Payroll in Taiwan: An Introduction for Employers

In brief

• When foreign companies establish operations in Taiwan, they must comply with strict social insurance and tax filing requirements.
• This article outlines key payroll compliance rules, timelines, and obligations for employers hiring in Taiwan.
• HR teams should implement sound payroll and tax processes to ensure compliance and operational efficiency.

Pre-payroll Registration

Before initiating the payroll process, companies must register their establishments with the Bureau of Labor Insurance (LI) and the National Health Insurance Administration (NHI). Approvals typically take about five business days once all required documents are submitted.

Social Security Enrollment

On the employees’ first day of work, the company must enroll them in Labor Insurance (LI), National Health Insurance (NHI), and the labor pension scheme on the same day. The insurance coverage becomes effective on the day the application is submitted. If enrollment is delayed — for example, if submitted on the fifth day — the coverage will only begin on the sixth day, leaving the employee uninsured for the first five days. This can lead to disputes with employees and potential penalties from the competent authority.

Additionally, companies are required to deduct NHI premiums for employees’ dependents through their payrolls. The company is also responsible for managing enrollment and changes for dependents.

Monthly Payroll Operations

Office workers in Taiwan are typically paid monthly, with payday falling between the 25th and the end of each month. Payroll preparation includes compiling payroll registers, generating pay slips and payroll bank files. These documents must be retained for five years pursuant to applicable law.

Income tax withholding is calculated at 5% or based on the tax withholding table, and must be paid by the 10th of the following month. Social insurance premiums - including LI, pension contributions, NHI, and second-generation NHI - are due by the 15th of the second following month (e.g., January premiums are due by March 15).

Social Security Fee Reconciliation

Social security bills are typically received around the 20th of the following month and are due by the 15th of the second following month. Companies must reconcile these bills with their estimated premium amounts. Discrepancies often arise from government system updates that companies cannot anticipate, such as dependents qualifying for subsidies or being automatically enrolled or removed by the NHI Administration. Since most companies finalize payrolls for the current and even next month before the time the bill arrives, adjustments are usually made in the following or second following month. Overall, reconciling social insurance premiums is a relatively complex process.

Payments to Non-Residents

If an employee is not a Taiwan tax resident and stays in Taiwan for fewer than 183 days within a calendar year, they are treated as a non-resident. Payments to non-residents are generally subject to 18% withholding tax. The tax must be paid and reported within 10 days of the Salary payment date. Due to the short deadline, companies should pay close attention to this requirement.

Year-End Procedures

Unused statutory annual leave can be carried over for one year. If not used within the extended period, the company must compensate the employee based on their latest monthly salary. Additionally, if overtime hours converted to compensatory leave remain unused by the end of the agreed year, the company must pay for those hours based on the overtime pay rate.

Annual Reporting

By January 31 of the following year, companies must report employees’ annual income to the tax authority, including salary income and other compensation (e.g., stock-based compensation, certain non-cash employee benefits). By the same deadline, companies must report second-generation NHI to the NHI Administration.

Employee Welfare Committee

Companies with more than 50 employees are required to establish an Employee Welfare Committee. This committee operates as an independent tax reporting entity. When taxable benefits such as gift vouchers or prizes are distributed, the committee must handle the withholding and reporting. The reporting deadline is also January 31 of the following year.

Employees’ Individual Income Tax Filing

Employees must file their personal income tax returns by May 31 of the following year. Tax rates range from 5% to 40%.

Conclusion

Taiwan’s payroll system integrates tax, social insurance, employee benefits, and personal tax filing obligations. Compliance requirements are high and timelines are tight. Companies should establish robust payroll processes at an early stage to ensure legality, accuracy, timeliness, and protection of employee rights. EY Taiwan’s Payroll Operate team serves a wide range of multinational clients. For more information, please feel free to contact us.