US Expat Taxes for Americans Living in Taiwan – What You Need to Know
It has been estimated that there are 12,000 Americans living in Taiwan.
Living in Taiwan is an incredible experience for a variety of reasons, including the climate, the friendly locals, the cuisine, and the quality of life. As an American expatriate living in Taiwan though, what exactly do you need to know regarding filing US expat (and Taiwanese) taxes?
All US citizens and green card holders who earn a minimum of around $10,000 (or just $400 for self-employed individuals) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or their income is generated.
The good news is if you are paying income tax in Taiwan, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If you earn over US$10,000 (or just $400 of self-employment income), wherever the income originates in the world you have to file IRS form 1040. While any US taxes due are still due by April 15th, expats get an automatic filing extension until June 15th, which can be extended further on request until October 15th.
If you have overseas assets worth over US$200,000 per person, excluding your home if it is owned in your own name, you also have to file form 8938 to declare them.
If you had a total of at least US$10,000 in one or more foreign bank and/or investment accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
“Tax returns must be filed by 31 May and no extension is granted. Interest is charged on any underpaid tax after 31 May. No estimated tax is required.”
If you pay income tax in Taiwan, there are several exemptions that allow you to pay less or no US income tax on the same income to the IRS. The main one is the Foreign Earned Income Exclusion, which lets you exclude the first around US$100,000 of foreign earned income from US tax if you can prove that you are a Taiwanese resident (or you spend 330 days outside the US each year), and the Foreign Tax Credit, which gives you a $1 tax credit for every dollar of tax you’ve paid in Taiwan. These exemptions can be combined if necessary. Remember though that even if you don’t owe any tax to the IRS, if your income is over US$10,000 (or $400 if you’re self-employed) you still have to file a federal return.
The US and Taiwanese governments share taxpayer info, and Taiwanese banks pass on US account holders’ account info to the IRS, so it’s not worth not filing or omitting anything on your return. The penalties for incorrect or incomplete filing for expats are steep to say the least.
If you’re a US citizen, green card holder, or US/Taiwanese dual citizen, and you have been living in Taiwan but you didn’t know you had to file a US tax return, don’t worry: there’s a program called the IRS Streamlined Procedure that allows you to catch up on your filing without paying any penalties. Don’t delay though, in case the IRS comes to you first.
Taiwanese taxes – what you need to know
Foreigners living in Taiwan are considered residents if they spend over 183 days in the country each year. Residents are taxed on their Taiwanese income on a scale from 5% to 40%. Foreigners who are in Taiwan for between 90 and 183 days in a year on the other hand are taxed on their Taiwanese income at a flat rate of 18%.
Foreign sourced income isn’t taxed in Taiwan, and neither is income paid by a foreign government, nor income paid by a foreign company if the taxpayer spends less than 300 days in a year in Taiwan.
The Taiwanese tax year is the same as the American, and tax returns are due by May 31st. The Taiwanese tax authority is called the Taxation Administration, Ministry of Finance.
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in Taiwan that you contact a US expat tax specialist.