The period from November each year to January of the following year is the busiest time for corporate accounting and finance departments. Specifically, the income withholding tax reporting in January is a critical link in ensuring a company complies with tax regulations. Many responsible personnel are not familiar enough with these procedures, which can lead to omissions or even unnecessary fines. This article provides an easy-to-understand analysis of the withholding system to help corporate staff master core regulations and practical points.

1. What is Withholding?

The Concept of "Prepaying Taxes for Others"

Withholding Tax refers to the process where, once income reaches a legally mandated threshold, the company (the withholding agent) deducts a portion of the tax from the amount paid to the recipient according to specified rates and remits it to the national treasury.

Many people mistakenly believe withholding is an extra tax the company pays; in reality, it is "prepaying the recipient's tax liability". In other words, withholding is not an additional expense for the company, but a prepayment on behalf of the income recipient. However, because the company is the withholding agent, the company is the party penalized if under-withholding or omissions occur.

2. Step One: Determining "Recipient Status"

The first step in the withholding process is to clarify the identity of the recipient, as withholding methods, rates, and scopes differ significantly based on status.

Residents (Individuals Residing within the Territory)

An individual is considered a "Resident" if they meet one of the following:

• They have a registered household in the R.O.C. and stay for a total of 31 days or more within a tax year, or stay between 1 and 31 days but have their center of life and economic interests in the R.O.C. (e.g., covered by labor/health insurance, or having a spouse/minor children residing in the R.O.C.) .
• They do not have a registered household but stay within the territory for a total of 183 days or more.

Non-Residents

Those who do not meet the "Resident" criteria are classified as Non-Residents.

3. Salary Income: The Most Common Withholding Item

Salary income refers to various revenues earned through duties or work, including wages, allowances, bonuses, dividends, and subsidies. As long as it is compensation for labor—whether for full-time, part-time, or student workers—it falls into this category.

(A) Salary Withholding for Residents

For residents, companies can choose one of two withholding methods:

1. Tax Table Deduction: Use the "Salary Income Withholding Tax Table" published by the Ministry of Finance to find the tax amount based on total salary and the number of dependents. Currently, if the salary does not exceed NT$90,501 (2026 standard), taxes are generally not pre-withheld.
2. Fixed Rate Withholding: Deduct 5% of the total salary directly.

(B) Salary Withholding for Non-Residents

The rate for non-residents depends on the ratio between their salary and the basic wage:

• High Salary: If the salary is higher than 1.5 times the basic wage, deduct 18% of the total monthly payment.
• Low Salary: If the salary is less than or equal to 1.5 times the basic wage, deduct 6%.
• (Note: The basic wage for 2026 is NT$29,500).

4. Main Withholding Items Other Than Salary

(A) Professional Practice Income

This applies to professionals with specialized expertise (e.g., lawyers, accountants, performers, lecturers).

• Residents: The agent should withhold 10% of the compensation.
• Non-Residents: Withhold 20% of the paid amount.
• Note: If the payment to a resident exceeds NT$20,000, a 2nd-generation National Health Insurance (NHI) supplementary premium must also be withheld.

(B) Rental Income

When a company leases a property from an individual landlord for an office or dormitory and the monthly rent exceeds NT$20,000, the company must withhold 10% and pay the remaining 90% to the landlord³⁶. If the landlord is a business entity, the company simply records the expense based on the invoice, and no withholding is required.

• Note: Payments to individual landlords exceeding NT$20,000 also require the withholding of the NHI supplementary premium.

(C) Profit Income

Usually refers to dividends or distributions of surplus from sole proprietorships or partnerships.

• Residents (Individuals or Entities): Exempt from withholding.
• Non-Residents (Individuals or Foreign Entities): Withhold 21%.

(D) Lottery Prizes

Prizes and awards from year-end parties or spring banquets are classified as "prizes or awards from contests and games and from prizes won by chance" under Article 14 of the Income Tax Act.

• Residents: 10% withholding rate.
• Non-Residents: 20% withholding rate.
• Physical Prizes: For items like 3C products, appliances, or vehicles, the "amount paid" is determined by the source

(E) Other Income

1. Holiday Bonuses/Gifts: If bonuses or gifts for Dragon Boat, Mid-Autumn, or Lunar New Year are issued by a Staff Welfare Committee, they are "Other Income". No withholding is required regardless of residency, but a "Non-Withholding Tax Statement" must be filed with the tax office.
2. Corporate Donations: Donations to charities are exempt from withholding, but a "Non-Withholding Tax Statement" (categorized as "Donation Income") must be filed.

• Note: Annual fees or entrance fees for joining associations are not considered donations.

(F) Employee Health Examinations

If health exam fees are paid directly to a medical institution, the following rules apply:

• Public Hospitals: Exempt from withholding and reporting.
• Foundations/Associations: Exempt from withholding, but a "Non-Withholding Tax Statement" (Other Income) must be filed.
• General Medical Clinics: These are considered "Professional Practitioners"; companies must withhold 10% (Professional Practice Income).
• Reimbursements: If an employee pays first and is reimbursed for items exceeding those required by the Occupational Safety and Health Act, it is considered a subsidy and must be reported as Salary Income.

5. Small Amount Withholding Exemptions

Not all income requires withholding. Tax-exempt items under Article 4 of the Income Tax Act do not require withholding or reporting.

Additionally, according to Article 13 of the "Standards of Withholding Rates for Various Incomes," if the tax amount to be withheld does not exceed NT$2,000 per payment (meaning the payment is roughly under NT$20,000), withholding is not required. If the total annual payment to a single taxpayer does not exceed NT$1,000, the company may refrain from issuing a withholding certificate.

6. Practical Workflow: Four-Step Mnemonic

The National Taxation Bureau suggests a simple four-step process: "Deduct, Pay, Report, Send".

1. Deduct (At payment): Calculate and subtract the tax before handing the remainder to the recipient.
2. Pay (Within the deadline): The agent must pay the tax to the treasury by the 10th of the following month. Crucial: For Non-Residents, the tax must be paid and reported within 10 days of payment, not the following month.
3. Report (Next January): During January, file the annual withholding data and statements with the tax authorities.
4. Send (By next February): Provide withholding certificates to recipients by February 10th (individual recipients generally don't need a hard copy unless requested).

Missing any of these steps results in penalties under Article 114 of the Income Tax Act.

7. Conclusion

Withholding is a legal obligation for businesses. By establishing standardized procedures based on the "Deduct, Pay, Report, Send" cycle, companies can ensure compliance and help employees and partners navigate tax season smoothly.