Detailed Handling of Salary Tax Withholdings due to Resident Status Change in the Middle of the Year as a Result of the Departure of a Foreign Employee

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Some have asked what to do if a company employs foreign workers who, according to their residence permits, are supposed to stay in the Republic of China for 183 days or more in a taxable year and therefore the company determines that they are residents and withholds tax at the rate of 5% of the resident's income tax on the total amount of their monthly salary, but the foreign worker left the country and resided in the country for less than 183 days. What should be done about the withholding of their salary?

The National Taxation Bureau of Kaohsiung, Ministry of Finance explains that according to Paragraph 2 of Article 7 of the Income Tax Act and the Ministry of Finance's Order Tai Cai Shui Zi No. 10104610410, dated September 27, 2012, the "resident" refers to an individual who resides in the territory of the Republic of China, which includes:
1. Individuals who have household registration in the territory of the Republic of China during a taxable year and meet one of the following conditions:
（1） The individual has resided in the Republic of China for a total of 31 days.
（2） The individual resides in the Republic of China for more than one day but less than 31 days in total, and the individual's center of living and economic activity is in the Republic of China.
2. Individuals who do not have a residence in the Republic of China and have stayed in the Republic of China for a total of 183 days in a taxable year.

Individuals who do not meet the above conditions are considered non-residents of the Republic of China.

The Bureau further explains that, when paying salaries, according to the Regulations Governing the Withholding of Tax on Salaries and Wages and the Standards of Withholding Rates for Various Incomes, salaries paid to residents may either be subject to the withholding tax schedule on the total amount of monthly payments, or to a 5% tax on the total amount of monthly payments. Salaries paid to non-residents are subject to an 18% tax withholding on the amount of payments, but if the total amount of monthly payments not exceeding 1.5 times the monthly baseline salary as assessed by the Executive Yuan （NT$41,205 in 2024）, a 6% tax withholding shall be applied to the amount of payments. If a foreign employee, who originally had tax withheld as a resident, leaves the country and as a result resides in the country for less than 183 days during a taxable year, the salary withholding should be changed to the non-resident withholding tax rate, and to make up for the difference between the amount of tax to be withheld and the amount of tax originally withheld and to pay the additional amount of tax.

The Bureau gives the following example. John is a foreign worker employed by Company A. The company pays John NT$90,000 on the 5th day of each month for the previous month's salary, and the salary could be withheld based on the resident’s withholding rate according to John’s residence permit on his ARC. John left the company on January 15, 2024 for some reason and is expected to leave the country at the end of January. Company A paid John’s salary for December 2023 and settled John's salary for January 2024 at NT$30,000 in the same month. Company A should make tax withholdings as follows:
1. On January 5, 2024, Company A paid John the salary of NT$90,000 for the month of December 2023, and originally withheld NT$4,500 based on the resident's withholding rate of 5%; therefore, the company should additionally withhold NT$11,700 based on the non-resident's withholding rate of 18% [i.e., NT$90,000 × （18% - 5%）].
2. On January 15, 2024, John was paid a salary of NT$30,000 for the month of January of the same year. Because John left the country and was paid in advance, the total amount of NT$30,000 for the month of February was used to calculate the amount of withholding tax on the salary income. Since the amount of payments is less than 1.5 times of the monthly baseline salary as assessed by the Executive Yuan, the withholding tax of NT$1,800 can be calculated based on the non-resident withholding rate of 6%, which is exempted from the 18% withholding rate for the total amount of January's payments.
3. The tax withheld on each of the above occasions should be paid to the national treasury within 10 days from the date of tax withholding, and a withholding statement should be issued and verified by the respective tax collection authorities and then released to John.

The Bureau would like to issue a reminder that in the above example, John should still make sure to file the alien individual income tax return for the year of 2023 in advance before leaving the country. If the public has any questions, they can call the toll-free service hotline at 0800-000-321, or go to the Bureau's website （https://www.ntbk.gov.tw） to make inquiries online using the National Tax Smart Customer Service "National Tax Little Helper."

Provided by: First Individual Income Tax Section
Contact person: Mr. Chang Phone number: (07)7256600 ext. 7270
Contributor: Ms. Lee. Phone number: (07)7256600 ext.7222

Reference URL：https://www.mof.gov.tw/Eng/singlehtml/f48d641f159a4866b1d31c0916fbcc71?cntId=e735882d24f84d2b82a098e4c179efef