Company
Incentives for R&D
In accordance with the provisions of Article 10 of the Statute for Innovation industrial promulgated and enacted on May 12,2010, a company may be entitled to a tax credit of up to 15% of the R&D expenditure against its income tax liability. The credit is limited to 30% of the income tax payable for current year. This effective term of the said incentive will be from January 1, 2010 to December 31, 2019 . The Ministry of Finance together with Ministry of Economic Affairs stipulates the "Rules for Application of investment Credits to Corporate Research and Development Expenditures" and the qualified scope of the said R&D credit is limited to the expenditure for the R&D activities with highly innovation, pioneering and risky and external nature.
The company shall apply to its competent authority to determine the qualified scope of R&D activities within the period from three months before starting filing the income tax return to one month after the deadline of income tax return filing.(For example, it will be from February to June of the following year for the company adopted calendar year as fiscal year.) In addition, for certain R&D expenditure, the company should apply for special approval with the competent authority before the end of the year where the said expense incurred.
Free Trade Zones
A free trade zone enterprise that has been approved to engage in trading, warehousing, logistics, container terminal operations, transiting, transshipment, forwarding, customs clearance, assembling, remodifying, packaging, repairing, assembling and distributing, processing, manufacturing, inspecting, testing, displaying or technological services in a free trade zone.
Set-up Requirements
warehousing, logistics, container terminal operations, transiting, transshipment, forwarding, customs clearance, assembling, sorting, packaging, repairing and fabricating, processing, manufacturing, displaying, repairing or technology services in a free trade zone.
Incentives
- Goods imported into a free trade zone by a free trade zone enterprise for its operations are exempt from customs duty, commodity tax, business tax, tobacco and liquor tax, public health and welfare duty on tobacco products, trade promotion service fees and harbor service fees.
- Machinery and equipment imported into a free trade zone by a free trade zone enterprise for its own use are exempt from customs duty, commodity tax, business tax, trade promotion service fees and harbor service fees. Nevertheless, should the aforesaid machinery and equipment be transported to a tax zone within five years of import, supplemental taxes and dues will be imposed in accordance with relevant regulations applicable to the import of goods.
- According to the Trade Act, trade promotion service fee is exempt on goods shipped overseas or to the bonded area from the free trade zone, and on goods shipped to the free trade zone from the tax zone or bonded area.
- Goods of a free trade zone enterprise shipped into the tax zone is deemed importation of goods, and should be subject to customs duty, commodity tax, business tax, tobacco and liquor tax, public health and welfare duty on tobacco products, trade promotion service fees and harbor service fees according to relevant regulations. However, the customs duty on products undergone processing, manufacturing, remodifying, simple processing, inspection or testing in the free trade zone may be levied based on the assessed customs value, which is the value of the products when shipped out from the free trade zone, subtracting the value added in the free trade zone.
- The shipping in of goods, machinery or equipment by a free trade zone enterprise from the tax zone for its own operation is deemed exportation. In accordance with the relevant Customs regulations, the enterprise may apply for reduction, exemption or refund of customs duty, commodity tax, tobacco and liquor tax, and public health and welfare duty on tobacco products. When the imported goods or domestically produced non-bonded goods which have been imposed taxes are shipped into a free trade zone by a free trade zone enterprise from the tax zone followed by shipped back to the tax zone within five years since the day entry of the free trade zone, the customs duty is exempt.
- Where goods of a free trade zone enterprise are transported to the bonded areas, relevant taxes are exempted in accordance with relevant regulations with respect to bonded goods.
- The business tax rate is 0% for the following goods or services:
- Goods, machinery and equipment sold by a tax zone or bonded area enterprise to a free trade zone enterprise for operation.
- Goods sold by a bonded area enterprise to an export company, who then deposits the goods at a free trade zone enterprise for export.
- Goods sold by a tax zone enterprise to a bonded area enterprise, who then deposits the goods at a free trade zone enterprise for export.
- Services provided by a tax zone or bonded area enterprise to a free trade zone enterprise for operation related purpose.
- The business tax rate is 0% for transactions where a free trade zone enterprise or foreign enterprise, institution, association or organization sells goods or services to a free trade zone enterprise, foreign client, other bonded area enterprise, or export company who then exports the goods directly or deposits the goods into a bonded warehouse or logistics center for export without shipping the goods into the tax zone.
- Where a branch office of a foreign enterprise stores goods or conducts simple processing in the free trade zone by itself or through a free trade zone enterprise, and then sells the goods to both domestic and foreign customers, the income so derived is exempt from income tax. However, where the sales value to domestic customers exceeds 10% of the combined sales value to domestic and foreign customers, the excess is not exempt from income tax.
Tax Incentives for Company Reorganization
The Business Mergers and Acquisitions Law (M&A Law) contains a number of tax incentives to encourage business reorganizations (including mergers, divisions and share exchanges) and improve operational efficiency. If a company acquires the assets or shares of another company and pays for the acquisition with its own voting shares, and if the total of such shares exceeds 65% of the value of the acquired shares, the following tax incentives are available:
- All deeds and certificates so created are exempt from Stamp Tax.
- The title of acquired immovable property is exempt from Deed Tax.
- Transferred securities are exempt from Securities Transaction Tax.
- Any commodities or labor services transferred are deemed to be outside the scope of Business Tax.
- If the company owns land after a transfer has been declared and the value has been confirmed, title should immediately be transferred and registered. The Land Value Increment Tax liability of the existing land title holder may be registered in the name of the company acquiring the land after the merger/consolidation and acquisition. If the land is further transferred, the Land Value Increment Tax must be paid on a priority basis over all liabilities and mortgages arising from proceedings relating to the disposition of the land.
Preference for Overseas Chinese Investment
The Statute for Investment by Overseas Chinese encourages overseas Chinese investment in Taiwan. According to the Statute, if an overseas Chinese obtains the approval of the Investment Commission for investment in Taiwan, 50% of the value of shares or equity approved by the Commission may be exempt from Taiwan Inheritance Tax upon the death of the investor.
Private Investment in Infrastructure Projects
Background
To upgrade the level of public services and expedite socio-economic development, the Statute for Private Participation in Infrastructure Projects encourages private-sector investment in infrastructure projects and transportation construction projects.
Procedures
- For infrastructure projects operated by Taiwan government, Taiwan government announces the operation and qualifications of participants for an infrastructure or transportation construction project, and interested private parties may apply and submit their qualification documents, investment and operation plans and other required documents. The government will set up a special committee to review the submissions and select the best applicant. The selected applicant and the government will proceed over a specific period of time and enter into a construction and operation contract for the infrastructure project.
- Infrastructure projects can also operate by private sectors, where the applicant will apply to Taiwan government and submit relevant documents for assessments.
Incentives
The Statute for Private Participation in Infrastructure Projects provides tax incentives and government support for a private company investing in government-approved infrastructure projects. The tax incentives are:
Five-Year Tax Holiday
A company can enjoy a five-year tax exemption on business profits derived from government-approved infrastructure projects. The private company can, within four years of beginning the project, choose to defer commencement of the tax exemption period. The deferral may not be longer than three years, after which the exemption period will begin on the first day of the fiscal year to which commencement is deferred.
Investment Tax Credit for Private Institutions
A private company investing in a government-approved infrastructure or transportation construction project may credit 5% to 20% of the following expenditure incurred against its profit-seeking-enterprise income tax liability starting from the year the expenditure is incurred, and any unused tax credit can be carried over for four years:
- Capital expenditure on buildings, operating equipment or technology;
- Capital expenditure incurred in the procurement of pollution control equipment or technology; and
- Expenditure incurred on R&D and personnel training.
The amount deducted in one year may not exceed 50% of the company's profit-seeking- enterprise income tax liability for that year, but there is no limit on the use of unused tax credits in the last year of carryover
Customs Duty Incentives or Payment in Installments
- Operating machinery, equipment, special transport vehicles, training apparatus and required parts/components thereof imported by a private institution or its direct contractors for use in building a major infrastructure or transportation construction project are exempt from customs duty provided that the authority which operates the project proves as true and MOEA proves that those machinery/equipment, etc. are not manufactured and provided domestically; where manufacturing and supply has begun in Taiwan, custom duty can be paid in installments after one year beginning from the completion date, provided that the authority which operates the project proves as true and customs duty is properly guaranteed.
- If the operating machinery, equipment, training equipment and required parts/components are imported for operations, the private institution can pay customs duty by installments after 1 year of operation, provided that the authority which operates the project proves as true and customs duty is properly guaranteed.
Land Value Tax, House Tax and Deed Tax Incentives
- During the period of building or operating major infrastructure or transportation construction projects, the Land Value Tax, House Tax and Deed Tax incurred on real estate used directly by the private institution may be reduced.
Investment Tax Credit for Corporate Shareholders
- Corporate shareholders holding registered stock issued by a private company in a government-approved infrastructure project for at least four years can offset the shareholder investment tax credit against their profit-seeking-enterprise income tax liability. The tax credit available to corporate shareholders is 20% of the cost of the shares. The corporate shareholder can use the tax credit after it holds the shares for four years.
- The tax credit used in each year may not exceed 50% of the corporate shareholder's income tax liability for that year, except for the last year of carryover.
Biotechnology and New Pharmaceutical Industry
Background
Taiwan’s economy has focused primarily on the development of manufacturing since the 1950s and the country has gained a global leading position in the semiconductor and digital image industries. However, Taiwan has only a 0.5% share of total global production value of the biopharmaceutical industry which is one of the new knowledge-economy industries. To ensure a smooth transition to a knowledge-intensive economic model, the Biotech and New Pharmaceutical Development Act was introduced on July 6, 2007 to promote the development of knowledge-intensive industries such as new drugs and high-risk medical devices, and to drive the transformation of Taiwan’s economy.
Incentive Items
The Biotech and New Pharmaceutical Development Act provides for a number of tax incentives:
Incentives for R&D and Personnel Training
Biotech and new pharmaceutical companies are entitled to a deduction from their profit-seeking-enterprise income tax liability when undertaking R&D on new drugs and high-risk medical devices, as well as the training of personnel. The deduction is limited to 35% of the total amount invested in R&D and personnel training and may be credited against the profit-seeking-enterprise income tax within five years from the year the tax liability is incurred.
Investment Tax Credit for Corporate Shareholders
Investors who invest in Biotechnology and new Pharmaceutical companies and hold the shares for more than three years are entitled to a deduction from the profit-seeking-enterprise income tax payable for a period of five years starting from the year the tax liability is incurred, up to 20% of the acquisition cost of the shares.
If the shareholder is a venture capital business, the corporate shareholders of the venture capital business may claim a deduction when calculating their profit-seeking-enterprise income tax liability for a five-year period starting from the fourth year after the venture capital business becomes a registered shareholder of the biotech and new pharmaceutical company. The deductible amount is calculated by taking the shareholding ratio of the venture capital investment to the biotechnology new drug company and the total paid-in capital, and applying the ratio to the acquisition cost of the shares, up to 20% of the acquisition cost.
Tax Deferral for the Acquisition of Shares
To encourage technology investors and high-ranking professionals to hold shares in a biotechnology and new drug company on a long-term basis and to participate in the company’s operations, such investors are permitted to pay tax based on the actual trading price when the ownership of the shares is transferred, rather than paying tax at the time the shares are acquired.
Rights to Issue Stock Warrants
To help biotechnology and new drug companies attract outstanding talent and acquire technology, such companies may issue stock warrants to high-ranking professionals and technology investors allowing them to subscribe to the shares at a price lower than their face value. In such cases, the acquired shares are taxable only at the time of actual transfer of ownership.
Acquisition of Technology for Operation and Production
Tax Exemption on Royalty Payment
Under Article 4, Paragraph 1, Item 21 of the Income Tax Act, if a Taiwan company, through technical cooperation, pays royalties to use a foreign enterprise's patents, trademarks or specialized technology, the royalties received may be exempt from Taiwan income tax for the foreign enterprise. Approval is required from the Industrial Development Bureau (IDB) base on the Principles Governing the Review of the Applications for Income Tax Exemption of Royalties and Technical Services Fees Received by Foreign Profit-Seeking Enterprises in Manufacturing, Related Technical Service, and Power Supply Industries.
Once IDB approval is obtained, the foreign enterprise should apply with competent tax authority for final approval of tax exemption on the royalty income.
Indirect Tax Incentives for Science Parks, Export Processing Zones, Agricultural Biotechnology Parks, Bonded Factories, Bonded Warehouses, Logistics Centers, and Free Trade Zones
A company may claim certain indirect tax incentives if it is incorporated in a Science Park or an Export Processing Zone, an Agricultural Technology Park, Logistics Center, Free Trade Zone, or Bonded Factory or Bonded Warehouse according to the regulations. The main indirect tax incentives are:
Items
Eligible for
Indirect Tax |
Economic Processing Zone |
Science Park |
Agricultural
Biotechnology
Park |
Bonded Factory |
Bonded warehouse |
Logistics Center |
Free Trade Zone |
| Import of raw materials from overseas |
exempted from customs duty, commodity tax, business tax, and trade promotion service fees |
exempted from customs duty, commodity tax, business tax, and trade promotion service fees |
exempted from customs duty, commodity tax, business tax, and trade promotion service fees |
exempted from customs duty, commodity tax, business tax, and trade promotion service fees |
exempted from customs duty, commodity tax, business tax, tobacco and wine tax, public health and welfare dues on tobacco products, trade promotion service fees, and harbor service dues |
exempted from customs duty, commodity tax, business tax, tobacco and wine tax, public health and welfare dues on tobacco products, trade promotion service fees, and harbor service dues |
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| Import of goods for operation purpose from overseas |
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exempted from customs duty, commodity tax, business tax, tobacco and wine tax, public health and welfare dues on tobacco products, trade promotion service fees, and harbor service dues |
| Import of fuel, supplies, semi-finished materials from overseas |
exempted from customs duty, commodity tax, business tax, and trade promotion service fees |
exempted from customs duty, commodity tax, business tax, and trade promotion service fees |
exempted from customs duty, commodity tax, business tax, and trade promotion service fees |
|
exempted from customs duty, commodity tax, business tax, trade promotion service fees, and harbor service dues |
exempted from customs duty, commodity tax, business tax, trade promotion service fees, and harbor service dues |
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| Import of machinery from overseas |
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exempted from customs duty, commodity tax, business tax, and trade promotion service fees |
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exempted from customs duty, commodity tax, business tax, trade promotion service fees, and harbor service dues |
| Export of products/services |
0% VAT |
0% VAT |
0% VAT |
0% VAT |
0% VAT |
0% VAT |
0% VAT |
| Purchase of raw materials, fuel, supplies, semi-finished materials from non-bonded area |
0% VAT |
0% VAT |
0% VAT |
0% VAT |
0% VAT |
0% VAT |
0% VAT |
