Tax incentives to be granted under Statute for Industrial Innovation

Transcription

1 Taiwan Tax Update March 2018 Tax incentives to be granted under Statute for Industrial Innovation In response to the amended Statute for Industrial Innovation ( SII ) promulgated by the President on November 22, 2017, the Ministry of Economic Affairs ( MOEA ) and Ministry of Finance ( MOF ) have released more than 10 draft subregulations to seek for public comments from the beginning of this year, including Regulations Governing Tax Incentives Granted to Venture Capital Limited Partnerships and Regulations Governing Investment Tax Credit Provided to Individuals Investing in High-risk Innovative Startups. Proposed amendments are summarized below: Proposed tax incentives Pass through taxation on venture capital limited partnerships Current tax treatment Venture capital limited partnership can apply for adoption of pass through taxation, where the limited partnership is not liable to taxes at the partnership level, but partners, both individuals and corporate entities, may be subject to Individual Income Tax ( IIT ) or Corporate Income Tax ( CIT ) respectively based on their share of income. Proposed amendments Investment target should fall into categories which comply with government policy Forbidden categories include: 1. Sale and disposal of real estate 2. Marketable securities transaction industry (violation of Article 9 and 9-1 of Regulations Governing Guidance of Venture Capital Entities) 3. Engaged in regular short-term investments, or investee company does not have substantial operating activities 4. Violation of law as affirmed by the court or the competent authority PwC Taiwan 1

2 Proposed tax incentives Investment tax credit for angel investors Current tax treatment Individuals who invest cash exceeding NTD 1 million in a start-up company established for less than two years, and where the holding period of shares is more than two years, may deduct 50% of the investment amount from IIT payable, capped at NTD 3 million per year, in the current year that the holding period reaches two years. Proposed amendments High-risk innovative startups should fulfill the below criteria 1. The technique owned or business model should be innovative and prospective. 2. The product or service developed or provided can be potentially industrialized or commercialized. 3. The start-up company should fulfill the below criteria: (1) Team should be capable of constant innovation and development. (2) Team should be able to provide new solutions for target market or create new demand. (3) Team should be capable of bringing to market their products and services. PwC Observation As the relevant sub-regulations are not finalized yet, and the proposal for second amendment of the SII is still being reviewed by the Legislative Yuan, companies and individuals should stay up to date on developments of relevant subregulations and impact on tax treatment. Additional disclosure requirement for FY 2017 CIT return 1. Page B6 of CIT return disclosure of information regarding MNC group entities The MOF announced amendment to Regulations Governing Assessment of PwC Taiwan 2

3 Profit-Seeking Enterprise Income Tax on Non-Arm's-Length Transfer Pricing ( TP Assessment Rules ) on November 13, As such, Taiwan should implement the three-tiered transfer pricing documentation requirements from 2017 onwards. Based on Article 21 of the TP Assessment Rules, when filing CIT returns, MNC group entities shall disclose the following information: the domestic entity appointed by the MNC to submit the master file; the Ultimate Parent Entity, the Surrogate Parent Entity, or the domestic entity appointed by the MNC to submit the country-by-country report. Please see the following link for aforementioned additional disclosure requirement as laid out in Page B6 of FY 2017 CIT return ?tagCode= 2. Declaration form for CIT return The Taxpayer Rights Protection Act announced on December 28, 2016 took effect from December 28, Based on Article 7 of the Taxpayer Rights Protection Act, with respect to tax avoidance, the tax authority cannot levy penalties for tax evasion when taxes are assessed based on substance over form principle, except where taxpayers conceal important information or make false or misleading claims. Therefore, the tax office has designed Declaration form for CIT return for profit-seeking enterprises to address material items when filing CIT returns. Please see the following link: PwC Observation The additional disclosure requirements for FY 2017 CIT return require Taiwan profit-seeking enterprises which are affiliates of MNCs to disclose relevant information about Master File and Country-by-Country-Report, including total revenues of consolidated group, threshold and filing requirements of the country where the ultimate parent company or surrogate parent company deliver the Country-by-Country-Report, and the filing status of Master File and Country-by- Country-Report around the world. Companies should collect relevant information PwC Taiwan 3

4 in advance and implement overall strategies for tax governance, as the required information is substantial and involves regulations from various countries. Dividends or earnings received by organizations or institutions shall be included in earnings calculation for primary purpose activities To reflect amendment to Article 42 of the Income Tax Act in early 2018 (abolish regulation governing dividends or earnings received by organizations or institutions which were originally excluded from earnings calculation and thus exempt from taxation), the MOF issued Tax Ruling to replace Point 2 of Tax Ruling Where an educational, cultural, public welfare, or charitable institution or organization receives dividends or earnings, it shall no longer be tax exempt from January 1, 2018, and shall be included in income not derived from sale of goods or services to correctly calculate earnings from primary purpose activities. If income not derived from sale of goods or services is negative, such negative income could be offset against taxable income derived from sale of goods or services. PwC observation The following numerical example explains how to determine if dividends or earnings received by the organization or institution could be tax exempt under the original tax regulation and new tax ruling. Income not derived from sale of goods or services Income derived from sale of goods or services Expense incurred for primary purpose activities 350 Expense incurred for sale of goods or services 300 Dividend income 300 PwC Taiwan 4

5 Original tax regulation New tax ruling Primary purpose Sale of goods or Primary purpose Sale of goods activities services activities or services (dividends 300 (250) included) 350 deduction 50 Taxable income 0 * In line with prerequisite criteria of tax exemption (expense to revenue ratio (650/800) is not lower than current tax exemption threshold of 60%) Based on Article 3 of Standards Governing Application of Income Tax Exemption to Educational, Cultural, Public Welfare, Charitable Organizations or Institutions, if the institution or organization eligible for tax exemption has revenues derived from sale of goods or services, and revenues not derived from sale of goods or services do not cover expense from primary purpose activities, the negative amount shall be deductible from revenues derived from sale of goods or services for income tax assessment purpose. The salient difference between the original tax regulation and new tax ruling is that dividend income is no longer seen as nontaxable income, which will reduce the negative amount from primary purpose activities (e.g. the amount in aforementioned example decreased from -250 to 50), and further reduces the amount deductible from revenues derived from sale of goods or services; therefore, taxable income may increase (e.g. the amount in aforementioned example increased from 0 to ). PwC Taiwan 5

6 PwC Contacts: Corporate Income Tax and Indirect Tax Services Jason Hsu (Leader) Howard Kuo Pei-Hsuan Lee Ying-Hsun Liu International Tax Services Elaine Hsieh Paulson Tseng (EU Tax) Transfer Pricing & BEPS Services Lily Hsu Financial Services Tax Richard Watanabe Mergers & Acquisitions Tax Elaine Hsieh International Assignment Services Li-Li Chou Corporate Secretarial Services Jack Hwang Outsourcing and Accounting Services Rosamund Fan Li-Li Chou Sam Hung Alvis Lin Wilson Wang ext Wendy Chiu (US Tax) Patrick Tuan (China Tax) Elliot Liao Jessie Chen Alvis Lin Tony Lin Sam Hung Rosamund Fan Jack Hwang Tony Lin Peter Su (ASEAN Tax) The information contained in this publication is of a general nature only. It is not meant to be comprehensive and does not constitute legal or tax advice. PricewaterhouseCoopers ( PwC ) has no obligation to update the information as law and practice change. The application and impact of laws can vary widely based on the specific facts involved. Before taking any action, please ensure that you obtain advice specific to your circumstances from your usual PwC client service team or your other tax advisers. The materials contained in this publication were assembled in March 2018 based on the law enforceable and information available as of March 16, In the event of any discrepancy between the English information contained in this newsletter and the original Chinese version of the laws or rulings announced by the government, or any difference in the interpretation of the two versions, the Chinese version announced by the government shall prevail PricewaterhouseCoopers Taiwan. All rights reserved. PwC refers to the Taiwan member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. PwC Taiwan 6