How Dividends Affect Income Tax and the Second-Generation NHI Supplementary Premium

In Taiwan, how dividend income is calculated affects not just income tax, but also the related supplementary insurance premium. This article walks through the two income tax calculation methods for dividend income, and how to calculate the related supplementary premium, with a concrete example.

Income Tax Calculation for Dividend Income

Under Income Tax Act Article 15, Paragraphs 4 and 5, there are two ways to calculate income tax on dividend income:

Combined taxation with all income: Dividend income is combined into total comprehensive income, and a tax credit is calculated as follows:

Tax credit = Dividend income × 8.5%, capped at NT$80,000 per filing household.

In other words, for every NT$940,000 of dividend income per household, up to NT$80,000 of tax credit can be applied.

For a taxpayer using combined taxation, tax payable is calculated as:

Tax payable = ((Dividend income + other income) − exemptions − deductions) × applicable tax bracket (5%–40%) − Dividend income × 8.5%

If the result is negative, you may be eligible for a refund!
Separate taxation at a flat 28% rate: Dividend income is taxed at a flat 28% rate, without the tax credit benefit.

For a taxpayer using separate flat-rate taxation, tax payable is calculated as:

Tax payable = (Other income − exemptions − deductions) × applicable tax bracket (5%–40%) + Dividend income × 28%

Note that if you choose separate flat-rate taxation, you cannot apply the preschool child or long-term care special deductions (Income Tax Act Article 17, Paragraph 3).

Which Filing Method Should You Choose?

As a general rule, if your tax bracket is below 30% (net taxable income under NT$2.52 million), combined taxation is generally recommended. If your bracket is 30% or higher, other tax-saving filing strategies may be worth considering.

Supplementary Premium Calculation for Dividends

Dividend income can also affect the related supplementary premium calculation, particularly for investors insured as an employer or self-employed business owner. The supplementary premium is calculated as follows:

If dividend income exceeds the amount already factored into the insured amount, the excess is subject to a 2.11% supplementary premium rate.

For a regular stockholder not insured as an employer or self-employed business owner, once a single payment reaches NT$20,000, a 2.11% premium rate applies.

Let's walk through a concrete example to better understand how dividend income and the supplementary premium are calculated.

Example:

Suppose you're an investor insured as an employer, and you receive NT$200,000 in dividend income in a given year. You already have NT$100,000 factored into your insured amount. Based on the rules above, you calculate the amount exceeding what's already factored into your insured amount:

Excess = NT$200,000 − NT$100,000 = NT$100,000

Then you calculate the supplementary premium:

Supplementary premium = Excess × 2.11% = NT$100,000 × 2.11% = NT$2,110

So you'd need to pay NT$2,110 in supplementary premium on this NT$200,000 dividend.

Conclusion

There's a meaningful connection between how dividend income tax is calculated and how the related supplementary premium is calculated. When handling dividend income, investors should understand the relevant tax rules and consider how to best manage their finances. We recommend seeking professional tax advice when dealing with dividend income and supplementary premium calculations, to stay compliant and get the most benefit from Taiwan's tax system. A solid understanding of these concepts will help you manage your personal finances and make informed financial decisions.