Taiwan Approves Estate Tax Overhaul to Close Donation Loopholes

Taiwan's Executive Yuan has approved amendments to the Estate and Gift Tax Act, introducing new measures to close loopholes that allowed individuals to avoid estate taxes through short-term donations before death. The changes, prompted by a constitutional court ruling, aim to bolster tax fairness and protect property rights.

The most significant alteration targets gifts made to close relatives, including spouses, children, grandchildren, parents, and siblings, within two years of the donor's death. Previously, such gifts were simply added back to the deceased's estate for tax calculation. Under the new system, the recipients themselves will become directly liable for the estate tax attributable to the gifted property, though their liability is capped at the value of the property received.

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The amendments aim to balance tax fairness and the protection of people's property rights, while preventing the evasion of estate taxes through short-term donations before death.

Furthermore, the amendments address the calculation of the spousal inheritance right. Gifts made to a spouse within two years of death will now be considered part of the deceased's existing assets for this calculation. Crucially, the deceased's estate must provide equivalent assets to the spouse, and cannot use property already gifted to the spouse within that two-year period to fulfill this obligation. This measure is designed to prevent individuals from transferring substantial assets to their spouse shortly before death to reduce their estate tax burden.

Other revisions include clarifying the tax reporting and assessment periods for assets determined to belong to the deceased through court rulings. The new law also relaxes installment payment requirements for estate taxes, removing the previous NT$300,000 threshold, and allows for a majority of heirs to agree on using estate funds for tax payments. The Ministry of Finance plans to actively engage with legislative caucuses to expedite the passage of these amendments, which are expected to enhance the fairness of estate tax collection and streamline tax administration.

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This measure is designed to prevent individuals from transferring substantial assets to their spouse shortly before death to reduce their estate tax burden.