Taiwan offers a huge tax benefit to boost semiconductor
and other high-tech investments

Last Thursday, the TW government approved a draft bill to institute a new Article 10-2 of the Statute for Industrial Innovation. Being analogous to the US CHIPS and Science Act, this new law aims to create tax incentives for high-tech companies investing in Taiwan. High-tech companies making R&D contributions to the semiconductor industry will enjoy a 25% credit against corporate income tax for their investments. It is hoped that, should parliament pass the law in the next month, it will come into effect on 1 January 2023 at the earliest.

More precisely, to reinforce international competitiveness in the area of scientific technology, for companies engaging in technical innovation and “situated in a key position in the international supply chain”, 25% of their annual expenditure for advanced R&D activities can be credited against the corporate income tax for the same year if (1) they are in compliance with the environmental and labor laws, (2) their investments meet a certain threshold, (3) the ratio of R&D expense to income (R&D density) reaches a certain scale, and (4) the applicable effective tax rate is not lower than 15%. However, the credits shall be capped at 30% of the payable corporate income tax for the year.

In addition to R&D activities, 5% of the total investments that reach a certain amount for the procurement of brand-new devices and equipment for operating advanced processes can also be credited against the corporate income tax for the same year. This credit shall also be capped at 30% of the payable corporate income tax for the year.

The total combined tax credits from the above-mentioned R&D investments and equipment procurements shall be further capped at a ceiling of 50% of the payable corporate income tax for the year.

The new tax clause is not permanent. It will be effective from 1 January 2023 at the earliest to 31 December 2029.

The specific definitions of some of the terminologies as well as the conditional requirements for the above new tax clause—such as the threshold of R&D expenses—are subject to the government's further interpretations and new auxiliary regulations.

The new tax clause is not limited to domestic firms. Foreign companies established in Taiwan with an R&D hub or subsidiary entity meeting the above-mentioned requirements are also eligible for the new tax benefit.

Other than the semiconductor industry, enterprises whose business involves, for example, electric vehicles, 5G communication or low-orbit satellites may all enjoy this tax benefit should they meet the same requirements.