, would create an internationally competitive tax system in line with global standards and ease the burden on salary earners, low and medium-income taxpayers, small and medium-sized enterprises, and startup businesses. This would be achieved by adjusting corporate tax and individual income tax rates, establishing a new personal dividend tax system, and eliminating the imputation tax scheme under the integrated income tax system.

Premier Lai Ching-te described the amendments as a major reform package designed to optimize the overall tax system. Making reasonable adjustments to the investment income tax structure, and increasing three types of deductions, will save 5.42 million individual income taxpayers an aggregate NT$25.5 billion (US$843.5 million) on their tax bills.

Proposed changes to the Income Tax Act are summarized as follows:

1. Increase three types of tax deductions: Standard deductions (from NT$90,000 to NT$110,000—or US$2,977 to US$3,639—and double the amount for married couples), special deductions for salaried workers (from NT$128,000 to NT$180,000—or US$4,234 to US$5,954), and special deductions for persons with disabilities (from NT$128,000 to NT$180,000). This will ease the tax burden on salaried workers and low and medium-income taxpayers.

2. Adjust individual and corporate income tax rates: Eliminate the 45 percent tax bracket on the portion of individual income over NT$10 million (US$330,800) to help retain professional talent and attract investments to Taiwan. Raise the corporate income tax rate from 17 to 20 percent, which will narrow the gap between corporate and individual tax rates, and make companies less likely to retain earnings for the purpose of helping high-income shareholders evade tax responsibilities.

3. Earnings by a sole proprietorship or partnership organization will be directly treated as individual income, without the need to assess or pay taxes as a profit-seeking enterprise.

4. The 10 percent surcharge on undistributed corporate surplus earnings will be reduced to 5 percent, helping companies retain more earnings and accumulate capital for expansion and upgrading plans.

5. The dividend imputation tax system will be eliminated to bring Taiwan in line with international trends. In addition, individuals not residing in the ROC, or businesses having their head offices outside the ROC, will no longer be permitted to use half of the 10 percent surcharge levied on their dividend income or corporate income to offset their tax bills.

6. A new dividend earnings tax system will be established where taxpayers may choose between two options:

A. Treat dividends and surplus earnings as part of total taxable income: An 8.5 percent tax deduction may also be applied to the dividend and surplus earnings portion, with the deduction not to exceed NT$80,000 (US$2,646) per taxpayer per year.

B. Treat dividends and surplus earnings separately from other taxable income: Apply a flat tax rate of 26 percent to dividends and earnings.