Taiwan – 5 Quick Facts About U.S. Tax & Reporting

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Taiwan – 5 Quick Facts About U.S. Tax & Reporting

Taiwan - 5 Quick Facts About U.S. Tax & Reporting by Golding & Golding, A PLC

Taiwan – 5 Quick Facts About U.S. Tax & Reporting by Golding & Golding, A PLC

If you are a U.S. Person, such as a U.S. Citizen, Legal Permanent Resident (Green Card Holder) or meet the Substantial Presence Test, you may be in for a shock, because if you fall into one of these three categories of U.S. Person, the U.S. taxes you on your Worldwide Income, and  requires that report and disclose you Worldwide Assets.

The 5 main issues to consider are the following:

  • Income Tax Treaty
  • Estate Tax Treaty
  • FATCA Agreement & Reporting Institutions (FFIs)
  • Totalization Agreement
  • IRS Offshore Voluntary Disclosure Options

*CRS (Common Reporting Standard) has not been adopted yet by the IRS, but oftentimes the Foreign Financial Institutions use the same protocols for reporting under FATCA (U.S. version of the law) and CRS in accordance with AEOI.

Income Tax Treaty

The United States has not entered into an income tax treaty with Taiwan. While this does not preclude a person who is considered a US person and earning income in Taiwan (and paying taxes in Taiwan) to take a foreign tax credit in the United States for taxes paid in Taiwan – it can have other negative implications.

For non U.S. Persons, it may mean the immediate taxation of various investments and retirements, which are receiving tax deferred treatment abroad.

**It should be noted, that Taiwan has entered into tax treaties with many other countries, just not with the United States.

Estate Tax Treaty

The United States has entered into 19 estate tax treaties with various different countries, but unfortunately the United States has not entered into an estate tax treaty with Taiwan.

You should speak with an estate planning attorney prior to executing an estate plan, if you are a US person who has significant assets in Taiwan.

Receiving a Gift or Inheritance From a Foreign Person

If you are a U.S. Person and receive a gift from a Foreign Person, Foreign Business or Foreign Trust, you may have to file a Form 3520. The failure to file these forms may lead to IRS Fines and Penalties (see below).

Resources: Form 3520

FATCA

FATCA is the Foreign Account Tax Compliance Act. It is a US tax law designed to combat offshore tax evasion and facilitate the reporting of foreign accounts. There are more than 110 countries that have entered into FATCA agreements with the United States, and Taiwan is one of them.

Taiwan was one of the hold-outs, but in the end, Taiwan relented and signed the FATCA Agreement late in 2016 – prior to signing the agreement, Taiwan had entered into an agreement “in substance” in 2014.

What Does This Mean to You?

It means that hundreds of thousands of Foreign Financial Institutions (FFIs) worldwide (including Taiwan) are proactively reporting US account holder information to the United States.

Many FFIs appear to simply be gathering and reporting individuals to the U.S. if there are any ties between the account-holder and United States (current U.S. address, former U.S. address, U.S. citizen or U.S. Legal Permanent Resident status).l

The United States has made international tax compliance a key enforcement priority, and recently announced several new tax compliance groups designed to focus on offshore and foreign money.

Resources: FATCA Reporting, FATCA FAQ

Which Banks in Taiwan Report U.S. Account Holders?

As of now, there are nearly 2000 Foreign Financial Institutions, within Taiwan that report US account holder information to the IRS. The list can be found here: Taiwan FFI List.

What is important to note, is that the list is not limited to just bank accounts. Rather, when it comes to FATCA or FBAR Reporting, it may involve a much more broad spectrum of assets and accounts, including:

  • Bank Accounts
  • Investment Accounts
  • Retirement Accounts
  • Direct Stock Ownership
  • ETF and Mutual Fund Accounts
  • Pension Accounts
  • Life Insurance or Life Assurance Policies

Totalization Agreement

The purpose of a Totalization Agreement is to help individuals avoid double taxation on Social Security (aka U.S. individuals living abroad and who might be subject to both US and foreign Social Security tax [especially self-employed individuals] from having to pay Social Security taxes to both countries).

The United States has only entered into 26 Totalization Agreements, and unfortunately, none of them are with Taiwan.

IRS Penalties for Unreported Accounts & Income

The following penalty guidelines are published by the IRS:

A Penalty for failing to file FBARs

  • $10,000 – 100% Account Value

FATCA Form 8938 (Up to $60,000)

  • Up to $60,000

A Penalty for failing to file Form 3520

  • Greater of $10,000 or 35 percent of the gross reportable amount

A Penalty for failing to file Form 3520-A

  • The greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

A Penalty for failing to file Form 5471

  •  $10,000, with an additional $10,000 added for each month if the failure continues, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 5472

  • $10,000, with an additional $10,000 added for each month if the failure continues, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 926

  • Ten percent of the value of the property transferred, up to a maximum of $100,000 per return (No Limit if Intentional)

A Penalty for failing to file Form 8865

  • $10,000, with an additional $10,000 added for each month if the failure continues, up to a maximum of $50,000 per return + 10%

Fraud penalties imposed under IRC §§ 6651(f) or 6663

  • Upwards of a 75% Penalty and possible imprisonment

Criminal Charges related to tax matters include tax evasion (IRC § 7201)

  • A person convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. 

Avoid or Reduce Penalties with Offshore Voluntary Disclosure

At Golding & Golding, we limit our representation exclusively to IRS Offshore Voluntary Disclosure matters. We represent individuals and businesses throughout Taiwan, nationwide, and worldwide with safely getting into compliance with IRS tax law.

We have helped numerous individuals from Taiwan in cases worth upwards of $15-$20 million. We have also successfully represented clients in other countries with upwards of $40 million in unreported accounts and assets (in a single disclosure).

Golding & Golding, A PLC 

At Golding & Golding, we have successfully handled numerous OVDP (Offshore Voluntary Disclosure Program) and IRS Streamlined Program applications for individuals and businesses around the globe with outstanding unreported foreign accounts ranging from $50,000.00 to nearly $40,000,000.00 in a single disclosure.

We Can Help You.

Other Important Issues: (Golding & Golding Summaries):

The following are links to other resources we provide on common international tax related issues: