Introduction

Having a plan for your stuff in Taiwan if you’re linked to other countries can be a bit like a puzzle. You need to know Taiwan’s rules, taxes, and traditions. This guide breaks down the nuts and bolts of planning your estate in Taiwan when you’re dealing internationally. It talks about things like setting up wills and trusts, handling taxes, and protecting what you own. There’s also info for people with ties beyond Taiwan. If you’ve got property there or are thinking of adding Taiwan to your estate roadmap, understanding these bits is key. The guide is here to make sure you can smoothly pass on your things the way you want. Ready for a crash course in navigating the maze of international estate planning in Taiwan? Dive in now and get the scoop on making sure your stuff lands with the folks you pick just like a treasure map.

Understanding Taiwan’s Legal Framework for Estate Planning

Taiwan’s Civil Law System

Taiwan operates under a civil law system, a structure distinct from common law systems found in countries like the United States or the United Kingdom. In this type of system, the foundation of law lies primarily in written statutes, meaning laws are formally documented and codified. As a result, judicial decisions or precedents have less influence on how laws are understood and applied compared to common law systems. When it comes to planning an estate, the Civil Code of Taiwan serves as the main legal document. It dictates how inheritances, wills, and trusts are handled. For those planning estates across international borders, understanding the specific details within the Civil Code is essential to know how estates are managed and distributed within Taiwan.

Important Legislation for Inheritance and Estate Arrangements

Several key laws dictate how inheritance and estate planning work in Taiwan.  At the forefront is the Civil Code, which provides detailed rules concerning situations where there’s no will (intestate succession), the formal requirements for creating valid wills, and the legal concept of compulsory inheritance for certain family members. Another critical law is the Trust Act. This legislation governs how trusts are created and managed, making trusts a useful tool for estate planning purposes. Furthermore, the Estate and Gift Tax Act is relevant as it specifies the tax implications when assets are transferred, either during a person’s lifetime or after their death. Lastly, the Act Governing the Application of Laws to Civil Matters involving Foreign Elements is important for cross-border situations. It deals with how foreign wills are recognized and when foreign laws might apply in estate matters that involve international aspects. To create thorough and legally sound estate plans for individuals who have assets or family members in Taiwan, it’s vital for professionals in the field to be well-versed in these specific laws.

Wills and Succession Planning in Taiwan

Making a Will Legally in Taiwan

In Taiwan, if individuals want to decide how their belongings are shared after they pass away, they can create a will. The legal rules in Taiwan, which follow a civil law system, have specific instructions for making a will valid. There are five accepted ways to do this:

• Writing it by Hand: The individual needs to write the entire will themselves, sign it, and include the date. If they make any changes, they must also sign next to them.
• Using a Notary: The individual tells a notary public what they want in their will while at least two witnesses are present. The notary writes it down, reads it aloud, and explains it to everyone. Then, the individual, the notary, and the witnesses all sign and date the will.
• Sealing it Up: The individual signs their will and puts it in a sealed envelope. They also sign across the sealed part. Then, in front of a notary public and at least two witnesses, they declare that it’s their will. The notary writes down the date and the individual’s statement on the envelope, and everyone signs it.
• Dictated: The individual tells at least three witnesses what they want in their will. One of the witnesses writes it down, reads it aloud, and explains it. The person who wrote it, along with all the witnesses, signs and dates the document, including the writer’s name.
• Nuncupative: This type of will is only allowed when someone is about to die or cannot make a will in any other way. It requires at least two witnesses. One witness must write down what the individual says, or it can be recorded. This type of will is only valid for three months if the individual recovers and is able to make a will using one of the other methods.

Foreign Will Enforceability

Taiwan’s legal system will recognize a will made in another country if certain conditions are met. A foreign will is considered valid in Taiwan if it follows the legal rules of any of these places:

• The testator’s home country when the will was made.
• The country where the will was made.
• The country where the testator lived when they died.
• The country where any property mentioned in the will is located.

This means that if a will was legally made in a relevant country, it will generally be accepted and followed in Taiwan.

Rules for Inheritance Without a Will

If a person passes away in Taiwan without leaving behind a valid will, the distribution of their assets is determined by the rules of intestate succession, which are part of Taiwan’s Civil Code. The law establishes a specific order for who inherits the property, prioritizing family members. This order begins with:

1. The direct descendants of the deceased (such as children and grandchildren).
2. The parents of the deceased.
3. The siblings of the deceased.
4. The grandparents of the deceased.

The surviving spouse also participates in the inheritance, sharing the assets with the other heirs according to a set formula. For example, if the surviving spouse inherits alongside the children of the deceased, they will receive an equal portion. If there are no other eligible heirs in the categories above, the surviving spouse will inherit the entire estate.

It’s also important to know that Taiwan has a system of “forced heirship.” This system ensures that certain close family members are legally guaranteed to receive a minimum part of the inheritance. These legally protected portions aim to safeguard the interests of the immediate family and cannot be eliminated, even if the deceased had different wishes expressed in a will. To illustrate, a child has a legal right to a certain minimum portion of the estate.

Using Trusts for Estate Planning in Taiwan

Different Kinds of Trusts Available

In Taiwan, the Trust Act provides the rules for trusts, which can be set up either through an agreement or through a will. A trust created through an agreement is often called a living trust, while one created through a will is known as a testamentary trust.

To make a living trust work correctly, the following elements need to be clearly defined:

• The specific assets held in the trust.
• The reason or purpose for creating the trust.
• Who will benefit from the trust (the beneficiary)?

The person creating the trust (the settlor) must also officially transfer ownership of the assets to the person managing the trust (the trustee). Although Taiwan law doesn’t require a living trust agreement to be in writing, having a written document is strongly recommended to prevent disagreements later on.

A testamentary trust, on the other hand, is created by the will of the person setting it up and only comes into effect after their death. For a testamentary trust to be valid, the will itself must meet all the legal requirements. Just like with a living trust, the assets, purpose, beneficiary, and trustee of the testamentary trust must be clearly stated in the will.

Tax Considerations for Trusts

In Taiwan, the tax rules for testamentary trusts are different from those for living trusts. When someone passes away, the assets held in a testamentary trust are subject to estate tax. This means that testamentary trusts are not usually used as a way to reduce taxes in Taiwan.

However, trusts established in other countries (foreign trusts) can offer some advantages for planning an estate. Besides the usual benefits of trusts, foreign trusts can offer greater privacy because the identity of the person who set up the trust is generally not made public. Furthermore, if the trust is set up in a country with strong trust laws, the person creating the trust and the beneficiaries can benefit from a more solid legal structure.

Trusts Involving Multiple Countries

When trusts operate across different countries, it’s important to think carefully about the possible legal and tax consequences in each location. Different countries might have varying regulations about whether a trust is valid and enforceable, how trust income and assets are taxed, and if there are requirements to report foreign trusts. Because of these complexities, it’s crucial to get advice from legal professionals who have experience with trusts that span multiple countries. This ensures the trust follows the law in all the relevant places and effectively achieves the desired estate planning outcomes.

Consideration of Taxes in International Estate Planning for Taiwan

Overview of Estate and Gift Tax

Taiwan’s system of estate and gift tax applies to individuals who have assets located in Taiwan, regardless of their citizenship. The key factor in determining taxation is whether a person is a Taiwanese citizen and also “lives in Taiwan regularly.” If both of these are true, then all of their assets worldwide can be subject to estate and gift tax in Taiwan. If not, only the assets that are physically located within Taiwan are taxable. The Estate and Gift Tax Act defines “living in Taiwan regularly” as:

• Having an official home in Taiwan within the two years leading up to a death or when a gift is given.
• Spending more than 365 days in Taiwan within the two years before death or when a gift is given, even if they don’t have an official home there (this doesn’t include foreign individuals working for the Taiwanese government for a set period).

For estate tax purposes, the total value of the estate is determined by the worth of the property at the time of death. The tax rate is 10% of the net taxable estate, which is calculated by taking the total value of the estate and subtracting any allowed deductions and exemptions. These deductions and exemptions are detailed in Articles 17, 17-1, and 18 of the Estate and Gift Tax Act.

Gift tax is applied to all property that is transferred as a gift each year. Similar to estate tax, the tax rate is 10% of the net taxable gift amount. This is found by taking the total value of the gifts and subtracting permitted deductions and exemptions, which are also detailed in Articles 20-22 of the Estate and Gift Tax Act.

How Treaties Prevent Double Taxation

Taiwan has agreements with 33 other countries to prevent people from being taxed twice on the same income or assets. These Double Taxation Agreements (DTAs) are in place with countries like Australia, Canada, Germany, France, India, Japan, Switzerland, Singapore, the United Kingdom, and Vietnam. These agreements are important for international estate planning because they can offer:

• Ways to get credit for taxes already paid in one country, which can reduce the amount of tax owed in the other country.
• Lower tax rates on some types of income, like dividends and interest, when they are earned by residents of one treaty country from sources in the other.
• Situations where certain income or assets are not taxed in one of the countries at all.

Ways to Plan Taxes for Non-Residents

Individuals who don’t live in Taiwan but have assets there can use various strategies to potentially lower their tax obligations. Some of these strategies include:

• Giving assets away: Making gifts to beneficiaries during one’s lifetime can reduce the size of the estate that will be taxed after death. Taiwan allows a certain amount to be gifted each year without incurring gift tax.
• Setting up trusts: Creating trusts to hold assets may help reduce the amount of estate tax owed. However, it’s important to remember that in Taiwan, assets in testamentary trusts are still subject to estate tax when the person who created the trust dies.
• Using life insurance: Life insurance policies can be used to provide funds to pay estate taxes or to pass wealth to beneficiaries outside of the taxable estate.
• Organizing investments: Holding assets through companies located in other countries might help to minimize tax liabilities in Taiwan.

It is very important for individuals who are not residents of Taiwan to get advice from legal and tax professionals to create an estate plan that is tailored to their specific needs and goals.

How to Protect Assets in Taiwan

Using Holding Companies

Holding companies can be useful for protecting assets in Taiwan. By owning assets through a separate legal entity, individuals can protect their own personal wealth from potential problems related to business activities or other undertakings. For example, if a business encounters financial troubles or legal disputes, those owed money might not be able to easily claim the personal assets of the business owners if those assets are held within a holding company structure.

Understanding Property Ownership in Marriage

Marriage in Taiwan significantly affects how property is owned and how it will be inherited. The standard approach to handling marital property is called the statutory property regime. Under this system, assets owned before the marriage remain separate, and so do the assets each spouse acquires during the marriage. Typically, assets acquired during the marriage are considered jointly owned by both spouses. However, couples have the option to choose different arrangements for their property through agreements made either before or after getting married. They could opt for a community-of-property regime where all assets are owned together, or a separation-of-property regime where each spouse retains individual ownership of their assets. For estate planning, it’s crucial to understand the implications of each of these regimes. The chosen regime will dictate how assets are divided if the marriage ends in divorce or upon the death of one spouse.

Mechanisms for Protecting Assets from Creditors

Taiwanese law offers various ways to protect assets from those who might try to claim them due to debts. These methods can be especially important when planning an estate to ensure that assets are kept safe for the intended recipients. One such method involves using trusts. When assets are placed into a trust, the person creating the trust transfers legal ownership to a trustee. This trustee then manages the assets for the benefit of specific individuals. This arrangement can help protect the assets from claims made by creditors against the person who created the trust or the individuals who are set to benefit from it.

Important Points for International Clients

Understanding Residency and Domicile for Tax Purposes

In Taiwan, the Estate and Gift Tax Act uses a person’s residency and domicile to determine if they need to pay estate and gift tax. If someone who passed away was a Taiwanese citizen and lived in Taiwan regularly, then all of their property around the world could be subject to estate tax. However, if the person who died was a foreigner or a Taiwanese citizen who lived outside of Taiwan regularly, only the assets they had within Taiwan would be subject to estate tax. The same rule applies to gift tax. If someone giving a gift is a Taiwanese citizen who lives in Taiwan regularly, their worldwide property could be subject to gift tax. But, if the giver is a Taiwanese citizen who lives outside Taiwan regularly or is not a Taiwanese citizen, only the property located in Taiwan is subject to gift tax.

“Living in Taiwan regularly” means either:

• Having their main home in Taiwan within the two years before they died or gave the gift.
• Living in Taiwan for more than 365 days within the two years before they died or gave the gift. This excludes foreign individuals working for the Taiwan government for a specific period.

For income tax, a person is considered a tax resident in Taiwan if Taiwan is their permanent home and they live there all the time, or if Taiwan isn’t their permanent home but they have stayed there for 183 days or more in a calendar year.

Rules for Moving Money Across Borders

The central bank in Taiwan has limits on how much foreign currency can be moved in and out of the country. Businesses can move up to USD 50,000,000 each year, and individuals can move up to USD 5,000,000 each year for sending money in and out, not including money from trading or services. If someone needs to move more than these amounts, they need to get permission from the Central Bank.

How Culture Impacts Estate Planning in Taiwan

Cultural beliefs can play a big role in how people plan their estates in Taiwan. For example, talking about death is often seen as unlucky, which means many people pass away without making a will. Also, the detailed steps required to create a valid will can discourage people from making one. These cultural aspects show why it’s important to have open and understanding conversations with clients about what they want for their estate and to address any cultural concerns they might have.

Conclusion

Dealing with international estate planning in Taiwan means understanding its legal system, tax rules, and cultural practices. From the proper way to make a will and the laws about who inherits, to using trusts and ways to protect assets, carefully thinking about each part is key to making sure assets are distributed as desired.

Remember, the information in this guide is for general knowledge only and should not be considered advice from legal professionals. Because international estate planning can be complex and have significant consequences, it’s important to get help from estate planning experts who know Taiwanese law. They can offer specific advice for your situation, address any questions you have, and help you create a solid estate plan that fits your personal needs and goals. Navigating the complexities of Japanese inheritance law ensures that your wishes are carried out and your loved ones are protected. By understanding the intricacies of Hong Kong’s estate planning landscape, you can make informed decisions to protect your legacy and provide for your loved ones.

Frequently Asked Questions