Statute for Industrial Innovation amended to propel business innovation

  • Date: 2017-12-04

I. Background
The Statute for Industrial Innovation was enacted in May 2010, and over the seven years since has produced solid results in terms of promoting Taiwan’s industrial innovation, improving the industrial environment, and sharpening the competitiveness of industries. But with explosive changes taking hold in innovative startup industries worldwide, Taiwan’s government recently overhauled the Statute for Industrial Innovation to align it closer with global industrial trends. The amended statute was approved by the Legislature November 3, 2017.

II. Summary of amendments
The latest set of amendments consists of four components: promoting innovation, strengthening R&D, guiding innovation, and revitalizing the environment. In all, 23 articles were added, deleted or revised with the effect of significantly easing restrictions on innovation and entrepreneurship:

A. More 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.

B. Tax breaks for limited partnership venture capital firms: If a venture capital firm established in accordance with the Limited Partnership Act meets certain requirements, it may be treated as a fiscally transparent entity for tax purposes (that is, the venture capital firm will not be subject to business income tax, but profits distributed to the partner will be taxed as personal income of the partner). If the partner is a domestic profit-seeking enterprise, it will also be exempt from dividend tax and thereby avoid double taxation.

C. 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$100,000) from his or her personal income.

D. Tax deferrals on employee stock awards: The income tax deferral on employee stock awards has been extended from five years to the year in which the shares are actually transferred, whereupon tax will be assessed based on the transfer price.

E. Tax deferrals for inventors on stock payouts from academic research institutions: An inventor (e.g., professor or researcher) receiving a stock payout from an academic research institution may defer income tax payment to the year in which the shares are transferred, whereupon tax will be assessed based on the transfer price.

F. Public procurement of innovation: Multiple government agencies will use an “inter-entity supply contract” for priority procurement of commonly needed software and innovative products and services.

G. Intangible assets valuation mechanism: A database for the valuation of intangible assets will be established and maintained to increase the circulation and use of government R&D results on the market.

H. Compulsory auction of idle land in industrial zones: The government will enforce 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 putting the plots up for auction.

III. Conclusion
The latest round of amendments to the Statute for Industrial Innovation will remove regulatory barriers for innovative startups to create a stronger industrial investment and innovation climate in Taiwan. Aside from helping companies upgrade and transform their businesses in today’s digital economy, the amended statute will open up more opportunities for emerging industries and inject new momentum into Taiwan’s economic growth.