Inheritance | How is inheritance tax calculated and reported?-

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Inheritance | How is inheritance tax calculated and reported?

During the journey of life, inheritance is a significant event that every individual inevitably has to face. The calculation and reporting of inheritance tax involve various aspects, including taxation and law. However, tax laws and regulations are constantly adjusted with changes in the socio-economic environment, making it essential to understand the latest inheritance tax regulations as an integral part of handling inheritance issues. This article compiles information up to January 3, 2021, as the latest publicized by the Ministry of Finance, aimed at providing you with key information on inheritance tax reporting and calculation.

Who Needs to Report Inheritance Tax? And Who Pays It?

According to Article 6 of the Estate and Gift Tax Act，the taxpayer for inheritance tax is determined as follows:

If there's an executor of the will, the executor is the taxpayer.
Without an executor, the heirs and beneficiaries are the taxpayers. If there are only beneficiaries without heirs, the estate administrator selected by law is the taxpayer.
Without an executor or heirs, the legally selected estate administrator is the taxpayer.

Different scenarios for reporting inheritance tax based on the deceased's status and the scope of taxation include:

Who (the decedent)	Scope of Taxation
Nationals who habitually reside in the country	All properties left both domestically and abroad
Nationals residing abroad and foreigners	All properties left within the territory of our country
People from the Mainland area	Properties left in the Taiwan area

It's important to note that nationals who voluntarily renounce their ROC citizenship within "2 years" before death are still required to report and pay inheritance tax on all properties, both domestic and abroad.

Exemptions and Calculation Methods for Inheritance Tax

According to the Ministry of Finance, from January 1, 2022, the exemption amount is set at NT$13.33 million (previously NT$12 million from January 23, 2009, to December 31, 2021). For military, police, and public service personnel who die in the line of duty, this exemption can be doubled, but a death certificate from the service organization must be provided during reporting.

Method of Tax Calculation

The taxation method for inheritance cases occurring after May 12, 2017, involves calculating the net taxable estate by subtracting the exemption and deductions from the total estate value, then applying the prescribed tax rate and subtracting the progressive difference and deductible taxes to find the tax payable. The rates are as follows:：

Up to NT$50 million: 10% tax rate.
Over NT$50 million to NT$100 million: NT$5 million plus 15% of the amount exceeding NT$50 million.
Over NT$100 million: NT$12.5 million plus 20% of the amount exceeding NT$100 million.

Amounts not included in the total estate value:

Necessary daily life tools and equipment up to NT$890,000.
Professional tools up to NT$500,000.

What deductions are available for relatives to reduce the total taxable estate?(Article 17 of the Estate and Gift Tax Act)

Conditions/Status	Deduction Amounts	Special Attention
The decedent leaves a spouse	5.53 million NT in total	If the spouse renounces the inheritance, the deduction cannot be applied.
Heirs have direct lineal descendants	560,000 NT per person can be deducted	If there are minors among the heirs, an additional deduction of 560,000 New Taiwan Dollars per person per year is allowed based on the number of years until reaching adulthood. However, if an heir renounces the inheritance right, the deduction cannot be applied.
The decedent leaves parents	1.38 million NT can be deducted per person	However, if there is no first-degree heir and the parents also renounce their inheritance rights, the deduction of 1.38 million NT cannot be applied.
The spouse, parents, and direct lineal descendants of the decedent, if they are severely disabled	An additional deduction of 6.93 million NT per person can be made.	If the inheritance right is renounced, the deduction cannot be applied. When reporting, it is necessary to attach a copy of the certification issued by the competent social welfare authority or a copy of the specialist doctor's diagnostic certificate.
The decedent leaves siblings and grandparents who were dependent on them	560,000 NT per person can be deducted	If there are minors among the heirs, an additional 560,000 New Taiwan Dollars per person per year can be deducted, based on the number of years until reaching adulthood. However, the deduction cannot be applied if an heir renounces the inheritance right.

If you have doubts or any uncertainties about the inheritance tax declaration amount, you can also use the "Ministry of Finance Tax Portal - Inheritance Tax Amount Calculation Section" for estimation.

What happens if you do not pay inheritance tax or underreport inheritance tax?

Failure to report inheritance tax within the stipulated deadline

When taxpayers are legally required to report inheritance tax but fail to do so within the prescribed deadline and do not pay the tax within the deadline, a surcharge of 1% of the tax due will be added for every three days past the deadline. If the tax is still unpaid after 30 days, the tax authorities will transfer the case to the Administrative Enforcement Agency of the Ministry of Justice for compulsory enforcement. The amount due, in addition to the tax and surcharge, will also accrue interest from the day after the surcharge period ends until the day the taxpayer makes the payment, based on the fixed interest rate of a one-year postal savings fixed deposit, calculated daily.

In addition to collecting back taxes, a penalty of up to twice the assessed tax amount may be imposed. However, if the assessed tax amount is less than NT$60,000, no penalty will be applied. If the taxpayer voluntarily reports and pays the back taxes before any report by others and before any investigation by the National Tax Bureau or the Ministry of Finance, only the back taxes and accrued interest will be collected without imposing any penalty.

Underreporting or failing to report inheritance

Failing to report inheritance tax within the stipulated deadline can result in a surcharge of 1% of the tax payable for every three days past the deadline, up to a maximum of 30 days, after which the tax authorities may enforce payment through legal means. Interest is also charged from the day after the payment deadline until the tax is paid, based on the postal savings one-year fixed deposit rate.

In addition to back taxes, penalties up to twice the amount of the assessed tax may be imposed. However, if the assessed tax amount is less than NT$60,000, penalties may be waived. Voluntary compliance before detection or investigation can lead to a waiver of penalties, although back taxes and interest are still due.

Handling inheritance tax correctly not only helps in effectively managing one's estate but also allows for tax optimization within legal limits, ensuring the proper transfer of family wealth. Given the complexity of inheritance tax calculations and frequent changes in regulations, seeking professional legal assistance can facilitate better estate planning and offer advice on tax-saving strategies, ensuring smooth and legal transfer of assets. If you encounter any doubts or questions during the inheritance tax reporting or planning process, do not hesitate to seek the help of a professional lawyer. This collaboration ensures your inheritance process is efficient, compliant, and brings peace of mind to you and your family.

Common Questions about Inheritance Tax

Q1：If there is disagreement with the tax authority's assessment of inheritance tax, how can one appeal?

A：One should apply for a re-examination within 30 days after receiving the payment order or the tax assessment notice. If still dissatisfied with the decision of the re-examination, one should file a petition with the Ministry of Finance within 30 days of receiving the decision. If there is still disagreement with the petition decision, one may file an administrative lawsuit with the High Administrative Court within two months from the day after the petition decision was delivered.

Q2： How should the value of real estate be estimated for inheritance purposes?

A：According to Article 10 of the Estate and Gift Tax Act, the value of real estate for inheritance purposes is based on its "market value" at the time of the decedent's death, "market value" refers to the announced current value of the land and the standard assessed price of buildings.

Q3：What qualifies as "habitually residing within the country"?

A：As per Article 4 of the Estate and Gift Tax Act, individuals who are considered to habitually reside within the country are those who had a residence in the Republic of China (Taiwan) for the two years prior to the decedent's death or the act of gifting. Those without a residence but with a place of stay, and who resided in the Republic of China (Taiwan) for a total of more than 365 days within the two years before the decedent's death or the act of gifting, also qualify.

References: 財政部稅務入口網-遺產稅、財政部110年台財稅字第11004670210號公告、遺產及贈與稅法

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