Taiwan Today

The Ministry of Finance will soon issue an administrative decree to levy income taxes on capital gains from investment-type life insurance policies. The measure is expected to take effect Jan. 1, 2010, according to sources familiar with the issue. It is estimated that a total of 4.95 million such policies are currently in effect on the island. About 78 percent of these policies have accumulated insurance premiums less than NT$300,000 (US$9,261) per policy, while as high as 94.6 percent have collected premiums less than NT$1 million. In order to minimize the potential impact of the new measure, the MOF said that it will treat any capital gains from existing policies and the ones sold before the end of 2009 as insurance payments, and will not impose income, inheritance or gift taxes on those gains. However, any investment gains from new policies sold on and after Jan. 1, 2010 will be subject to income taxes. The amount of capital gains exceeding promised insurance benefits will not be exempt from either inheritance taxes or gift taxes, the sources revealed. The ministry pointed out that most buyers of such policies are retail investors with relatively small amounts invested, and therefore it does not expect the new measure to create too strong an impact on them. Previously, foreign insurance firms operating on the island had strongly suggested that the government postpone its decision to tax capital gains from such policies. The Cabinet-level Financial Supervisory Commission is also suggesting postponing the taxes until 2011. The MOF said that since these policies separate insurance payments from investment gains, income taxes on such profits will be determined according to the nature of investment targets in the portfolios. Over 95 percent of these targets are located in foreign countries, with offshore funds and structured notes making the bulk of these portfolios, MOF officials pointed out. According to existing tax rules, effective Jan. 1, 2010, individuals with overseas income exceeding NT$1 million are required to file for minimum income taxes. Insurance policies meeting this million-dollar standard will be subject to the same rules as well, the sources said. (SFC-HZW)