February 2023
Pei-Ching Ji and Sean Tang
The Legislative Yuan adopted the Amendments to Article 10-2 and Article 72 of the Statute for Industrial Innovation (the “Statute”) by three readings on January 7, 2023 to add upgraded tax incentives for key industries that allows the offsetting of the profit-seeking enterprise income tax payable for the current year based on research, development, and equipment investment expenditures to further secure the key position occupied by Taiwan industries in the global supply chain and to provide an important strategic arrangement for the future development of the semiconductor industry in Taiwan, to the extent that the Amendments can be referred to as the Taiwan version of the CHIPS and Science Act. The Amendments are as follows:
I、Article 10-2 of the Statute for Industrial Innovation
1. Eligibility requirements:
- A company engaging in innovative technologies in Taiwan and occupying a key position in the global supply chain.
- The company attaining a certain threshold of research and development expenses and intensity in a single tax year.
- The effective tax rate for the current year is not less than a certain rate, which is 12% for 2023 and 15% for 2024 onwards, but the competent authority may request, and implement upon approval by the Executive Yuan, an adjustment of the2024 rate to 12% to provide a buffer period for industries after the international implementation of the OECD global minimum effective corporate tax rate.
- There have been no material violations of environmental protection, labor or food safety regulations in the last 3 years.
2. Tax offsets from investment:
- Tax offsets for forward-looking innovative research and development expenditures: The deduction rate for the year is 25%, which may be used to offset up to 30% of the profit-seeking enterprise income tax payable for the current year.
- Expenditure offsets for purchases of brand new machinery or equipment used for one’s own advanced processes(the expenditure amount must reach a certain scale but is not capped): The annual deduction rate is 5%, which may be used to offset up to 30% of the profit-seeking enterprise income tax payable for the current year.
- The aggregate of the above two offsets, and all the other (applicable) tax offsets in the Statute and other laws shall not exceed 50% of the profit-seeking enterprise tax amount payable for the current year.
3. It should also be noted that for companies who are approved as eligible to apply the aforementioned investment offsets, their “entire research and development expenditure” in the current year shall not be eligible for the income tax incentives stipulated under Article 10 and Article 12-1, Paragraph 1 of this Statute as well as tax incentives for encouraging research and development found in other laws (e.g., Article 5 of the Act for the Development of Biotech and Pharmaceutical Industry); in addition, their “entire” expenditure on the purchase of machinery and equipment in the same year is also ineligible for the income tax incentives for investment in machinery or equipment under Article 10-1 of this Statute and other laws. In other words, machinery and equipment that are not used for “advanced manufacturing processes” by a company are not eligible for the tax incentives under Article 10-1 of the Statute or other laws (such as Article 6 of the Act for the Development of Biotech and Pharmaceutical Industry, Article 37 of the Act on Promotion of Public Participation in Infrastructure Projects, etc.) even if they would be otherwise be eligible under those provisions.
II. Article 72 of the Statute
It is specifically stipulated that the term of implementation of Article 10-2 of the Statute shall be from January 1, 2023 to December 31, 2029.
III. The scope of application, eligibility requirements, relevant thresholds, application period, application procedures, calculation of the total offset amount for the year, examination mechanism and relevant tables and written documents for the aforementioned profit-seeking enterprise income tax offset will be established by the Ministry of Economic Affairs in conjunction with the Ministry of Finance as sub-rules within six months. The standards of the aforementioned “A company engaging in innovative technologies in Taiwan and occupying a key position in the global supply chain” and “the company attaining a certain threshold of research and development expenses and intensity in a single tax year” eligibility requirements will still require further supplementation in the sub-rules.
The contents of all materials (Content) available on the website belong to and remain with Lee, Tsai & Partners. All rights are reserved by Lee, Tsai & Partners, and the Content may not be reproduced, downloaded, disseminated, published, or transferred in any form or by any means, except with the prior permission of Lee, Tsai & Partners.
The Content is for informational purposes only and is not offered as legal or professional advice on any particular issue or case. The Content may not reflect the most current legal and regulatory developments. Lee, Tsai & Partners and the editors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The contributing authors’ opinions do not represent the position of Lee, Tsai & Partners. If the reader has any suggestions or questions, please do not hesitate to contact Lee, Tsai & Partners.