TAXATION OF FOREIGN EM-PLOYEES

01/01/2009

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In a tax ruling dated 3 September 2008, the Ministry of Finance stated that with effect from 1 January 2009, if a profit-seeking enterprise pays fees such as utility bills for a foreign employee, or pays ROC tax on a foreign employee's behalf, then except as otherwise provided by an MOF ruling dated 8 January 2008 on the scope of tax incentives for foreign specialist personnel (for details please see the March 2008 issue of Lee and Li Bulletin), the enterprise should comply with the following rules:
Ÿ	If an enterprise pays a foreign employee's domestic water, electricity, or gas charges, cleaning fees, or telephone charges, or purchases consumable items for the employee, such payments should be recorded in the enterprise's accounts as wages and salaries costs, and should be included in the employee's wage and salary income as declared for income tax purposes.
Ÿ	If an enterprise purchases durable furniture for a foreign employee's use, and such items are entered in the enterprise's catalogue of property, they may be duly depreciated by the enterprise and need not be declared as part of the foreign employee's wages and salary for income tax purposes.
If the enterprise pays personal income tax or other taxes on a foreign employee's behalf, it may not declare such payments as business expenses or losses.  Such payments should be treated as gifts of the enterprise to the foreign employee, and should be declared and taxed as "other income" of the employee under Category 10, Paragraph 1, Article 14 of the Income Tax Act.