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10.4. Specific Incentives

Taiwan provides for a number of incentives related to research & development, mergers & acquisitions, and investment into Taiwan infrastructure projects.

Research & Development

R&D incentives are provided for under Taiwan's Statute for Industrial Innovation, which replaced the Statute of Industrial Upgrading. Under the new statute an investment tax credit for qualifying R&D expenses is made available. The credit can be up to 15% of R&D expenses in the year they were incurred, with a maximum cap of 30% of tax payable of that year. For 2016, qualifying taxpayers may opt for a tax credit equal to 15% of qualified R&D expense with a credit cap equal to 30% of tax payable for the year, or instead opt for a 10% credit for three years, subject to the same 30% cap. The deadline for filing applications in order to apply the credit for 2016 was 1 June 2017.

The amendment to the Statute of Industrial Innovation allows taxpayers that derive income from the transfer or licensing of IP rights developed through their own R&D to opt for a tax credit up to 200% of current year R&D expenditure from taxable income, limited to the total amount derived from the IP rights for the year. Alternatively, taxpayers may instead opt for the existing R&D incentive, namely, a tax credit equal to 15% of R&D expenditure for the year, limited to 30% of tax payable for the year. Taxpayers are also allowed a tax deferral when IP rights are transferred in exchange for shares in a company until the shares are subsequently transferred by the taxpayer. Further, the amendment also allows limited partnerships to benefit from the incentives.

The statute applies to resident enterprises, including subsidiaries of foreign companies, but not branches of foreign companies.

The expense types which qualify for the tax credit include the following:

  • Salaries for R&D employees
  • Machinery, material, and samples consumption
  • Payments for acquiring patents and know-how
  • Payments for special database and software programs
  • Payments for outsourced research personnel
  • Payments made by domestic and foreign joint R&D projects

Any unused credits cannot be carried forward or back.

In addition to the R&D incentives provided under the Statute for Industrial Innovation, expanded incentives are provided under Taiwan's Statute for the Development of Biotech and New Drug Industries.

The expanded incentives include:

  • Tax credits for R&D and HR training expenses up to 35% of the expense incurred
  • Taxation of income from the exchange of shares for technology contributed in kind is deferred until the shares are further transferred
  • Tax credit on the purchase of shares of Taiwan resident biotech and new drug companies generally for up to 20% of the cost of the shares.

Unlike the tax credits under the Statute for Industrial Innovation, tax credits under the Statute for the Development of Biotech and New Drug Industries can be carried forward for up to 5 years, they cannot be carried back.

Mergers & Acquisitions

Taiwan provides for a number of incentives in regard to mergers and acquisitions in Taiwan to promote reorganization and ultimately operational efficiency.

When using shares with voting rights to acquire the shares or assets of target enterprise, if the value of the shares is at least 65% of the total consideration, the following incentives may be available:

  • Exemption from stamp tax on deeds and certificates, and deed tax on the transfer of immovable property
  • Exemption from securities transaction tax on the transfer of marketable securities
  • VAT exemption on any commodities or labor services transferred
  • Deferment of land value increment tax until the land is further transferred
  • 15-year amortization period for goodwill derived from merger/consolidation or acquisition
  • Expenses incurred from merger/consolidation or acquisition can be amortized over 10 years on a straight-line basis
  • Carry-over of tax incentives provided that the surviving/new company continues to produce the same product or services and the same incentive conditions are met
  • Exemption from corporate income tax normally applicable to capital gains realized from the disposal of main business or assets, other than land and marketable securities
  • Carry-forward of net losses of the dissolved company to the surviving/new company
  • 15-year amortization period for any exchange losses from the use of a company's business or assets to exchange for the shares of another company
  • Ability to file consolidated tax returns for a group
  • 5-year tax holiday on income derived from the assets or business acquired
  • Tax deferral on transfer of IP rights in exchange for shares in a company until the shares are subsequently transferred by the taxpayer

Private Participation in Infrastructure

Taiwan provides incentives for private company investment in government approved infrastructure projects under the Statute for Private Participation in Infrastructure Projects, including:

  • A 5 year tax exemption on business profits derived from qualifying infrastructure projects (the beneficiary may opt to defer the beginning of the tax holiday under certain conditions)
  • Exemption on import of machinery, equipment, vehicles, etc. needed for the infrastructure project
  • 5% to 20% of qualifying expenditures can be used to offset corporate income tax liability in the year the expenditures are made. Qualifying expenditures include:
    • Capital expenditure on buildings, operating equipment, or technology
    • Capital expenditures on pollution control equipment or technology
    • Expenditure on R&D or personnel training
  • Reduction in land value and deed tax for property used directly in connection with the infrastructure project
  • Investment tax credit against corporate income tax liability of corporate holders of the shares of private company in a qualifying infrastructure project. The credit is up to 20% of the cost of the shares, and the shares must have been held for at least 4 years

The types of applicable infrastructure projects include facilities for transportation, sewage treatment, flood control, water supply, etc.

Free Trade Zones

Taiwan provides for corporate income tax exemption on income from the sale of goods within or outside Taiwan when a foreign company establishes a branch or subsidiary in Taiwan free trade zones (FTZs), or contracts an enterprise in a free trade zone to store or perform simple processing of goods. However, if annual domestic Taiwan sales exceed 10% of the company’s worldwide sales, any portion over 10% will not be exempt.

Indirect tax incentives are also provided in Taiwan free trade zones, including exemption from customs duty, commodity tax, and value-added tax.

FTZ Contribution Rate

A standard 12% contribution rate for non-residents performing business activities in Taiwan FTZs, including a simplified method for calculating the contribution rate when there are onshore and offshore costs. The rate and calculation applies for non-residents that are resident in countries that have not entered into a tax treaty with Taiwan. For tax treaty countries, the provisions of the treaty regarding permanent establishment apply.

The 12% rate applies for non-residents engaged in the import, storage and sale of products in an FTZ. If also engaged in manufacturing/processing of goods, the rate is increased by the percentage of local costs attributed to the activity to the total cost. For example, if the non-resident incurred costs of TWD 20 domestically and TWD 80 abroad, the contribution rate would be 32% = 12% + 20% (20/100). The contribution rate for activities involving manufacturing/processing cannot exceed 100%.

In determining the amount of taxable income from FTZ activities, the total revenue from the goods is multiplied by the contribution rate and the deemed profit rate. For example, using the above determined contribution rate and a deemed profit rate of 10%, total revenue 200 x 32% x 10% = taxable income of TWD 6.4.

Water & Air Pollution Prevention

Taiwan allows for accelerated depreciation on equipment used to prevent water or air pollution. For such equipment, the service life can be reduced to 2 years.