Newsletter
TAXATION OF VOLUNTARY PENSION CONTRIBUTIONS
Since the enactment of the Labor Pension Act (LPA), the Ministry of Finance (MOF) has re-leased a number of interpretations on related tax issues. On 30 September 2005, the MOF issued a further interpretation clarifying the taxation of voluntary pension contributions, and other mat-ters.
Further to the MOF interpretation dated 30 May 2005, which stated that voluntary contributions under Article 14 Paragraph 3 of the LPA are not subject to withholding tax and need not be de-clared as part of total payments of wages and salaries, the new interpretation states that the maximum amount that may be deducted in this way is 6% of the top wage band of NT$150,000, as shown in the monthly contributions table.
In a previous interpretation, dated 23 March 2005, the MOF stated that when a cash-out payment is made from a pension fund, the re-cipient’s fixed tax-free allowance and taxable income in excess of that allowance should be computed in the year of payment; but if the cash-out payment is transferred into an individ-ual pension account (IPA) with the Bureau of Labor Insurance (BLI), then the tax-free allow-ance and the taxable portion of the income need not be computed until the year(s) in which a lump-sum retirement payment and/or monthly pension payments are collected. The new inter-pretation states that if part of the cash-out pay-ment is paid out as a lump sum and part is transferred into an IPA with the BLI, then the entire amount of the cash-out payment should be declared as separation income in the year of the cash-out payment.
When the BLI makes retirement payments and pension payments, it should withhold tax at source and declare the amounts paid and with-held. When a worker dies, funds remaining in his IPA should be included in the total of his estate for the purposes of estate tax.