Since May 12, 2017 a progressive gift tax rates over the annual exemption rate of NT$2,200,000 per donor is structured as follows:
|Tax Bracket (NT$)||Tax Rate (%)|
|0 ~ 25,000,000||10%|
|25,000,001 ~ 50,000,000||15%|
|50,000,001 and over||20%|
The Estate tax happens after death when the inheritance estate is inherited and transferred, while the gift tax, as a supplementary tax to the estate tax, is aimed to prevent splitting up properties by the deceased while alive to evade estate tax. Since 2017, Taiwan has adopted a progressive tax rate system with the current estate tax rate structured as shown below:
|Tax Bracket (NT$)||Tax Rate (%)|
|0 ~ 50,000,000||10%|
|50,000,001 ~ 100,000,000||15%|
|100,000,001 and over||20%|
When it comes to the question about whether it is a good idea to split up the properties while alive, the answer lies in whether the value of the present properties exceeds the tax-free amount and deductibles applicable to the future estate tax.
According to the present tax laws,
For example, when the parent dies in a family of four, the tax-free amount shall be NT$12,000,000, while the spousal deductible shall be NT$4,930,000, the two adult children’s deductibles shall be NT$1,000,000 (NT$500,000 x 2) and the funeral expense deductible shall be NT$1,230,000-- to make a total of NT$19,160,000, so that there shall be no tax if the total value of the entire estate is below NT$19,160,000. As such, no pre-death gifts are necessary.
To test calculate the estate tax, you may go on the Ministry of Finance’s Website portal to give it a try, and check with the local tax authority governing your household area if you have any further questions.
According to Taiwan’s tax laws, a gift to another individual is subject to gift tax based on the determined then value of the gift, in the case a real estate property, by the land value as publicly announced for the land and by the evaluated standard value for the house. As for other properties (e.g., stocks), the then values will be determined by the available buy/sell prices. Since the publicly announced land values and evaluated standard values for houses are far below the market values, people often buy real estate properties and give them to children as gifts to save taxes.
How to calculate the gift tax?
For example, the market value is NT$20,000,000 for the building apartment, while the publicly announced current land value is NT$6,000,000 and that the evaluated standard value for the house is NT$1,500,000.
Case 1: Give it to a child after buying it. The total value of the gift shall be NT$7,500,000 (NT$6,000,000 + NT$1,500,000). The child will be the taxpayer to pay for the NT$90,000 deed tax which shall constitute a tax deductible for the gift tax. As such, the gift tax shall be NT$521,000 (NT$7,500,000-NT$2,200,000-NT$90,000) x 10%
But, there may be other taxes.
Case 2: Give cash directly to children NT$1,780,000 gift tax (NT$20,000,000 – NT$2,200,000) x 10%
In case you wish to know the tax amount when giving away a real estate property as gift, please go on the Ministry of Finance’s website portal for a test calculation.
As a reminder, please note that filing gift tax with the tax authority governing the local household area as a result of giving away real estate property as gift must be done within thirty days after the gift agreement is made, although a maximum three-month extension of the thirty-day deadline may be available if written application is timely made with the tax authority by good causes shown. In addition, further extensions may also be permitted by the tax authority after the showing of uncontrollable events or other special events.
Changing the proposer from one to the other under an insurance policy may create gift tax issues. According to Taiwan’s insurance law, a proposer, after his/her insurance policy becomes effective, has the right to terminate the insurance policy any time to obtain a refund of the termination fees, in addition to his right to borrow monies from the insurance company, as well as his right to designate or change beneficiaries, pursuant to his/her property right under the insurance policy. In the case where the proposer under an insurance policy is changed to another person, the National Tax Authority will regard such a gratuitous change of the proposer as a transfer of property right under an insurance policy to become an act of giving away a gift to be taxed as gift tax based on the value of the insurance policy, which is to be determined by the policy’s value reserve, on the day the change was made.
As a reminder, the National Tax Authority had issued its letter to the Taiwan Life Insurance Association in November, 2020 requiring that a certificate issued by the tax authority be presented before a life insurance company may allow the proposer to be changed under an insurance policy. As such, people should first file report with the National Tax Authority for the certificate before seeking to change the proposer.
For example, Mr. A in 2011 bought several insurance policies in his own name as the proposer and continued paying the premiums for many years until in 2020 he changed the proposer from himself to his son under those insurance policies valued to be NT$18,000,000 in total by that time. This means that the gift tax would amount to a total NT$1,580,000 (NT$18,000,000 – NT$2,200,000 x 10%) in this case.
In addition, in case a change of the proposer occurs within two years before death of the original proposer, and that the new proposer is his/her spouse, a direct relative by blood of younger generations or his/her spouse, a parent, a sibling or his/her spouse, or a grandparent, then the value of the insurance policy, after being transferred as gift, should become a part of the deceased’s inheritance estate as required by the tax laws.
For example, Mr. A died in 2020, but he, as the proposer, had bought four life insurances before death by designating his spouse Ms. B to be the insured. Two months before Mr. A’s death, he changed the proposer from himself to Ms. B, leaving the total value of these insurance policies amounting to NT$4,000,000 as of the day of such change. Although the Taiwan tax laws remove gifts between couples as taxable gifts, Mr. A had died leaving insurance policies worth NT$4,000,000 after changing the proposer from himself to Ms. B within two years before death. This means the NT$4,000,000 worth of insurance policies will become a part of Mr. A’s inheritance estate subject to estate tax.
As a reminder, in the case where the proposer was changed within two years before death from the original proposer to his/her spouse, a direct relative by blood of younger generations or his/her spouse, a parent, a sibling or his/her spouse, or a grandparent, the new proposer is required to consolidate the value of the insurance policy into that of the inheritance estate when making estate tax filing. Otherwise, penalties could be imposed for failing to file correct report in estate tax filing.
According to the estimate, 80% of the people own self-use houses, while 70% own only one house. Worried about being taxed by estate tax, some people make plans to give away their properties to their children year by year below NT$2,200,000 each year, so that they would neither be taxed by estate tax nor gift tax. But the key issue is that evaluating the house and land values for estate tax purpose is based on their current values determined by the tax authority, which are much lower than their market values. Also, pre-death transfers may result in lowering the land appreciation tax and house/land unified tax when the children transfer these properties in the future.
For example, Mr. Wang owns a house worth NT$30,000,000 as its market value, with the land’s current value being NT$20,000,000 and house’s being NT$1,200,000. To give it to his children, Mr. Wang would need to transfer NT$2,200,000 each year for six years to avoid gift tax. However, there would be land appreciation tax for each transfer each year. Even if the land appreciation tax would not apply when it is transferred by estate tax to apply for a family of four holding assets valued lower than NT$20,000,000.
Also, there might be low-cost holding issue in the event of future transfer in the case of pre-death transfer due to the fact that land appreciation tax and house/land unified tax are both taxed based on the land’s publicly announced current value and house’s evaluated current value of the house at the time of the inheritance or gift being made. Therefore, taking the inheritance approach now looks more beneficial because the publicly announced current value for the land continues to arise every year.
For example, when Mr. Wang bought his house in 2011, the land’s publicly announced current value was NT$10,000,000 and house’s evaluated current value was NT$2,000,000 (without considering depreciation or road-section adjustment issues), knowing that the land’s publicly announced current value is adjusted by NT$500,000 each year.
(1) 1/6 of the NT$11,000,000 land value in 2013 = NT$1,833,300 and 1/6 of the NT$2,000,000 house value = NT$333,300
(2) 1/6 of the NT$11,500,000 land value in 2014 = NT$1,916,600 and 1/6 of the NT$2,000,000 house value = NT$333,300
(3) 1/6 of the NT$12,000,000 land value in 2015 = NT$2,000,000 and 1/6 of the NT$2,000,000 house value = NT$333,300
(4) 1/6 of the NT$12,500,000 land value in 2016 = NT$2,083,300 and 1/6 of the NT$2,000,000 house value = NT$333,300
(5) 1/6 of the NT$13,000,000 land value in 2017 = NT$2,166,600 and 1/6 of the NT$2,000,000 house value = NT$333,300
(6) 1/6 of the NT$13,500,000 land value in 2018 = NT$2,250,000 and 1/6 of the NT$2,000,000 house value = NT$333,300
So that the total cost for the land as gift after six years shall be NT$12,250,000 and total cost for the house as gift after six years shall be NT$2,000,000.
According to the Taiwan tax laws, the land value shall be determined by its publicly announced value, while the house value is to be determined by its evaluated standard value in the case of giving away a real estate property as a gift. Since the land values and house values, through such evaluation mechanisms, are far lower than their market values, people often give away real estate properties as gift as their tax saving measure. Also, the tax authority has commented on whether or not a underlying loan constitutes tax deductible from the gift value of a real estate property given as gift. According to the tax authority, a loan is tax deductible if it becomes the obligation of the person receiving the real estate property as gift. As such, in case people choose to buy a real estate property as gift, the loan can serve as tax deductible to lower down the gift value.
For example, the market value for a building apartment is NT$20,000,000 while its publicly announced land value is NT$6,000,000, its evaluated standard house value is NT$1,500,000, and the loan is NT$5,000,000. The gift tax rates are as follows:
Case1: If the gift is cash, the gift tax shall be NT$1,780,000 (NT$20,000,000 – NT$2,200,000) x 10%. The gift value is NT$20,000,000 and the tax-free amount is NT$2,200,000 (as adjusted by the Ministry of Finance from time to time).
Case 2: If the gift is given after buying the building apartment by cash, the gift tax shall be NT$521,000 (NT$7,500,000 – NT$2,200,000 – NT$90,000) x10%. The gift value is NT$7,500,000 (NT$6,000,000 as land value and NT$1,500,000 as house value). The tax-free amount is NT$2,200,000. The deed tax is NT$90,000 (the NT$1,500,000 house value x 6%), while tax deductible, and the person receiving gift shall be the tax-payer.
Case 3: If the gift is given after buying the building apartment by cash but with a loan, the gift tax shall be NT$21,000 (NT$7,500,000 – NT$5,000,000 – NT$2,200,000 – NT$90,000) x 10%.
Gift value: NT$7,500,000
Tax-free amount: NT$2,200,000
Deed tax: NT$90,000
As a reminder, the person receiving the gift must be able to pay for the loan if the Case 3 approach is chosen. Otherwise, the tax authority in the future may remove the loan as tax deductible when conducting tax audits. In case of any further questions, please check with the National Tax Authority for details.
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Provided by Kingdoms Law