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Taiwan's '183 Day Tax Residency' conundrum

183-day tax residency requirements are a hold-over from a bygone era

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Two Taiwan Employment Gold Cardholders promoting the program in January, 2021. 

Two Taiwan Employment Gold Cardholders promoting the program in January, 2021.  (CNA photo)

TAIPEI (Taiwan News) — I’m sure most readers have heard of the Taiwan Employment Gold Card, which gives an individual the right to stay and work in Taiwan for one to three years (extendable), and that an individual can apply online without sponsorship. It comes with open-work rights, so the individual can work for any or multiple companies in Taiwan or start their own business.

There has been quite a bit of debate recently about the Gold Card, both positive and in some cases quite negative. Regardless of the range of opinions on the Gold Card, there is one aspect of the card that has gained my particular attention that is, a tax benefit of only being taxed on 50% of annual income above NT$3 million (around US$97,500), for the first five years in which the foreigner is a tax resident provided the Gold Card holder stays in Taiwan for over 183 days.

For the record, I am not a Gold Card holder and I still aspire to earn at least, if not more than, NT$3 million in any year. However, it is the 183-day issue that perplexes me for reasons I will explain in due course.

Why 183 days? But where did the 183-day concept come from? Thin air? Detailed debate by the Taiwanese government or by the National Development Council?

Well, the 183-day convention certainly did not evolve from thin air and it is not a modern invention. To understand it better, we must refer to an international organization called the Organisation for Economic Co-operation and Development (OECD) which is an intergovernmental organisation with 38 member countries.

The OECD was founded in 1961 to stimulate economic progress and world trade. The OECD touts itself as an international organisation that works to build better policies for better lives by shaping policies that foster prosperity, equality, opportunity, and well-being for all: Highly aspirational aims.

One of the specific ways that the OECD aims to achieve its goals is through its model tax convention. The OECD published its first draft model tax convention in 1963, some 60 years ago.

According to the OECD, the model tax convention (which admittedly has seen regular updates over the decades) is a model for countries concluding bilateral tax conventions. The OECD believes it has played a crucial role in removing tax-related barriers to cross-border trade and investment.

The OECD's model is designed to assist businesses while helping to prevent tax evasion and avoidance and provides a means for settling on a uniform basis the most common problems that arise in the field of international double taxation. If we research the model tax treaty a bit further, we finally hit “pay dirt” and find that the 183-day tax residency convention was introduced in the 1977 model convention.

Let’s keep that year in mind, 1977. We should note that Taiwan is not an OECD Member, but it does participate in three committees, namely the Steel Committee, the Competition Committee, and the Fisheries Committee.

Further, despite not being a member of the OECD, Taiwan does adhere to taxation agreement policies with the stated aims of avoiding double taxation, tax evasion and to promote bilateral relations. Treaties and agreements signed are based on the OECD model.

Currently, Taiwan has 34 comprehensive income tax agreements and 13 international transportation income tax agreements signed and in force based on the OECD's 183-day convention from 1977. The Gold Card was launched in 2018 and was created as a combined visa, work permit and residence permit, and was introduced via a 2017 piece of legislation that is still seen as a comprehensive Taiwanese government initiative to “attract highly skilled foreign talent to Taiwan.”

The website of the Taiwan Employment Gold Card Office also refers to the Gold Card as a 4-in-1 card, that includes a resident visa, work permit, Alien Resident Certificate (ARC), and re-entry permit, which allows the holder to leave and re-enter Taiwan multiple times over the course of one to three years.

In the FAQ section on the website, the Gold Card Office touts the existence of these tax benefits and states that the Gold Card is ideal for “digital nomads” but the stated reason why it is great for “digital nomads” is that it contains an open work permit that allows highly skilled foreigners to work for any employer. Continue to scroll through the FAQs and you find the totally reasonable question: “How many days per year do I have to stay in Taiwan?”.

The answer apparently is: “There are no requirements.” Then comes the kicker: “However you must stay for more than 183 days per year in order to be eligible for many benefits such as: tax resident treatment and a pathway to permanent residence.”

This to me is a carrot-and-stick approach and not one that should apply in a modern market such as Taiwan, which sees the need for foreign talent. Here we are in 2023 and with COVID restrictions being lifted, it's time for entrepreneurs to travel and do business, and that surely must apply to the highly skilled foreign talent that hold the Gold Card.

Online calls only get you so far with a client or customer. Face-to-face meetings and conferences are simply far better.

But to get the tax benefits that were part of the enticement to obtain the card and move their lives to Taiwan, they must stay for more than 183 days per year. Perhaps the 183-day restriction had some foundation in 1977, but that was an era where the term “digital nomad” would not have been understood.

In 1977 we were in an era of typewriters and carbon paper (and if you were lucky, a Dictaphone). If anyone needs an explanation of such antiquities, just let me know and I’ll do my best to explain.

Now let’s speak plainly here. If the argument of the 183-day rule is that it somehow ensures proper income/tax reporting by Gold Card holders, then I can say with conviction that I am not convinced by that argument.

There is no question that tax evasion is a crime, plain and simple. However, I still can’t make the connection between the allure of tax benefits and the 183-day requirement.

Surely, in this day and age, with the vetting of Gold Card applicants and the technology that must be available to the Taiwanese tax authorities, we should not be shackling the Gold Card holders (or any other visa holder/taxpayer) to a 46-year-old convention. People are now able to work from almost everywhere and as a “digital nomad.”

Provided Gold Card holders lodge and pay taxes as per their declared tax residency in Taiwan, why should the 183-day requirement apply? Taiwan needs foreign talent (discussion of the brain drain, negative birth rates and a rapidly aging society are already clearly understood).

So, maybe it is time for a review of the 183-day requirement and perhaps a full review of Taiwan’s visa regime to make Taiwan even more attractive, modern, and cutting-edge, which is what so many of us wish to see.

Paul Shelton has a 30-year history in banking, working as head of Legal & Compliance and MLRO for the Asia Pacific branches of major international financial institutions in Japan, Singapore, Australia, and Hong Kong. He is also experienced in working with financial regulators across the Asia Pacific and provides consultancy services to Taiwanese financial and non-financial industry associations in all aspects of Compliance, AML/Sanctions, and Governance. He resides in Taipei.