What global businesses need to know about payroll in Taiwan

Did you know that Taiwan’s GDP has risen by more than 20% in the space of two years? And that it still ranks just outside the top 20 of the world’s biggest economies? Not bad for a country of just 24 million people!

Despite the difficulties of its political situation with China, Taiwan remains an excellent place for foreigners to do business: even with China itself, which still accounts for nearly 40% of its exports. It retains a strong industrial sector (36% of its total economy), and is a global leader in sectors like electronics, textiles, machinery, and chemicals. As a result, it’s a popular destination for incoming investment from Europe, the United States, and elsewhere within the Asia-Pacific region.

One thing to be aware of, however, is Taiwan’s rules and regulations for payroll and employment. That’s because they’ve changed a lot in recent years, and so there’s plenty to get up to speed with in order to ensure compliance. This guide highlights the key basics, so that you can make your Taiwanese expansion project as smooth and successful as it possibly can be.

Getting Started

Taiwan has a shortlist of industries and sectors in which foreign companies are not permitted to operate. All prospective entrants to the Taiwanese market should check this list at the start of the set-up process.

Companies setting up in Taiwan can register as a partnership, representative office, branch office, or subsidiary. The latter two are likely to be the most suitable option for an incoming foreign organization, the main difference being that branch offices are exempt from paying tax on profits that are repatriated to the global head office. You will also be required to compile and submit an audit report to the Taiwanese authorities that demonstrates that you have enough working capital to cover all the costs of establishing your business there.

The registration processes of branch offices and subsidiaries are fairly similar, including the following:

• Reserving a company name
• Applying for foreign investment approval
• Examination of investment capital by the Investment Commission
• Company registration
• Importer/exporter registration (if required – an English trading name will be needed for this)
• Business registration with local tax authorities

The whole process should take between four and six weeks. There is no minimum start-up capital requirement, unless a company wishes to employ foreign nationals within its first year of operation within Taiwan, in which case a minimum of TWD$5,000,000 (approximately £127,000; $161,000; €146,000) is required. 

Depending on the nature of your business, you may find it advantageous to base your Taiwanese operation in or around the southern city of Kaohsiung. This is because Taiwan’s only international airport is there, and as a result, is a much easier place to do international business. Many organizations already operating in Taiwan have based themselves in that area.

Employment Considerations

The Employment Services Act provides rights to Taiwan employees, including a wide range of non-discrimination clauses. Termination rights and other employment laws are covered under Taiwan‘s Labor Standards Act (LSA) by the Ministry of Labor. Foreign nationals are required to have a written contract with employers, and must also obtain a work permit and a visa, and apply to the National Immigration Agency for an Alien Resident Certificate (ARC) which is valid for between one and three years.

Taiwanese legislation limits working time for employees to a maximum of 40 hours per week and eight hours on any given day. Working hours are not set in stone, however, and can be varied in employment contracts depending on business needs. 

Overtime can be worked as long as total working hours don’t exceed 12 hours in a day, and as long as no more than 46 hours of overtime are worked per month. The monthly limit can be extended to 54 hours with union agreement. The four extra hours worked on a working day are paid at 1.34 times the hourly rate for each of the first two hours, and 1.67 times the hourly rate for the last two.

There is also a mandatory requirement for employees in Taiwan to get two days off each week, one of which can be worked as overtime if mutually agreed. The overtime rates for this ‘flexible’ day are 1.34 times the hourly rate for the first two hours, 1.67 times for the next six hours, and 2.67 times for the last four hours up to the 12-hour limit.

Probation periods in Taiwan are normally three months for any time of permanent employment.

Compensation, Bonuses and Severance

Workers in Taiwan are paid monthly (usually on or around the 15th of each month), and as well as basic salary, many employees receive other fixed allowances like meal plans. The national minimum wage in Taiwan has risen steadily in recent years and is applied to both monthly and hourly wages. As of the latest rise on January 1 2024, the monthly rate is TWD$27,470 (approx. £700; $880; €900) and the hourly rate is TWD$183 (approx. £4.60; $5.90; €5.40). 

As is the case in many Asian countries, workers receive a ‘13th-month’ bonus of a month’s salary, normally paid around the time of the Lunar New Year; 14th-month bonuses are often also paid at other festival times of the year. Companies in Taiwan can also give bonuses to managers at year-end. However, these are often decided by the board of directors and are paid after first covering any losses incurred by the company.  

Notice periods for terminations vary depending on the length of service, starting at ten days for those with at least three months’ service, rising to 20 days at one year of service and to 30 days after three years. Severance pay is half a month’s salary for each year of service up to a maximum of six months for 12 years of service or more.

Tax and Social Security

Income tax is withheld at source by employers, and is levied in Taiwan across five progressive bands, starting at 5% for the first TWD$560,000 (approx. £14,200; $18,000; €16,400) of annual earnings, and reaching the top band of 40% for all earnings over TWD$4,720,000 (approx. £120,000; $152,000; €138,000) per year. Non-residents working in Taiwan are generally taxed at a flat rate of 18%. If they are in Taiwan for more than six months in a calendar year, the normal resident tax rates apply.

The corporate tax rate is 20% for all earnings over TWD$120,000 per year (approx. £3000; $3900; €3500). The standard rate of VAT in Taiwan is 5%.

Current social security contributions in Taiwan are as follows:

• Labor insurance: 8.4% employer, 2.4% employee
• Employment insurance: 0.7% employer, 0.2% employee
• Pension fund: 6% employer
• Health insurance: 3.102% employer, 1.551% employee
• Supplementary health insurance premium: 2.11% employer

Holidays and Leave

Paid leave entitlement increases based on time served, starting at three days for the first year once an employee has worked six months. Entitlement per annum increases to seven, ten and 14 after each of the first three years of service, then to 15 days at five years. Once an employee has ten years of service, they receive one additional day each year up to a maximum of 30. Employees must be paid in lieu for any leave that is unused.

Taiwan normally has ten to 15 days of public holidays each year, a large number of which run across Chinese New Year in February. Employees are not automatically entitled to be paid for these days off, although some employers will pay their staff for these days voluntarily. Employees are entitled to take these days off, and employers must provide alternative days off if the employees have to work them. If holidays fall on Sunday, then employees are automatically entitled to a day off in lieu as a replacement. 

Sick leave entitlement is up to 30 days a year when employees are not hospitalized, and up to one year within a two-year period if they are. The former comes with an entitlement of 50% of salary: some of this may be covered by insurance payments, but employers must make up any shortfall below the 50% level. 

Maternity leave entitlement is eight weeks at full pay (50% of pay for those with less than six months’ service). Workers who are pregnant can request to be moved to lighter duties, while those who are breastfeeding are entitled to additional break periods. Fathers are entitled to seven days of paternity leave at their full regular pay rate. Parents can also apply for parental leave of a maximum of two years within the first three years after the child’s birth; they receive 60% of their insured salary, paid for by labor insurance.

Bereavement leave is eight days if an immediate family member dies, while employees can also get paid leave if required for National Service.

In Summary

Taiwan relies fairly heavily on foreign trade and investment, and so is very welcoming and open to businesses from overseas setting up there. However, the last five to ten years have seen plenty of changes within its payroll and employment regulations, and there’s every chance that they may change again in the future. If you’re concerned about establishing and maintaining compliance with all Taiwanese laws and requirements, then a global payroll partner can help you every step of the way.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.