For US citizens in Taiwan, US tax compliance is complicated by the lack of a comprehensive income tax treaty or a social security totalization agreement. Double taxation is primarily avoided using the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC). Key challenges include the US tax treatment of Taiwanese pensions, investments (which are often PFICs), and the mandatory payment of US self-employment tax for sole proprietors.
US filing basics every American abroad must know
US citizens and green-card holders are taxed on worldwide income wherever they live, and usually must file Form 1040 once gross income exceeds the IRS threshold ($15,750 for single filers, $31,500 for married filing jointly, and $23,625 for head of household for 2025), even when no tax is ultimately due. The tools that prevent double taxation are the Foreign Earned Income Exclusion (FEIE, up to $130,000 for 2025 under IRC §911) and the Foreign Tax Credit.
Two reporting rules catch most filers in Taiwan: the FBAR (FinCEN Form 114), required when foreign financial accounts exceed $10,000 in aggregate at any point in the year, and Form 8938 (FATCA) for specified foreign assets above the applicable threshold. Both can carry penalties even when no tax is owed. If you are behind, the Streamlined Filing Compliance Procedures are the usual penalty-free path back for non-willful taxpayers.
US tax treaty with Taiwan
There is no comprehensive income tax treaty between the United States and Taiwan. While legislation titled the 'United States-Taiwan Expedited Double-Tax Relief Act' has been proposed in the US Congress, it is not law and its future is uncertain. As a result, US citizens cannot rely on treaty provisions for tax relief; they must instead use domestic US tax law, primarily the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC), to mitigate double taxation.
Taiwan Labor Pension and US Tax Implications
Taiwan's primary retirement plan is the Labor Pension Act system, a defined-contribution plan. For US tax purposes, this is not a qualified retirement plan because there is no tax treaty. This has several important consequences:
- Taxable Contributions: Mandatory employer contributions (6% or more of wages) are considered currently taxable compensation on your US return. Any voluntary employee contributions are made with after-tax US dollars.
- Taxable Growth: Internal growth may be tax-deferred until distribution depending on your compensation level and trust classification, though PFIC rules can impose punitive taxes on distributions.
- PFIC Risk: The underlying investments in the pension are very likely to be Passive Foreign Investment Companies (PFICs), which requires complex annual reporting on Form 8621 and can result in punitive taxation.
- Foreign Trust Reporting: The account may be viewed as a foreign grantor trust by the IRS, potentially requiring you to file Form 3520.
- FBAR and Form 8938: The pension account is a foreign financial account. Its value must be included when determining if you meet the filing threshold for FinCEN Form 114 (FBAR) and IRS Form 8938 (Statement of Specified Foreign Financial Assets).
Investments, property, and capital gains in Taiwan
Most investment products available to retail investors in Taiwan, including local mutual funds and ETFs, are classified as Passive Foreign Investment Companies (PFICs) by the IRS. Owning PFICs requires filing Form 8621 for each one and subjects the investment to a harsh default tax regime unless a special election is made, which is often not possible. Furthermore, while Taiwan generally exempts individuals from capital gains tax on the sale of listed stocks, the US does not. US citizens are taxed on their worldwide income, so any capital gains from selling Taiwanese securities are fully reportable and taxable on a US tax return.
Self-employment and companies in Taiwan
If you own a Taiwanese business, such as a 'Limited Company' or 'Company Limited by Shares', it may be classified as a Controlled Foreign Corporation (CFC) if it is more than 50% owned by US Shareholders (US persons owning 10% or more). As a US shareholder (owning 10% or more), you would face extensive reporting requirements on Form 5471 and could be taxed directly on the company's profits under the GILTI (Global Intangible Low-Taxed Income) or Subpart F rules.
For self-employed individuals, a critical fact is that there is no US-Taiwan totalization agreement. This means you cannot get a Certificate of Coverage to exempt yourself from US social security taxes. You are required to pay the full US self-employment tax (15.3% on net earnings (with the 12.4% Social Security portion capped at the annual limit, but the 2.9% Medicare portion uncapped)) in addition to any mandatory contributions to Taiwan's social insurance system. The Foreign Earned Income Exclusion cannot be used to reduce income subject to self-employment tax.
Worked examples
American teacher at a Taipei international school (2025)
Sarah earns a salary of NT$2,100,000 (about USD 70,000). Her employer contributes 6% (NT$126,000, or USD 4,200) to her Taiwan Labor Pension account. On her US return, Sarah's total earned income is USD 74,200 (salary plus employer pension contribution). She can use the FEIE to exclude her $70,000 salary, and the $4,200 employer pension contribution is considered foreign earned income and can be excluded using the FEIE, subject to the annual limit. However, she must still report the pension account on her FBAR and Form 8938 if her total foreign assets meet the thresholds. She also must consider that internal growth may be tax-deferred until distribution depending on her compensation level and trust classification, though PFIC rules can impose punitive taxes on distributions, requiring Form 8621.
Self-employed business consultant in Kaohsiung (2025)
John is a freelance consultant with net self-employment earnings of USD 100,000. Because there is no US-Taiwan totalization agreement, he cannot avoid US self-employment tax. He must pay self-employment tax, which amounts to a US self-employment tax of approximately $14,130 (15.3% of 92.35% of net earnings). This is owed regardless of any social insurance payments he makes in Taiwan. He can use the Foreign Earned Income Exclusion to eliminate his US income tax liability on the USD 100,000, but the FEIE does not reduce income for calculating self-employment tax.
Retiree living off investments (2025)
David, a retiree, lives in Taiwan and manages his investment portfolio. He sells shares in a Taiwanese-listed tech company for a gain of USD 50,000. In Taiwan, this gain is exempt from capital gains tax. However, for US purposes, this is a taxable capital gain. He must report the USD 50,000 gain on his US return and pay US capital gains tax. Additionally, he holds several Taiwanese mutual funds. These are PFICs, so he must file a Form 8621 for each fund and pay US tax on any distributions or 'excess distributions' under the punitive default PFIC tax rules.
Common mistakes for Americans in Taiwan
- Assuming a US-Taiwan tax treaty exists to reduce taxes or simplify filing.
- Believing that self-employment income is exempt from US Social Security and Medicare taxes; it is not, due to the lack of a totalization agreement.
- Failing to report employer contributions to a Taiwanese pension as current taxable income on a US return.
- Ignoring the tax implications of a Taiwanese pension, where internal growth may be tax-deferred until distribution depending on your compensation level and trust classification, though PFIC rules can impose punitive taxes on distributions.
- Forgetting to report Taiwanese pension and bank accounts on the FBAR (FinCEN Form 114) and Form 8938.
- Treating Taiwanese mutual funds or ETFs like US funds, thereby failing to file Form 8621 for PFICs.
- Thinking that capital gains on Taiwanese stocks, which are often tax-free in Taiwan, are also tax-free in the US.
- Failing to file Form 5471 for a controlled Taiwanese company, leading to significant penalties.
Taiwan tax FAQ
Is there a US-Taiwan tax treaty?
No. As of 2025, there is no comprehensive income tax treaty in force between the US and Taiwan. US citizens must rely on US domestic law, such as the Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC), to avoid double taxation.
I'm self-employed in Taiwan. Do I have to pay US Social Security tax?
Yes. There is no social security agreement (totalization agreement) between the US and Taiwan. Therefore, if you are a US citizen with self-employment net earnings of $400 or more, you must pay the full 15.3% US self-employment tax, even if you also pay into Taiwan's social insurance system. A Certificate of Coverage is not available.
How does the US tax my Taiwanese pension?
The Taiwan Labor Pension is not a 'qualified' plan for US tax purposes. This means employer contributions are taxable to you as compensation in the year they are made, and internal growth may be tax-deferred until distribution depending on your compensation level and trust classification, though PFIC rules can impose punitive taxes on distributions. The underlying investments are also likely PFICs, requiring complex reporting on Form 8621.
Do I have to report my Taiwanese pension account to the US?
Yes. A Taiwanese pension account is a foreign financial account. You must include its value when determining if you need to file an FBAR (FinCEN Form 114) and Form 8938. The account may also trigger foreign trust reporting on Form 3520.
Are my Taiwanese mutual funds considered PFICs?
Almost certainly, yes. Most non-US investment funds, including Taiwanese mutual funds and ETFs, are considered Passive Foreign Investment Companies (PFICs) by the IRS. This requires filing Form 8621 and can lead to very high US tax rates unless specific, and often difficult, elections are made.
I sold stock tax-free in Taiwan. Do I owe US tax?
Yes. The US taxes its citizens on their worldwide income. Even if Taiwan exempts capital gains on listed securities from tax, that gain is still fully reportable and taxable on your US federal income tax return.
How can I avoid being taxed twice on my salary?
You can use either the Foreign Earned Income Exclusion (FEIE) to exclude your wages from US income tax (up to a certain limit), or the Foreign Tax Credit (FTC) to offset your US tax liability with income taxes you've paid to Taiwan. The best choice depends on your income level, family situation, and other factors.
What is a CFC and do I need to worry about it?
A CFC is a Controlled Foreign Corporation. If you own more than 10% of a Taiwanese company, and US Shareholders (those owning 10% or more) collectively own more than 50% of it, it is likely a CFC. This triggers complex reporting on Form 5471 and can mean you are taxed currently in the US on the company's profits, even if they are not distributed to you.
Sources and last reviewed
- IRS, US Income Tax Treaties (verified 2026-06-07)
- SSA, List of Totalization Agreements (verified 2026-06-07)
- IRS, Form 5471 (CFC Reporting) (verified 2026-06-07)
- Taiwan Workforce Development Agency, Foreign Professionals Act (verified 2026-06-07)
Last reviewed .
Common services needed by expats in Taiwan
Most Americans abroad in Taiwan need help with at least one of the following core compliance areas, which frequently interact:
- US expat tax returns, Form 1040 with FEIE, FTC, treaty positions, and any required state returns.
- FBAR reporting, FinCEN Form 114 for foreign financial accounts exceeding $10,000 aggregate at any time during the year.
- Form 8938 (FATCA), IRS disclosure of specified foreign financial assets when thresholds are met.
- Streamlined catch-up filing, For eligible non-willful taxpayers with prior unfiled years.
Related country guides
- US expat tax in South Korea
- US expat tax in Japan
- US expat tax in Hong Kong
- US expat tax in Singapore
- US expat tax in Thailand
- US expat tax in Philippines