Although investment policies have the potential for investment appreciation, their earnings may still be taxable upon termination or partial withdrawal.
The key to taxation lies in the difference between the withdrawal amount and the premium paid (i.e. the gain), rather than simply whether the withdrawal exceeds the principal.
The following will explain the tax impact by level and provide practical suggestions.
1. Tax-free range: The withdrawal amount does not exceed the premium paid
Investment amount: There is no fixed lower limit. No matter how much you invest, as long as the amount withdrawn is ≤ the paid premium, no gain will be generated and no tax will be required.
Example: A premium of NT$1 million is paid and the account value grows to NT$1.2 million. If you withdraw 1 million, since it does not exceed the premium paid, no profit will be generated and it will be tax-free.
If you withdraw 1.2 million, the excess 200,000 in gains needs to be included in the income declaration.
Recommendation: If the account value increases in the short term and the tax risk is low, there is no need to worry too much.
Note: If the account has appreciated in value, withdrawals must be calculated based on the "cost ratio allocation" (the ratio of principal to profit in the withdrawal amount) provided by the insurance company. Simply "not exceeding the principal" does not guarantee complete tax exemption.
2. Low risk level: Profits do not exceed the comprehensive income tax exemption amount
Investment amount: Usually an annual payment policy, with limited appreciation in the short term and gains lower than the tax-free amount.
2025 standard: The comprehensive income tax exemption is RMB 97,000 per person per year (under 70 years old).
If the annual income (including policy gains) is lower than this amount, no tax is required.
Example: Pay 1 million in premiums, the account grows to 1.1 million, withdraw 1.05 million, and gain 50,000. If there is no other income and the total amount is less than the tax-free amount of 97,000, there is no tax burden.
Recommendation: If the withdrawal amount and gains are kept within this range, the tax impact will be minimal and there is no need to worry too much.
Gains from investment-type insurance policies are classified as "other income" and are not subject to the dividend income tax exemption (NT$80,000). Instead, they should be based on the comprehensive income tax exemption.
3. Pay attention to the bracket: Profits exceeding the tax-free amount
Investment amount: 2 to 5 million, annual rate of return is about 6 to 8 %, and annual profit is about 120,000 to 400,000.
Tax impact: When the profit exceeds the tax-free amount (97,000), it must be included in the comprehensive income tax return and taxed according to the personal income tax rate (5%~40%).
Example: Invest 3 million, annual return 8%, annual profit 240,000, exceeding the tax-free amount by 148,000.
These 148,000 yuan must be declared. If the individual's total income falls into the 12% tax rate bracket, the tax burden will be approximately 17,800 yuan.
Recommendation: You can reduce your tax burden by making annual withdrawals to keep your annual gains within a low tax rate or tax-free range.
4. High-risk category: those who withdraw large amounts and have high income
Amount invested: more than 5 million. If the account appreciates significantly in value in a short period of time, the profit will be high when withdrawing or canceling the contract.
Tax impact: The full amount of gains is included in the comprehensive income tax, and the tax rate is based on the personal income bracket (up to 40%).
Example: Invest 5 million, annual return 8%, and profit 400,000 a year. If you withdraw the full amount and your other income is already high, you may fall into the 20~30% tax rate range, with a tax burden of 80,000 to 120,000.
Recommendation: Long-term holding, annual withdrawals, or distributing income with a spouse can effectively reduce the impact of tax rates.
When should you worry about tax risks?
Investment within 1 million:
Gains in the short term are usually not high, so as long as the withdrawal does not generate significant gains (for example, less than $97,000), there is no need to worry about taxes.
Invest 2-5 million:
You need to pay attention to whether the amount of profit exceeds the tax-free amount. It is recommended to withdraw it in installments to avoid a large amount of withdrawal at one time that triggers a high tax rate.
Invest more than 5 million:
For high-value investments, it is recommended to conduct tax planning in advance, such as consulting a tax expert, to avoid large withdrawals in the short term that would increase the tax burden.
The core focus is on the tax risk of investment-type policies, which depends on the "gain" (withdrawal amount - premium paid), rather than simply whether the withdrawal exceeds the principal.
As long as the withdrawal does not exceed the premium paid and there is no profit, it will be tax-free; if there is a profit, it depends on the annual income and tax-free amount to decide whether to declare and pay taxes.
Reasonable withdrawal planning is the key to reducing the tax burden.
To put it in plain words, if your investment amount is less than 1 million, you really don't need to think too much and just buy the Taiwan stock ETF. Don't waste your money and have the insurance company charge you extra fees.
If your investment amount is more than 2 million, please come and buy investment insurance from me. In addition to the possible profit of about 8%, it can also help you save taxes.
It should be said that I will give you the best advice on how to achieve reasonable tax exemption! 😗
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