Rules concerning crediting the funds invested in research and development in Taiwan against income tax will be extended for another 10 years.
Taiwan has a dynamic economy that is largely driven by manufacturing, especially the export of petrochemicals and electronics. The Taiwanese government is keen to continue the island's successful growth story by promoting more economic diversification. It is therefore encouraging companies to invest in innovative areas, such as 5G telecommunications and smart machinery, by incentivising research and development (R&D) activity.
A recent study showed that Taiwan lags behind the world's top 1,000 companies in R&D expenditure as global firms put more emphasis on R&D in order to stay competitive and profitable.
In March 2019, the Taiwanese government reacted by announcing that the rules concerning crediting the funds invested in R&D against income tax will be extended for another 10 years. The rules, under the Statute for Industrial Innovation (SII), had initially been due to expire on 31 December 2019, but the Ministry of Economic Affairs has now confirmed that the amendment will allow an extension through to the end of 2029.
The changes explained
In the extended plan, the government has added an incentive related to further investment from unappropriated earnings.
As per the Income Tax Act Article 66-9, unappropriated earnings are subject to an additional profit-seeking income tax of 5%. When unappropriated earnings are used for further investment, the amount used for this further investment can now be exempt from that 5% profit-seeking income tax. Qualified expenses include compensation packages for R&D-focused personnel, as well as equipment, materials, samples, patent, intellectual property (IP), databases, and software for R&D purposes.
So, a company or limited partnership may now elect either 15% of qualified R&D expenses for the current year, with credits limited to the same year, or 10% of qualified R&D expenses for the current year, which can be carried forward for two ensuing years to calculate R&D credits - with the maximum amount of tax credits capped at 30% of the tax payable for the year in which the relevant expenses were incurred.
In a further boost for innovative technologies, it's worth noting that the Statute for Industrial Innovation (SII) also allows an R.O.C. individual, company or limited partnership to either deduct qualifying R&D expenses of up to 200% (capped at corresponding income received) within the current year, or claim R&D tax credits against income tax payable on income related to the transfer or license of their IP (this only applies to companies or limited partnerships, with individuals unable to use it as tax credit for personal income tax).
The regulation that governs the R&D Investment Tax Credit (ITC) states that a company should make a single annual application for R&D ITC with the central authorities within four months prior to the CIT return filing due date. A full breakdown of details relating to R&D ITC should be provided along with the CIT return.
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Dealing with local rules and regulations often isn't as simple as it may seem. TMF Taiwan provides you with a single point of contact to support your business expansion in the territory.
We can work closely with you to help you realise the benefits of the R&D incentives whilst remaining fully compliant with the latest regulatory developments impacting the accounting and tax landscape in Taiwan.
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