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13.2. Thin-capitalization and other Restrictions to Interest Deduction

Taiwan generally applies a debt to equity ratio rule of 3:1 for established enterprises in the country. Any interest expense on intercompany debt exceeding the 3:1 ratio is not deductible when calculating taxable income of the enterprise. Intercompany debt includes the following:

  • loans provided by related parties
  • loans provided by related parties through third parties
  • loans provided by third parties and guaranteed by related parties
  • any other type of direct or indirect financing provided by related parties.

However, the rule does not apply to enterprises in the financial industry such as banks, insurance companies, securities companies, etc.