Taiwan tax developments include new incentive legislation

Taiwan's Legislative Yuan on 16 April 2010 passed the Statute for Industry Innovation (SII), which succeeds the Statute for Upgrading Industries (SUI) that had expired on 31 December 2009. The SII allows the government to offer tax breaks, subsidies and other incentives to encourage business innovation and hiring.

The main purpose of the SII is to fill the legal void left by the expiration of the SUI. Unlike the SUI and the earlier draft SII proposals, the final SII removes tax incentives for personnel training, operational headquarters, and international logistics and distribution centers. The research and development (R&D) incentive is the only incentive retained by the SII, which also offers non-tax subsidies for hiring by small and medium-size enterprises. Although the SII offers fewer incentives than the SUI, passage of the SII allows the government to drive industrial innovation and transformation and enhance Taiwanese companies' competitiveness.

Under the SII, enterprises are allowed to take a 15 percent credit on their R&D expenditures, up to a maximum of 30 percent of total tax liability for the year. The expired SUI, on the other hand, allowed enterprises to credit 35 percent of their R&D and personnel training expenditures for the year up to a maximum of 50 percent of total tax liability. The SUI also allowed excess R&D credit to be carried over for a period of four years, while the SII eliminates excess R&D credit carry-overs. The new incentive will be effective for 10 years beginning 1 January 2010 through 31 December 2019. Ernst & Young LLP, Greater China Tax Desk – Sandy Chu (New York) / Ernst & Young LLP, Asia Pacific Business Group – Jeff Hongo and Kaz Parsch (New York) / Ernst & Young – Albert Chou, Sophie Chou, Jennifer Williams and Anna Tsai (Taiwan)