September 2022
Biotech and Pharmaceutical Law Team of Lee, Tsai & Partners[1]
To accommodate the implementation of various measures under the Act for the Development of Biotech and Pharmaceutical Industry (the “Biotech Act”), the Ministry of Economic Affairs (hereinafter, the “MOEA”) and the Ministry of Finance of Taiwan (hereinafter, the “MOF”) began to pre-announce the sub-laws and regulations of the Biotech Act in June 2022 to extensively solicit revision recommendations from all walks of life and successively announced eight sub-laws at the beginning of August of the same year. The dates of announcement and implementation of various sub-laws and regulations as well as the highlights of the amendments are summarized below:
I. The Regulations Governing the Approval of Biotech and Pharmaceutical Companies
On August 4, 2022, the MOEA promulgated the Regulations Governing the Approval of Biotech and Pharmaceutical Companies (hereinafter, the “Approval Regulations”) via the Jing-Gong-Zi-11104603290 Directive of August 4, 2022. The Approval Regulations came into effect on the day of their promulgation.
It is noteworthy that, as compared with the pre-announced draft of June 15 of the same year, the Approval Regulations not only treat the “number of research and development and full-time personnel” as a criterion for approving a biotech and pharmaceutical company, but also require that the number of the full-time research and development personnel employed each year should meet the number requirement mentioned above within the valid period of the approval letter (Article 2, Paragraph 1 and Article 4, Paragraph 2 of the Approval Regulations).
For the rest of the highlights, please refer to the Firm’s feature article of June 2022 titled Feature Articles on the Act for the Development of Biotech and Pharmaceutical Industry of Taiwan (I) ─ Implementation Highlights of the Act for the Development of Biotech and Pharmaceutical Industry and the Draft Regulations Governing the Approval of Biotech and Pharmaceutical Companies, Which Is the Sub-law Pre-announced by the MOEA of Taiwan for details.
II. The Regulations Governing the Applicability of Investment Tax Credits to Biotech and Pharmaceutical Companies’ Research and Development Expenditures
On August 30, 2022, the MOEA and the MOF promulgated the The Regulations Governing the Applicability of Investment Tax Credits to Biotech and Pharmaceutical Companies’ Research and Development Expenditures (hereinafter, the “Investment Tax Credit to R&D Expenditures Regulations”) respectively via the Jing-Gong-Zi-11104603230 Directive and the Tai-Cai-Shui-Zi-11104650980 Directive and specifically stipulated that the regulations would be implemented from January 1, 2022 to December 31, 2031.
For the rest of the highlights, please refer to the Firm’s feature article of July 2022 titled Feature Articles on the Act for the Development of Biotech and Pharmaceutical Industry of Taiwan (II) – the Draft Regulations Governing the Applicability of Investment Tax Credits to Biotech and Pharmaceutical Companies’ Research and Development Expenditures, Which Is the Sub-law Pre-announced by the MOEA of Taiwan for details.
III. The Regulations Governing the Applicability of Investment Tax Credits to Biotech and Pharmaceutical Companies’ Investments in Machinery, Equipment or Systems
On August 24, 2022, the MOEA and the MOF promulgated the Regulations Governing the Applicability of Investment Tax Credits to Biotech and Pharmaceutical Companies’ Investments in Machinery, Equipment or Systems (hereinafter, the “Equipment Tax Credit Regulations”) respectively via the Jing-Gong-Zi-11104603140 Directive and the Tai-Cai-Shui-Zi-11104646460 Directive and specifically stipulated that the regulations would be implemented from January 1, 2022 to December 31, 2031.
It is also worth noting that, as compared with the pre-announced draft of May 30 of the same year, the Equipment Tax Credit Regulations have the additional legal effect that an application not completed via successful registration and upload during the application period is not accepted. In addition, the Equipment Tax Credit Regulations also specifically provide that after a biotech and pharmaceutical company has completed the relevant application operation in the system, the system will send a notice to the email address designated by the company. After the system notifies the completion of an application, no further application or registration to modify the relevant documents and materials that have been sent is permitted (Article 10, Paragraph 2 of the Equipment Tax Credit Regulations).
For the rest of the highlights, please refer to the Firm’s feature article of July 2022 titled Feature Articles on the Act for the Development of Biotech and Pharmaceutical Industry of Taiwan (III) – The Draft Regulations Governing the Applicability of Investment Tax Credits to Biotech and Pharmaceutical Companies’ Investments in Machinery, Equipment or Systems, Which Is the Sub-law Pre-announced by the MOEA of Taiwan for details.
IV. The Regulations Governing the Applicability of Investment Tax Credits to Profit-seeking Enterprises as Biotech and Pharmaceutical Companies’ Shareholders and the Regulations Governing Individuals’ Tax Deductions for Proceeds From Investments in Biotech and Pharmaceutical Companies
On August 24, 2022, the MOEA and the MOF promulgated the Regulations Governing Individuals’ Tax Deductions for Proceeds From Investments in Biotech and Pharmaceutical Companies (the ” Individuals’ Tax Deductions Regulations” ) respectively via the Jing-Gong-Zi- 11104603140 Directive and the Tai-Cai-Shui-Zi-11104646460 Directive. On the 30th of the same month and year, the MOEA and the MOF followed suit by promulgating the Regulations Governing the Applicability of Investment Tax Credits to Profit-seeking Enterprises as Biotech and Pharmaceutical Companies’ Shareholders (hereinafter, the “Enterprise Tax Credits Regulations”) via the Jing-Gong-Zi-11104603230 Directive and the Tai- Cai-Shui-Zi-11104650980 Directive. It is specifically stipulated that the above two sets of regulations are implemented from January 1, 2022 to December 31, 2031..
For the rest of the highlights of the Individuals’ Tax Deductions Regulations and the Enterprise Tax Credits Regulations, please refer to the Firm’s feature article of July 2022 titled Feature Articles on the Act for the Development of Biotech and Pharmaceutical Industry of Taiwan (Ⅳ) –The MOEA of Taiwan Announced the Regulatory Highlights of the Drafts Concerning the Tax Credits for the Income from Investment in Biological or Pharmaceutical Companies by Profit-seeking Enterprises or Individuals for details.
V. The Regulations Governing the Tax Deferral for a Top Executive or Technology Investor in Biotech and Pharmaceutical Companies, the Regulations Governing Application of Deferred Taxation of Income Tax in Accordance with the Act for the Development of Biotech and Pharmaceutical Industry, and the Regulations Governing Biotech and Pharmaceutical Companies’ Issuance of Stock Options
On August 15, 2022, the MOEA promulgated the Regulations Governing the Tax Deferral for a Top Executive or Technology Investor in Biotech and Pharmaceutical Companies (hereinafter, the “Regulations on Tax-Deferred Stocks”) and the Regulations Governing Biotech and Pharmaceutical Companies’ Issuance of Stock Options via the Jing-Gong-Zi-11104603350 Directive. On the 25th of the same month and year, the MOF followed suit by promulgating the Regulations Governing Application of Deferred Taxation of Income Tax in Accordance with the Act for the Development of Biotech and Pharmaceutical Industry (hereinafter, the “Regulations on Deferral Application”). It is specifically stipulated that the above three sets of regulations are implemented from January 1, 2022 to December 31, 2031.
The following changes are noteworthy when the above three sets of regulations are compared with the pre-announced drafts:
1. It is additionally stipulated that when a biotech company applies to the MOEA for the certification of shares acquired by top executives and technology investors as objects to which the requirements for income tax deferral apply, if the shares are share certificates, a copy of the share certificates shall be attached. In the case of a large number of share certificates, part of the share certificate copies may be substituted by other supporting documents. (Articles 4 and 5 of the Regulations on Tax-Deferred Stocks ).
2. It is additionally stipulated that when a biotech and pharmaceutical company applies to the MOEA for certification, if the technology investor is an individual, documents such as the individual’s academic experience, proof of possessing the technology know-how required by the biotech and pharmaceutical company, and related explanatory materials shall be attached (Article 5, Paragraph 2 of the Regulations on Tax-Deferred Stocks).
3. For stock warrants a biotech and pharmaceutical company is authorized to issue that are in the possession of top executives or technology investors and for the acquisition of shares through subscription, the requirement is amended so that the dates of acquisition of the stock warrants and the dates of exercise shall be from January 1, 2022 to December 31, 2031. (Article 7, Paragraph 1 of the Regulations on Tax-Deferred Stocks).
4. For a stock for which a restricted transfer period is set, the requirement is amended so that the “date of disposal” shall be the timing when the income tax return is filed and the income is calculated by the biotech and pharmaceutical company and its top executives or natural-person technology investors (Articles 2, 3, and 5 of the Regulations on Deferral Application).
For the rest of the highlights of the above three sets of regulations, please refer to the Firm’s feature article of August 2022 titled of Feature Articles on the Act for the Development of Biotech and Pharmaceutical Industry of Taiwan (V) –The Draft Regulations Announced by the MOEA and MOF of Taiwan: Regulations Governing the Tax Deferral for a Top Executive or Technology Investor in Biotech and Pharmaceutical Companies, Regulations Governing Biotech and Pharmaceutical Companies’ Issuance of Stock Options, and Regulations Governing Application of Deferred Taxation of Income Tax in Accordance with the Act for the Development of Biotech and Pharmaceutical Industry for details.
[1] The Biotech and Pharmaceutical Law Team consists of Taiwan-licensed attorneys, including Dr. Chung-Teh Lee, Teresa Huang, Oli Wong, Sally Yang, Hannah Kuo and Tina Lee.