National Taxation Bureau of Taipei, Ministry of Finance reminds that the declaration of 2018 income tax takes place in May. Recently, they have received questions from foreigners asking if basic living expenses are also applicable for foreigners when declaring income tax. Also, how to calculate basic living expenses if one left Taiwan in the middle of a year?
The Bureau explains, effective from December 28, 2018, The Taxpayer Rights Protection Act states “The expense that taxpayers pay for maintaining their basic living in accordance with human dignity for themselves and their dependents shall not be taxed.” When filing income tax in accordance with the Income Tax Act, foreign taxpayers should calculate the total basic living expenses of the taxpayer, spouse and dependent based on the basic living expenses of the taxable year announced by the responsible central government unit. If the total living expense exceeds the total amount of all combined deductions, the overage can be added to the amount of overall deduction. (As regulated by the Income Tax Act, the total deduction amount is the sum of exemption, standard deduction or itemized deduction (choose one of the two), and special deductions from the total income for the taxpayer, spouse and dependents.
The Bureau provides an example of how to calculate 2018 income tax with standard deduction for a foreign single parent coming to work in Taiwan and brings 3 children. In 2018, the basic living expense for one person is 171,000 NTD. As there are 4 individuals in the household, the basic living expense is 684,000 in total (171,000×4). In accordance with the Income Tax Act, the total deduction, including exemption, standard deduction and special deduction from the total income is 672,000 NTD (exemption 88,000*4, standard deduction 120,000 and special deduction of the total income 200,000). Thus, the total deduction is 12,000 less than basic living expenses (684,000-672,000). This 16,000 can further be added to the total deduction and deducted from the Gross Consolidated Income to calculate the Net Consolidated Income of the year.
The Bureau further explains, foreigners who leave Taiwan in the middle of the year and do not return are required to file the income tax of the year during which they left in accordance with Article 71-1 of the Income Tax Act. Based on Article 17-1 of the Income Tax Act and official order No. 10604720580 announced on March 20, 2018, the deductible amounts of tax exemption and standard deductions for him (her) shall be computed respectively in proportion to the ratio between the number of days of his residing in the territory of the Republic of China in that year and the total number of days of said taxable year.
The Bureau reminds everyone that the declaration of income tax for 2018 is to be made during May 2019. Please prepare your documentation as soon as possible and fulfill the obligation to pay tax.
