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2024-11-08Spousal Estate and Gift Tax in Taiwan
Mr. Li has had a knack for financial management since his youth. During several economic recessions, he took the opportunity to enter the stock market and continued to hold his investments long-term after marriage. As he approached retirement, he had accumulated 100 shares of Hon Hai (Foxconn) and 100 shares of Taiwan Semiconductor Manufacturing Company (TSMC). As he entered his senior years, he began to think about estate planning. In June 2023, he gifted his 100 shares of Hon Hai stock to his wife. Unfortunately, in June 2024, Mr. Li was diagnosed with cancer and was given a life expectancy of only one more year by doctors. During his illness, his wife sold all the Hon Hai shares at TWD 130 each to cover medical expenses. Knowing his time was limited, Mr. Li decided to plan for the inheritance taxes and thus intended to transfer his 100 shares of TSMC to his wife as well.
Mr. Li considered to following: by transferring all his TSMC stock to his wife during his lifetime, could he save on taxes?
Although gifts of property between spouses are exempt from gift tax, it is important to pay special attention to inheritance tax, specifically the rule that gifts made within two years prior to death must be included in the calculation of the estate. For example, if Mr. Li were pass away in May 2025 (which falls within two years of when he gifted his 100 shares of Hon Hai to his wife in June 2023), the Hon Hai shares he gifted in June 2023, as well as the TSMC shares he planned to gift before his death would both be included in the total calculation of the estate tax (Note 1).
Note 1:
According to Article 15 Section 1 of the Estate and Gift Tax Act in Taiwan: “Property transferred by gift to the following individuals by the decedent two years before his/her death is regarded as estate of the decedent, which shall be included in the gross estate and subject to estate tax under this Act:
(1) The surviving spouse of the decedent
(2) The heirs of the decedent prescribed under Section 1138 and 1140 of the Civil Code
(3) The spouses of the heirs named in the preceding subparagraph.”
However, you might then ask, since the Hon Hai shares were sold by Mr. Li’s wife a while ago, do they still need to be included in the estate for tax purposes?
The answer is yes. According to the directive numbered 831602988 from the Taiwan Ministry of Finance, properties gifted within two years prior to the decedent’s death, as stipulated under Article 15 of the Estate and Gift Tax Act, must be included in the total estate for the purpose of estate taxation. The valuation of such properties should be based on their market value at the time of the decedent’s death, as outlined in Article 10 of the same law. In other words, not only must these assets be included in the total estate value, but the estate value of the Hon Hai shares must be calculated based on their closing price on the day of the decedent’s death, not at the price when they were gifted or when they were sold to cover medical expenses.
Now that the Hon Hai shares have already been gifted and the fact cannot be changed, how should Mr. Li handle the TSMC shares to minimize the estate tax? Given that relatives have pass away, the legal heirs are ranked as spouse and children. If the spouse inherits the estate, they can utilize two major tax-serving tools: an estate tax “spousal deduction” of NTD 4,930,000 and the “right to request the distribution of the remaining estate balance” for the spouse.
Let us assume the following scenario:
100 shares of Hon Hai: market value at the time of Mr. Li’s death is NTD 15,000,000
100 shares of TSMC: market value is NTD 75,000,000
Scenario 1: Mr.Li keeps the TSMC shares and does not gift them during his lifetime
(1) Total estate value for Mr. Li: NTD 90,000,000 (15,000,000+75,000,000)
(2) Mrs. Li claims the right to request the distribution of the remaining marital property, which is half of the difference in the value of the marital property acquired after marriage between the two spouses at the time of Mr. Li’s death. Since Mrs. Li has no property registered under her name, she can claim NTD 37,500,000, which is half of the market value of the TSMC shares at NTD 75,000,000. (Note: Since Mr. Li had already gifted the Hon Hai shares, the remaining property is the NTD 75,000,000 worth of TSMC shares; the Hon Hai shares valued at NTD 15,000,000 gifted to Mrs. Li are considered as property acquired by her without consideration and are not included in the calculation of the remaining marital property).
(3) Calculation of the taxable estate net amount = Total estate value – Exemption amount – Deductions (assuming Mr. Li exemption and other deductions total NTD 20,000,000)
Mr Li’s estate tax payable would be 90,000,000-20,000,000-37,500,000 = NTD 32,500,000
Tax due: NTD 3,250,000 (10% of 32,500,000)
Scenario 2: Mr. Li gifts the 100 shares of TSMC to his wife during his lifetime
(1) Total estate value for Mr. Li: NTD 90,000,000 (15,000,000+75,000,000). Although it appears that Mr. Li would have no property left, since the Hon Hai and TSMC shares were gifted within two years prior to his death, they should be included in the total estate value.
(2) Mrs. Li claims the right to request the distribution of the remaining marital property, which is half of the difference in the value of the marital property acquired after marriage between the two spouses at the time of Mr. Li’s death. However, since all property is now registered under Mrs. Li’s name, with Mr. Lee having no property left, Mrs. Li cannot claim the distribution of the remaining marital property.
(3) Calculation of the taxable estate net amount = Total estate value – Exemption amount – Deductions (assuming Mr. Li exemption and other deductions total NTD 20,000,000)
Mr. Li’s estate tax payable would be 90,000,000-20,000,000- 0 = NTD 70,000,000
Tax due: NTD 8,000,000
50,000,000*10%=NTD 5,000,000
(70,000,000 – 50,000,000) *15% = NTD 3,000,000
Scenario 3: Suppose Mr. Li takes no action before his death, leaving both the 100 shares of Hon Hai and the 100 shares of TSMC as part of his estate
(1) Total estate value for Mr. Li: NTD 90,000,000 (15,000,000+75,000,000).
(2) Mrs. Li claims the right to request the distribution of the remaining marital property, which is half of the difference in the value of the marital property acquired after marriage between the two spouses at the time of Mr. Li’s death. Since Mrs. Li has no property registered under her name, she can claim NTD 45,000,000 (the market value of NTD 90,000,000 of Hon Hai and TSMC shares divided by two equals NTD 45,000,000)
(3) Calculation of the taxable estate net amount = Total estate value = Exemption amount – Deductions (assuming Mr. Li’s exemption and other deductions total NTD 20,000,000)
Mr. Li’s estate tax payable would be 90,000,000 – 20,000,000 – 45,000,000 = NTD 25,000,000.
Tax due: NTD 2,500,000
25,000,000*10% = NTD 2,500,000
From the above scenarios, it appears that Mr. Lee taking no action before his death results in the most tax savings. However, there are many variables in these examples, including the property status of Mrs. Li herself, which can affect the calculation results. Each case needs to be analysed individually to obtain the best solution.
Kaizen provides professional personal and corporate tax consultation. If you require our services, please do not hesitate to contact us.
Mr. Li considered to following: by transferring all his TSMC stock to his wife during his lifetime, could he save on taxes?
Although gifts of property between spouses are exempt from gift tax, it is important to pay special attention to inheritance tax, specifically the rule that gifts made within two years prior to death must be included in the calculation of the estate. For example, if Mr. Li were pass away in May 2025 (which falls within two years of when he gifted his 100 shares of Hon Hai to his wife in June 2023), the Hon Hai shares he gifted in June 2023, as well as the TSMC shares he planned to gift before his death would both be included in the total calculation of the estate tax (Note 1).
Note 1:
According to Article 15 Section 1 of the Estate and Gift Tax Act in Taiwan: “Property transferred by gift to the following individuals by the decedent two years before his/her death is regarded as estate of the decedent, which shall be included in the gross estate and subject to estate tax under this Act:
(1) The surviving spouse of the decedent
(2) The heirs of the decedent prescribed under Section 1138 and 1140 of the Civil Code
(3) The spouses of the heirs named in the preceding subparagraph.”
However, you might then ask, since the Hon Hai shares were sold by Mr. Li’s wife a while ago, do they still need to be included in the estate for tax purposes?
The answer is yes. According to the directive numbered 831602988 from the Taiwan Ministry of Finance, properties gifted within two years prior to the decedent’s death, as stipulated under Article 15 of the Estate and Gift Tax Act, must be included in the total estate for the purpose of estate taxation. The valuation of such properties should be based on their market value at the time of the decedent’s death, as outlined in Article 10 of the same law. In other words, not only must these assets be included in the total estate value, but the estate value of the Hon Hai shares must be calculated based on their closing price on the day of the decedent’s death, not at the price when they were gifted or when they were sold to cover medical expenses.
Now that the Hon Hai shares have already been gifted and the fact cannot be changed, how should Mr. Li handle the TSMC shares to minimize the estate tax? Given that relatives have pass away, the legal heirs are ranked as spouse and children. If the spouse inherits the estate, they can utilize two major tax-serving tools: an estate tax “spousal deduction” of NTD 4,930,000 and the “right to request the distribution of the remaining estate balance” for the spouse.
Let us assume the following scenario:
100 shares of Hon Hai: market value at the time of Mr. Li’s death is NTD 15,000,000
100 shares of TSMC: market value is NTD 75,000,000
Scenario 1: Mr.Li keeps the TSMC shares and does not gift them during his lifetime
(1) Total estate value for Mr. Li: NTD 90,000,000 (15,000,000+75,000,000)
(2) Mrs. Li claims the right to request the distribution of the remaining marital property, which is half of the difference in the value of the marital property acquired after marriage between the two spouses at the time of Mr. Li’s death. Since Mrs. Li has no property registered under her name, she can claim NTD 37,500,000, which is half of the market value of the TSMC shares at NTD 75,000,000. (Note: Since Mr. Li had already gifted the Hon Hai shares, the remaining property is the NTD 75,000,000 worth of TSMC shares; the Hon Hai shares valued at NTD 15,000,000 gifted to Mrs. Li are considered as property acquired by her without consideration and are not included in the calculation of the remaining marital property).
(3) Calculation of the taxable estate net amount = Total estate value – Exemption amount – Deductions (assuming Mr. Li exemption and other deductions total NTD 20,000,000)
Mr Li’s estate tax payable would be 90,000,000-20,000,000-37,500,000 = NTD 32,500,000
Tax due: NTD 3,250,000 (10% of 32,500,000)
Scenario 2: Mr. Li gifts the 100 shares of TSMC to his wife during his lifetime
(1) Total estate value for Mr. Li: NTD 90,000,000 (15,000,000+75,000,000). Although it appears that Mr. Li would have no property left, since the Hon Hai and TSMC shares were gifted within two years prior to his death, they should be included in the total estate value.
(2) Mrs. Li claims the right to request the distribution of the remaining marital property, which is half of the difference in the value of the marital property acquired after marriage between the two spouses at the time of Mr. Li’s death. However, since all property is now registered under Mrs. Li’s name, with Mr. Lee having no property left, Mrs. Li cannot claim the distribution of the remaining marital property.
(3) Calculation of the taxable estate net amount = Total estate value – Exemption amount – Deductions (assuming Mr. Li exemption and other deductions total NTD 20,000,000)
Mr. Li’s estate tax payable would be 90,000,000-20,000,000- 0 = NTD 70,000,000
Tax due: NTD 8,000,000
50,000,000*10%=NTD 5,000,000
(70,000,000 – 50,000,000) *15% = NTD 3,000,000
Scenario 3: Suppose Mr. Li takes no action before his death, leaving both the 100 shares of Hon Hai and the 100 shares of TSMC as part of his estate
(1) Total estate value for Mr. Li: NTD 90,000,000 (15,000,000+75,000,000).
(2) Mrs. Li claims the right to request the distribution of the remaining marital property, which is half of the difference in the value of the marital property acquired after marriage between the two spouses at the time of Mr. Li’s death. Since Mrs. Li has no property registered under her name, she can claim NTD 45,000,000 (the market value of NTD 90,000,000 of Hon Hai and TSMC shares divided by two equals NTD 45,000,000)
(3) Calculation of the taxable estate net amount = Total estate value = Exemption amount – Deductions (assuming Mr. Li’s exemption and other deductions total NTD 20,000,000)
Mr. Li’s estate tax payable would be 90,000,000 – 20,000,000 – 45,000,000 = NTD 25,000,000.
Tax due: NTD 2,500,000
25,000,000*10% = NTD 2,500,000
From the above scenarios, it appears that Mr. Lee taking no action before his death results in the most tax savings. However, there are many variables in these examples, including the property status of Mrs. Li herself, which can affect the calculation results. Each case needs to be analysed individually to obtain the best solution.
Kaizen provides professional personal and corporate tax consultation. If you require our services, please do not hesitate to contact us.
Disclaimer
All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage.
WhatsApp/Line/Wechat: +852 5616 4140
All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage.
WhatsApp/Line/Wechat: +852 5616 4140
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