Teresa Huang and Oli Wong
Article 6 of the Act for the Development of Biotech and Pharmaceutical Industry (hereinafter, the “Biotech Act”) contains an additional provision concerning the investment tax credits for investment in production and manufacturing machinery and equipment by biotech and pharmaceutical companies (hereinafter, the “Biotech Companies”) and expanding the scope of applicable tax incentives. Therefore, the Ministry of Economic Affairs (hereinafter, the “MOEA”) pre-announced on May 30, 2022 the draft 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”), a sub-law of the Biotech Act, with a 30-day pre-announcement period (until June 29, 2022). The draft Equipment Tax Credit Regulations are highlighted below:
I. Eligibility requirements and manners of investment:
Biotech Companies that have been approved by the MOEA and have invested NT$10 million to NT$1 billion in brand new machinery, equipment, or systems exclusively for production and manufacturing within the same tax year, and have not materially violated any environmental protection, labor or food safety, and health regulations in the past three years are all eligible for the tax credits. (Articles 2 and 5 of the Equipment Tax Credit Regulations)
As for the manners of investment, pursuant to the Equipment Tax Credit Regulations, the Biotech Companies that purchase, obtain through finance lease, manufacture by themselves, or commission the manufacture of new machinery, equipment or systems, which are only used by the Biotech Companies, from January 1, 2022 to December 31, 2031, all satisfy this requirement. (Articles 3 and 4 of the Equipment Tax Credit Regulations)
It is worth noting that the above-mentioned purchase of machinery, equipment, or systems must be actually paid for within the prescribed period and the relevant certificates must be obtained, and if merely a purchase and sale contract is signed, the investment tax credit cannot be applied.
II. Investment tax credit requirements:
The year of investment is determined by the year of delivery. The Biotech Companies may choose one of the two applicable tax credit rates: the first is to deduct up to 5% of the amount expended from the payable profit-seeking tax amount for the current year, while the second is to deduct up to 3% of the amount expended from the payable profit-seeking enterprise income tax for each year within three years. Please note that the aforementioned years begin from the year for which the profit-seeking enterprise income tax is payable.
As for the tax credit limit, under the single credit incentive, a maximum of 30% of profit-seeking enterprise income tax in the current year can be deducted. If other investment tax credits are combined in the current year, the total combined tax credit amount cannot exceed 50% of the profit-seeking enterprise income tax for the current year. Therefore, the Biotech Companies should pay attention to the tax credit limit. (Articles 5 to 7 of the Equipment Tax Credit Regulations)
III. Requirements for investment tax credit application and investment expenditures:
The eligible Biotech Companies may log in to the MOEA’s application system to fill in the required information four months prior to the beginning of the filing of the profit-seeking enterprise income tax returns for the year of investment until the end of the tax filing period. There is a limit of one application for the same tax year. The Biotech Companies must submit relevant documents for filing, such as the approval letter, investment plan, government unified invoices, payment receipts, proof of delivery/importation, etc. The MOEA will complete the assessment within seven months after the deadline for filing the profit-seeking enterprise income tax returns for the year of investment. (Articles 8 to 11 of the Equipment Tax Credit Regulations)
It is worth noting that for the application of investment tax credits to investment expenditures, the Biotech Companies are required to provide the information according to the prescribed format and attach relevant documents when filing the profit-seeking enterprise income tax for various years from the year of investment to the years in which the tax credits apply. For failure to file the required tax returns, investment tax credits and incentives may become inapplicable. (Article 12 of the Equipment Tax Credit Regulations)
IV. Penalties for false investment tax credits:
The Equipment Tax Credit Regulations specifically stipulate that any person who falsely reports investment expenditures will be punished for tax evasion in accordance with the Income Tax Act, and the Biotech Companies will be disqualified for the tax incentives pursuant to the relevant provisions of the Tax Collection Act. (Article 14 of the Equipment Tax Credit Regulations)
V. Exclusion provision:
If the tax incentives under other laws have been applied to the machinery, equipment, or systems purchased by the Biotech Companies, the Equipment Tax Credit Regulations shall no longer apply (Article 15 of the Equipment Tax Credit. Regulations)
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