Taiwan

Tax-deferred employer plans

Taiwan Labor Pension Fund (new system, 2005): Employers contribute at least 6% of monthly wages to individual accounts managed by the Bureau of Labor Funds. Employees may contribute voluntarily. The government guarantees a minimum return (the two-year fixed deposit rate). The exemption is available only to an ‘eligible individual’ under §5.02: someone who is compliant (or comes into compliance) with U.S. income-tax filing and has reported the plan’s contributions, earnings, and distributions as income to the extent U.S. law requires; a participant who never reported plan earnings cannot rely on it until they do.

§301.7701-7 classification: Debated. The fund holds individual accounts, but the government manages assets centrally: more akin to a government program than a segregated trust. The conservative position is to treat it as a foreign trust.

Rev. Proc. 2020-17 analysis: Rev. Proc. 2020-17 does not require a treaty, so the lack of a U.S.–Taiwan income tax treaty (the U.S. does not have a formal treaty with Taiwan) does not by itself disqualify the Labor Pension Fund. Whether it qualifies instead depends on whether it independently satisfies the revenue procedure's conditions (including nondiscrimination, contribution limits, and withdrawal restrictions tied to retirement age, disability, or death), which requires plan-specific analysis.

Old Labor Standards Act pension (pre-2005): Defined benefit funded by employer contributions to a central fund. Trust classification uncertain: functions more like a government-managed program.

Labor Insurance (laobao): Social insurance, pay-as-you-go. Not a foreign trust.

3520/3520-A treatment: If the Labor Pension Fund is treated as a foreign trust, file Form 3520-A and Form 3520 Part II annually for the part your own contributions fund, once your own contributions exceed the employer’s, counted as the note at the end of this section explains (Treas. Reg. §1.402(b)-1(b)(6)), or for any part you otherwise own. The cost of filing protectively is minimal compared to §6677 penalties.

For a plan an employer contributes to, a trust holding it is generally a nonexempt employees’ trust described in §402(b). §6048(a)(3)(B)(ii) excepts transfers to §402(b), §404(a)(4), and §404A trusts from Part I, the participant’s own contributions included, and §679 does not make the participant the owner (see the Reporting Guide’s employer-plan section). Payouts the participant reports as compensation income are excepted from Part III. If the participant’s own contributions ever exceed the employer’s, the participant is treated as the owner of the part those contributions fund (Treas. Reg. §1.402(b)-1(b)(6)), reports it on Part II and Form 3520-A each year it is owned, and is taxed on its income each year. In that count, what the participant chose to put in, salary sacrifice included, is the participant’s, and anything the plan’s rules required taken from pay is the employer’s, as the IRS chief counsel read a national retirement fund in 1997. The rest is taxed when it vests and, after that, when paid out (§402(b)(1), (2)).

Gifts and inheritances

Taiwan is a significant source of gifts and inheritances for U.S. persons, particularly among the Taiwanese-American community. If a U.S. person receives more than $100,000 in gifts or bequests in a year from one nonresident alien individual or foreign estate (adding together gifts from donors related to each other), Form 3520 Part IV is required. Gifts from foreign corporations or foreign partnerships exceeding $20,573 (for 2026, indexed for inflation) are also reportable.

Taiwan imposes its own estate and gift taxes. Common scenarios: cash gifts from parents, inheritance of Taiwanese property or financial accounts, and transfers related to family businesses.

Penalties and practical notes

The Taiwanese tax year is the calendar year: no conversion needed. The Bureau of Labor Funds provides annual statements with individual account data.

No treaty deferral is available. If the Labor Pension Fund is a trust, the employer-plan rule sets the timing: the employer’s contributions are taxed when they vest (§402(b)(1)), and growth after that when paid out, under §72 (§402(b)(2)). Earnings are taxed each year only on a part the member owns, once the member’s voluntary contributions exceed the employer’s, or for a highly compensated employee in a plan that fails the U.S. coverage tests (§402(b)(4)(A)). Convert New Taiwan dollars at the rate prevailing when each amount is received, paid, or accrued; the IRS has no official exchange rate and generally accepts any posted rate used consistently, so its published yearly average rate is a common choice for amounts arising evenly across the year.