Newsletter
RETIREMENT PAY ALLOW-ANCES RAISED BY 4%
In 1998, Taiwan adopted a system of fixed tax-free allowances for certain "separation in-come" (i.e. retirement pay, severance pay, pen-sions, etc., paid on or after leaving employment, and assigned to income category 9 under Article 14 of the Income Tax Act). Under this system, a certain tax-free allowance is given for each of the departing worker's year of service, while amounts above this basic allowance are subject to a banded tax regime. Lump-sum payments within the basic allowance of NT$150,000 mul-tiplied by the number of years worked are en-tirely tax free; within the band of NT$150,000–300,000 multiplied by the number of years of service, half of the amount received is tax free; and amounts above NT$300,000 mul-tiplied by the number of years of service are fully subject to income tax. If the domestic consumer prices index rise by 4%, the above allowances must be adjusted.
In 2004, the cumulative rise in the domestic consumer price index reached 3.99%, and the Ministry of Finance announced that the tax al-lowances for separation income would be ad-justed upward by 4%. Accordingly, the allow-ances for lump-sum payments received in 2005 will be as follows: amounts up to NT$156,000 multiplied by the number of years of service are not taxable; for amounts between NT$156,000 and NT$312,000 multiplied by the number of years of service, half of the amount in this band is subject to income tax; and the whole of any por-tion exceeding the multiple of NT$312,000 is taxable income.
For example, for a worker who retires after 30 years' employment, the basic tax-free allowance for a lump-sum retirement payment goes up from NT$4.5 million to NT$4.68 million. From 2005, for retired people who receive a regular pension, total annual pension income up to NT$676,000 is tax free, which is NT$26,000 more than the 2004 allowance of NT$650,000. Any amount in ex-cess of this allowance must be declared along with other income for the year as taxable income.