February 21, 2005
The Legislative Yuan on January 7 passed revisions to the Statute for Upgrading Industries that are aimed at helping Taiwan's emerging industries attract more investment and technology transfers.
The revisions provide investors the option of trading technology, en lieu of cash investments, in order to acquire stock. The value of the technology is to be determined through appraisal by a professional appraisal company or through the mutual agreement of the interested parties. The revisions will help domestic enterprises use stock to acquire overseas technology and reduce the difficulty of their initial funding raising efforts. By increasing the willingness of investors in possession of patent rights or specialized technology to become shareholders in Taiwan's emerging enterprises, the revisions will draw more foreign enterprises to Taiwan to transfer technology for the pursuit of research and development, thus boosting the fortunes of such high risk industries as the biotechnology sector.
Specifically, the revision of Article 19-2 permits investors that meet requirements to defer the payment of income taxes on stock acquired in exchange for either domestic or foreign patent rights or for specialized technology. In those cases in which more than 20% of the company's equity is acquired in the exchange and in which the number of shareholders receiving stock does not exceed five, the investors may defer the payment of income taxes on the acquired stock for five years from the year following the acquisition. The types of specialized technology for which this deferment will be allowed will be designated in the Statute for Upgrading Industries Enforcement Rules.
Following a study of legislation in advanced industrialized nations, the Legislative Yuan revised Article 19-3 with the explicit aim of encouraging enterprises, especially small and medium enterprises, to commercialize innovative technology. The revised article allows an enterprise to offer stock options in exchange for technology. Income tax will not be collected until the options are exercised, and only the value of the exercised options on the day of their sale that exceeds the price at which the options were subscribed will be taxed.
These revisions will apply retroactively to January 1, 2004.
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