July 2022
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
July 2022
Teresa Huang and Oli Wong
Since Article 5 of the Act for the Development of Biotech and Pharmaceutical Industry takes into account the fact that the training of full-time research and development talents has already been included in the scope of research and development expenditures, the tax credits for the talent training expenditures under the original Act for the Development of the Biotech and New Pharmaceutical Industry are deleted. These amendments will also reduce the tax credit rate for research and development expenditures from 35% to 25%, and the scope of application will be limited to biotech and pharmaceutical companies that engage in research, development, and manufacturing (hereinafter, the "Biotech Companies").
On June 15, 2022, the Ministry of Economic Affairs (hereinafter, the "MOEA") pre-announced for a period of 15 days (until June 30, 2022) the draft Regulations Governing the Applicability of Investment Tax Credits to Biotech and Pharmaceutical Companies' Research and Development Expenditures (hereinafter, the "Regulations"), which is a revision of the provisions of the "Regulations Governing Application of Tax Credits for Research and Development and Personnel Training Expenditures of Biotech and New Pharmaceutical Companies." The Regulations are highlighted below:
I. Eligibility requirements:
The Biotech Companies meet the eligibility requirements under the Regulations if they are approved by the MOEA for their engagement in the research, development, and manufacturing business, have not been revoked or cancelled during the term of the approval letter, and have not materially violated laws and regulations related to environmental protection, labor, or food safety and sanitation in the last three years. (Article 2 of the Regulations)
II. Research and development expenditure items:
The education and training costs of full-time research and development talents are specifically included in the scope of research and development expenditures, and the instrument and equipment acquisition costs and the depreciation expenses and rent of buildings dedicated to research and development units are excluded from the research and development expenditure items. (Article 3 of the Regulations)
III. Education and training expenditure for research and development talents:
The scope of the costs of education and training activities is specified, and it is required to assign full-time research and development personnel to participate in the business-related training. (Article 4 of the Regulations)
IV. Application to the MOEA for project recognition and review opinion on research and development expenditures:
The Biotech Companies shall apply to the MOEA for project recognition of expenditures and a review opinion on the research and development expenditures within three months prior to the start of the annual profit-seeking enterprise income tax returns filing period for the year in which the expenditures are incurred until the deadline of the filing period.
The MOEA shall, within seven months after the deadline of the filing of the profit-seeking enterprise income tax returns for the current year, send the results of the project recognition application or review opinion to the tax authority in the place where the company is located to assess the tax credit amount. (Article 5 of the Regulations)
V. The tax credit amount for research and development expenditures:
25% of the research and development expenditures invested by the Biotech Companies may be deducted from the payable profit-seeking enterprise income tax amount for five years by the order of the year in which the expenditures are incurred, to the extent that the deduction shall be capped at 50% of the payable profit-seeking enterprise income tax amount for each year, provided that this restriction does not apply to the deductible amount for the final year. (Article 7 of the Regulations)
VI. Filing of profit-seeking enterprise income tax returns:
When filing the profit-seeking enterprise income tax returns for the year of expenditure, the Biotech Companies shall fill in the expenditure items in accordance with law and attach relevant materials, such as the approval letter of the Biotech Company, the organizational chart of the company, and the list of research and development personnel, and the complete material purchase and receipt records of consumables used by the research and development units, etc., in application for assessment on the tax credit amount by the tax authority.
If the Biotech Companies fail to provide such information as required when filing the profit-seeking enterprise income tax returns for the year, the tax credit shall not apply to the amount of research and development expenditure for that year. For those who have applied to the tax authority for tax credit assessment but failed to provide such information when filing the profit-seeking enterprise income tax returns for various years, the tax credits shall not apply to such years. (Article 9 of the Regulations)
VII. Handling of falsehood:
If the approval letters of the Biotech Companies are revoked or canceled, the tax credit amounts previously applied pursuant to applicable requirements shall be recovered by the tax authority along with interest accrued on a daily basis by the one-year postal fixed deposit rate quoted on January 1 of each year. (Article 11 of the Regulations)
Related Articles
Teresa Huang and Oli Wong
Since Article 5 of the Act for the Development of Biotech and Pharmaceutical Industry takes into account the fact that the training of full-time research and development talents has already been included in the scope of research and development expenditures, the tax credits for the talent training expenditures under the original Act for the Development of the Biotech and New Pharmaceutical Industry are deleted. These amendments will also reduce the tax credit rate for research and development expenditures from 35% to 25%, and the scope of application will be limited to biotech and pharmaceutical companies that engage in research, development, and manufacturing (hereinafter, the "Biotech Companies").
On June 15, 2022, the Ministry of Economic Affairs (hereinafter, the "MOEA") pre-announced for a period of 15 days (until June 30, 2022) the draft Regulations Governing the Applicability of Investment Tax Credits to Biotech and Pharmaceutical Companies' Research and Development Expenditures (hereinafter, the "Regulations"), which is a revision of the provisions of the "Regulations Governing Application of Tax Credits for Research and Development and Personnel Training Expenditures of Biotech and New Pharmaceutical Companies." The Regulations are highlighted below:
I. Eligibility requirements:
The Biotech Companies meet the eligibility requirements under the Regulations if they are approved by the MOEA for their engagement in the research, development, and manufacturing business, have not been revoked or cancelled during the term of the approval letter, and have not materially violated laws and regulations related to environmental protection, labor, or food safety and sanitation in the last three years. (Article 2 of the Regulations)
II. Research and development expenditure items:
The education and training costs of full-time research and development talents are specifically included in the scope of research and development expenditures, and the instrument and equipment acquisition costs and the depreciation expenses and rent of buildings dedicated to research and development units are excluded from the research and development expenditure items. (Article 3 of the Regulations)
III. Education and training expenditure for research and development talents:
The scope of the costs of education and training activities is specified, and it is required to assign full-time research and development personnel to participate in the business-related training. (Article 4 of the Regulations)
IV. Application to the MOEA for project recognition and review opinion on research and development expenditures:
The Biotech Companies shall apply to the MOEA for project recognition of expenditures and a review opinion on the research and development expenditures within three months prior to the start of the annual profit-seeking enterprise income tax returns filing period for the year in which the expenditures are incurred until the deadline of the filing period.
The MOEA shall, within seven months after the deadline of the filing of the profit-seeking enterprise income tax returns for the current year, send the results of the project recognition application or review opinion to the tax authority in the place where the company is located to assess the tax credit amount. (Article 5 of the Regulations)
V. The tax credit amount for research and development expenditures:
25% of the research and development expenditures invested by the Biotech Companies may be deducted from the payable profit-seeking enterprise income tax amount for five years by the order of the year in which the expenditures are incurred, to the extent that the deduction shall be capped at 50% of the payable profit-seeking enterprise income tax amount for each year, provided that this restriction does not apply to the deductible amount for the final year. (Article 7 of the Regulations)
VI. Filing of profit-seeking enterprise income tax returns:
When filing the profit-seeking enterprise income tax returns for the year of expenditure, the Biotech Companies shall fill in the expenditure items in accordance with law and attach relevant materials, such as the approval letter of the Biotech Company, the organizational chart of the company, and the list of research and development personnel, and the complete material purchase and receipt records of consumables used by the research and development units, etc., in application for assessment on the tax credit amount by the tax authority.
If the Biotech Companies fail to provide such information as required when filing the profit-seeking enterprise income tax returns for the year, the tax credit shall not apply to the amount of research and development expenditure for that year. For those who have applied to the tax authority for tax credit assessment but failed to provide such information when filing the profit-seeking enterprise income tax returns for various years, the tax credits shall not apply to such years. (Article 9 of the Regulations)
VII. Handling of falsehood:
If the approval letters of the Biotech Companies are revoked or canceled, the tax credit amounts previously applied pursuant to applicable requirements shall be recovered by the tax authority along with interest accrued on a daily basis by the one-year postal fixed deposit rate quoted on January 1 of each year. (Article 11 of the Regulations)
Related Articles
- 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
- 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
- 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
- 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
- Feature Articles on the Act for the Development of Biotech and Pharmaceutical Industry of Taiwan (VI) –The MOEA of Taiwan Pre-announced Draft Sub-law: Regulations Governing Management of Research Personnel’s Concurrent Holding of Jobs and Investments by Contribution of Technology to Start-up Biotech and Pharmaceutical Company
