The Statute for Industrial Innovation, first enacted in May 2010, underwent an extensive revision in November 2017 to significantly ease restrictions on innovation, energize the domestic funding environment for startups, and attract overseas capital for Taiwan's innovative technologies. With the statute's tax incentives scheduled to expire at the end of 2019, however, the Executive Yuan proposed another round of revisions in March 2019 to extend those incentives through the end of 2029, and at the same time allow companies to take tax deductions for undistributed surplus earnings invested in tangible assets. All of these amendments are intended to provide a steady and constant business and investment environment where businesses can invest and create jobs with greater confidence. (Note: The amendments to the Statute for Industrial Innovation were approved by the Legislative Yuan on June 21, 2019.)
Summary of amendments
■ Increase R&D investments by state-owned enterprises: A provision has been added to require state-owned enterprises to devote a specific percentage of their expense budgets to R&D work to encourage innovation in downstream industries.
■ Allow tax breaks for limited partnership venture capital firms: A qualified venture capital firm may be treated as a pass-through entity for tax purposes (that is, the venture capital firm will not be subject to business income tax, but profits distributed to the partners will be taxed as personal income of the partners). If a partner is a domestic profit-seeking enterprise, it will also be exempt from dividend tax and thereby avoid double taxation.
■ Provide tax breaks for angel investors: An individual investing cash in a startup company less than two years old may claim an annual exemption of up to NT$3 million (US$97,251) from his or her personal income.
■ Allow tax deferrals on stock-based employee compensation, with tax assessed at the lower of two values: An employee acquiring stock-based compensation not exceeding NT$5 million (US$162,085) in a year may defer taxation on the shares, provided the employee holds the shares and remains with the company for at least two years. Upon transfer of the shares, income tax levied may be based on the share value at acquisition or transfer, whichever is lower. This provision is applicable to shares of a parent or subsidiary company, issued to employees of either entity.
■ For stock received by individuals in exchange for intellectual property, or stock distributed to creators of technology, allow tax assessment at the lower of two values: Where the individual or creator has held the shares for two years and met certain employment requirements in Taiwan, the income tax levied upon the transfer of the shares may be based on the share value at acquisition or transfer, whichever is lower. This provision will help commercialize R&D results with greater speed.
■ Promote public procurement of innovation: Government agencies should preferentially procure software, innovative products and services to expand market opportunities for innovative products.
■ Create intangible assets valuation mechanism: A database for the valuation of intangible assets has been established and maintained to increase the circulation and use of government-developed technology on the market.
■ Enforce compulsory auction of idle land in industrial zones: The government is enforcing a range of measures to ensure idle land plots in industrial zones are fully utilized, including giving the plot owners a grace period to properly use the land, imposing fines, negotiating with the owners, and forcing the auction of idle plots.
■ Allow tax deductions for undistributed surplus earnings invested in tangible assets: A new provision has been added to allow undistributed surplus earnings that have been invested in tangible assets to be exempt from an additional 5 percent retained earnings tax.