Taiwan: Five things you need to know about investment type policy taxation

With investment income subject to tax, and following the decision by the ROC Tax Reform Committee to tax investment type policies last year, investment type policies sold from January 2010 are subject to income tax.

Adding gift tax and inheritance tax, there is a chance that holders of investment type policies will be subject to three taxes, and this has left many people wondering whether insurance type policies are still worth buying. Aviva reminds people that the new taxes will not significantly affect most people and, if attention is paid to tax-related regulations, they can still buy investment type policies without worry; they are still useful in terms of increasing guarantee amount and retirement planning for example.

First-Aviva’s managing director Lin Yuan-hui explains that the tax standards for investment type polices announced in 2009 are not retroactive, which means that policies bought before 31 December 2009 are not affected at all. However, for investment polices bought from 2010, income will first be divided into insurance or investment income and taxed separately.

In terms of investment account income, including investment target redemption and conversion and interest, it depends on whether the investment is domestic or overseas. Domestic stock market income is at present not taxed, however, interest is classed as deposit interest and stock dividend and is subject to income tax.

If the investment is overseas, it must be included when income basic tax is calculated. After implementation this year, investment type policy investment target interest, share dividends and overseas income must be reported as income when filing a tax report in 2011.

In addition, when the policy holder and beneficiary are different, the insurance payment may be subject to gift tax. As for inheritance tax, qualification standards are likely to be set in the future for charging investment policy inheritance tax.

Lin Yuan-hui says that these tax standards will have minimal effect on most policy holders, for example only when overseas income exceeds a certain amount is it taxable. If the policy holder and beneficiary are the same person, this will lower the prospect of being subject to gift or inheritance tax.

Also, payments for policy cancellation or partial withdrawal are tax free and various payments received from an insured accident do not need to be included in income and taxed, therefore, while the benefits are not as good as before, their functions still exist.

Apart from using a lower premium to increase insured amount, at the same time they can be used to invest or can be converted into various funds free of charge, none of which can be done with any other single product. Lin Yuan-hui points out that investment type policies are still suitable for the following kinds of people:

1. Young people: If a young person who is less well off wants to increase the guarantee amount while being able to pay the premium flexibly, investment type policies such as the variable “all purpose” life insurance can still be used. This group’s income isn’t generally high and if overseas income is under NT$1 million and total basic income is under NT$6 million there is no need to worry about paying basic tax.
2. People planning for retirement: Variable annuity investment type policies can be used by people planning for retirement to accumulate assets through the time value of money. The policyholder and beneficiary are usually the same person, so there will usually be no gift tax to consider.
3. Children: Investment type policies can still be used by parents for their child’s education fund. If the child is both policy holder and beneficiary and the parents keep the premiums they pay on his/her behalf under the NT$220,000 tax-exempt amount every year, gift tax will be avoided. If both parents give NT$220,000 a year, the tax-exempt premium amount will be NT$440,000.

Lin Yuan-hui emphasises that, according to government figures, 95% of investment type policies in the Taiwanese market have average accumulated premiums of less than NT$1 million. Calculated using a 6% annual return rate, annual income from these policies is only NT$60,000, well below the amount that is subject to tax.

This means that, at present, only around 5% of customers, those with high-value assets, face being taxed. There is therefore no reason for people to be too concerned if they have only become interested in purchasing an investment type policy this year.

Five things you need to know about investment type policy taxation:

1. Only households that have overseas income in excess of NT$1 million and total basic income of over NT$6 million must pay basic tax.
2. Domestic interest or share dividends in excess of the tax-exempt amount of NT$270,000 will be taxed.
3. Domestic bonds are subject to separate taxation.
4. If the policyholder and beneficiary are not the same person, when annuity insurance payment exceeds NT$220,000, 10% gift tax will be charged.
5. When over NT$30 million is inherited, it will be subject to Income Basic Tax (in the future it is likely that standards will be set for charging inheritance tax on qualified life insurance and non-qualified life insurance policies).

-ends-

Media contact person:
Johnson Lu (Lu Hong-yi,) Aviva                  
Telephone: (02) 8758 1169    
E-mail: johnson_lu@first-aviva.com.tw

Anna Chang (Chang Hui-fang,) Aviva           
Telephone: (02) 8758-1067                
E-mail: anna_chang@first-aviva.com.tw

Notes to editors:

About First-Aviva Life Insurance Co, Ltd

• First-Aviva is an insurance company jointly established by First Financial Holding Co, Ltd and the Aviva group.
• First-Aviva’s initial paid-in capital was NT$2.25 billion. First Financial Holding Co, Ltd holds a 51% share and the Aviva group 49%.
• First-Aviva has signed an exclusive bancassurance agreement with First Financial Holding Co, Ltd’s flagship subsidiary First Commercial Bank, offering life insurance, retirement planning and other insurance products through First Commercial Bank’s 190 branches in Taiwan, giving customers innovative products and services.

About the Aviva group

• The Aviva group is the world’s fifth largest insurance group (based on total global premiums on 31 December 2008). It is the leading provider of life insurance and retirement protection products in Europe, and also has an important position in other markets around the world.
• The Aviva group’s main areas of business are long-term savings (including life insurance protection, savings planning and pension planning), fund management and property insurance. As of 31 December 2008, total sales were £51.4 billion and more than £381.1 billion worth of assets were under its management (as of 31 December 2008)
• Aviva’s global media centre www.aviva.com/media has images, company and product information and a press release database.
• In Asia, Aviva promotes its products and services through various marketing channels (including its own sales team, brokers and bancassurance). It has branches in Singapore, Hong Kong, mainland China, India, Sri Lanka, Malaysia, Taiwan and South Korea.

About First Financial Holding Co, Ltd and First Commercial Bank

• First Financial Holding Co, Ltd was established by stock right exchange with First Commercial Bank as the subject on 2 January 2003.
• As of the end of 2008, First Financial Holding (Taiwan Stock Exchange stock code: 2892) held total assets exceeding NT$ 1.6 trillion, making it the seventh largest financial group in Taiwan, providing comprehensive financial services to more than five million individuals and enterprises.
• First Commercial Bank was established in 1899 and is the group’s main source of profits.
• First Commercial Bank holds a leading position in the deposit and loans business, home loans, SME loans and fund sales markets etc. It has 190 service locations in Taiwan (including branches and offices) providing services to customers.