Taiwan Legislature adopts amendment to Statute for Industrial Innovation by three readings

　The amendment to Article 10-2 and Article 72 of the Statute for Industrial Innovation passed its third reading by the Legislative Yuan of Taiwan on January 7, 2023.  According to the Ministry of Economic Affairs, Taiwan is a crucial player in the global supply chain and a trustworthy partner to international leading suppliers, and hence, possesses its uniqueness and irreplaceability.  Confronting the enormous incentives and tax benefits provided in the U.S., Japan, South Korea, and the EU with an aim to boost the autonomy of their key industries, Taiwan should also keep pace and solidify the international competitiveness of its key industries, for which the Ministry of Economic Affairs proposed the draft amendment to Article 10-2 and Article 72 of the Statute for Industrial Innovation.  This amendment offers upgraded tax benefits to the R&D and equipment investment expenditures of the key industries that attain specific criteria.  With the passage of this amendment, companies of Taiwan will be encouraged to keep core technologies in Taiwan, and the global minimum corporate tax rate will be introduced into Taiwan, and the industrial development and reasonable taxation will be both taken care of at the same time.  

The key points of this amendment are summarized as follows.  

1.  Eligible entities are the domestic companies that are engaged in technological innovation and take a key position in the international supply chains and meet all other requirements, regardless of the type or category of industries. 

2.  The eligibility requirements are that a company’s R&D expenditure and R&D intensity (the ratio of a companies’ R&D investment to its net sales.) reach a certain scale and its effective tax rate attains a certain ratio.  The amendment sets the effective tax rate threshold at 12% for 2023 and tentatively at 15% for 2024 onwards, except that the Ministry of Economic Affairs may, jointly with the Ministry of Finance, request for the Executive Yuan’s approval and adjustment of the threshold at 12% for 2024 after observing the status of the international implementation of the global minimum corporate tax rate introduced by the OECD, so as to provide a transitional period for the domestic entities.  

3.  The eligible entities will be granted the tax deductions of their income tax payable in the current year in the amounts equivalent to 25% of their expenditure on investment in cutting-edge and innovative R&D and 5% of their expenditure on purchase of new equipment for use in advanced manufacturing processes, provided that the purchase cost must reach a specified level.  The two deductions each shall not exceed 30% of the payable income tax for the current year and the two deductions in total shall be capped in an amount equivalent to 50% of the income tax payable in the current year.  

4.  The implementation period of the draft amendment begins from January 1, 2023 through December 31, 2029 upon approval.  

　The Ministry of Economic Affairs in conjunction with the Ministry of Finance will within six months complete the subordinate legislation and sub-rules supplementation for establishing the scope of application, eligibility requirements, and definitions, and application procedures, application deadlines, examination mechanism, and required documents, etc. after considering the status of domestic and foreign industries’ development, the R&D expenditure and R&D intensity of listed and over-the-counter companies and after consulting with experts from the industry, the public, private and academic sectors, with the sub-rules to be adjusted in line with the tendency of industrial development when necessary.  In addition, the applications for tax cuts will be examined jointly by relevant authorities and outside experts.  Besides, for the issues of concern about the small and medium-sized enterprises and innovative development, the Ministry of Economic Affairs will sustain relevant measures of product development, digital transformation, and funding assistance to facilitate their development through multiple policies.  (Released 2023.01.07)  
/CCS