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7. LOSSES

Under Taiwan tax law, losses are not allowed to be carried forward unless an enterprise (including branches) maintains a complete set of accounting books and records and uses either:

  • An ordinary return that has been examined and certified by a Taiwan certified public accountant; or
  • A Blue return - a special income tax return type, which enterprise can use if approved by the Taiwan tax authorities regarding the enterprises system of internal control

If either of those conditions is met and annual returns are filed within the statutory time limit, losses can be carried forward for up to 10 years. Losses cannot be carried back.

Losses incurred in regard to tax exempt items are not allowed to be used or carried forward.

In the case of a group of companies that are qualified to file consolidated tax returns, losses carried forward are based on a separate entity principle. For example, if an individual enterprise in a group of companies does not meet the requirements to carry forward losses in a current year, it will impact the amount of loss for the year that can be carried forward, or the amount of income for the year that can be offset by past losses.

The following examples illustrate the impact.

Impact on carry forward of current losses:

Companies B and D have losses, but company D does not meet requirements.

A. Co. B. Co. C. Co. D. Co.Consolidated income
100 (150) 100 (250)     (200)

Losses that can be carried forward = Consolidated Loss 200 - [Consolidated Loss 200 * (Non-compliant loss 250 / (Total Losses150+250))] = 75

Impact on offsetting income with past losses:

Company B has a loss and company D has positive income, but does not meet requirements.

A. Co. B. Co. C. Co. D. Co. Consolidated income
150 (200) 300 150   400

The amount of income that can be offset with past losses = Consolidated Income 400 - [Consolidated Income 400 * (Non-compliant Income 150 / (Total Income 150+300+150))] = 300