Understanding Payroll in Taiwan: What Global Companies Need to Know About Taiwan's Payroll
Taiwan has punched above its weight on the regional and world stages for some time now. Despite a population of only 24 million, it ranks just outside the top 20 of world economies by GDP, and is a major manufacturer and exporter of goods like electronics, textiles, machinery and chemicals. Thanks to its trading links locally with the likes of Hong Kong, China and Singapore, and its global connections to the United States and the European Union, Taiwan has built its success on making things that billions of people around the world rely on every day.
Because of this, Taiwan is a naturally strong candidate for international businesses aiming to expand. However, the country’s labor laws and payroll regulations are liable to change on a regular basis, and it can be difficult for incoming organizations to keep up and ensure they aren’t caught out. This guide forms an ideal starting point for Taiwan payroll with an up-to-date look at the basics.
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 as a subsidiary. The latter two are likely to be the most suitable option for an incoming foreign organisation, the main difference being that branch offices are exempt from paying tax on profits that are repatriated to the global head office.
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 NTD$5,000,000 (approximately £135,000; $175,000; €150,000) is required.
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 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 36 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 hourly rate for the last two.
Employees are entitled to two rest days in every seven. One is mandatory, and the other is a ‘flexible rest day’ where employees can work at overtime rates: 1.34 times 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.
Compensation, Bonuses and Severance
Workers in Taiwan are paid monthly, 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 wage. As of 2020, the monthly rate is NTD$23,500 (approx. £630; $820; €700) and the hourly rate is NTD$158 (approx. £4.20; $5.50; €4.70).
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. 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 12 years.
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$540,000 (approx. £14,500; $19,000; €16,000) of annual earnings, and reaching the top band of 40% for all earnings over TWD$4,530,000 (approx. £120,000; $160,000; €135,000) per year. The corporate tax rate is 20% for all earnings over TWD$120,000 per year (approx. £3200; $4200; €3600).
Total social security contributions cover labor insurance at 10% of salary (60% of this is paid by the employer, 30% by the employee) and national health insurance at 4.69% of salary (70% paid by the employer, 20% by the employee). The Taiwanese government pays the last 10% in both cases. In addition, employers normally make a contribution of 6% of salary into their employees’ pension funds.
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. Employees are not automatically entitled to be paid for these days, although some employers will pay their staff for these days as an extra benefit. However, employees are entitled to take these days off, and employers must provide alternative days off if the employees have to work on the designated days themselves.
Sick leave entitlement is up to 30 days a year when employees are not hospitalised, 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 being moved to lighter duties, while those who are breastfeeding are entitled to additional break periods. Fathers are entitled to five days’ paid paternity leave when their partners are in labour.
Taiwan can be a great place to do business, but it should be noted that the rules can be changed regularly: many of the regulations within this guide have been revised within the last five years. As a result, it is always worth considering sourcing external help with getting on top of all requirements around payroll in Taiwan, such as a payroll solution provider that can help simplify management of payroll registration, client payroll and payment services in Taiwan.
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.