The Executive Yuan on Thursday approved draft amendments to the Statute for Industrial Innovation which would provide eligible companies with historically high tax credits against investment in R&D and equipment. The proposed amendments will now be submitted to the Legislative Yuan for deliberation and are hoped to be implemented at the start of 2023.
Premier Su Tseng-chang said the amendments offer new tax benefits to domestic companies that meet specific criteria, including engagement in technical innovation and occupying a vital position in the global supply chain. This will ensure that the next generation of strategically important industries and technologies continue to be developed within Taiwan, consolidating the overall resilience of supply chains for the semiconductor and other industries and solidifying the nation's international competitive advantage. The amendments will bring substantial benefits to the economy and national security.
The premier said Taiwan possesses the world's most comprehensive upstream, midstream and downstream semiconductor industry supply chain, has cultivated its semiconductor industry's talent and investment environment for over 40 years, and is governed by the democratic rule of law, which is highly valued by the international community. These factors combine to make Taiwan a crucial player on today's world stage, as well as an eminently trustworthy international partner.
The Ministry of Economic Affairs stated that, due to the importance of strengthening the autonomy of their key industries, many countries are currently providing enormous subsidies and expanding tax benefits to boost domestic production and attract investment from international firms. This has brought new competition to Taiwan's industries, and the government must therefore introduce additional relevant tax incentives to maintain a hold on existing advantages, further upgrading and consolidating the position of Taiwan's industries in the global supply chain.
Key provisions of the draft amendments:
I. Added provisions regarding tax credits for investments in cutting-edge, innovative R&D and advanced manufacturing process equipment.
(1) Eligibility requirements: During the current year, a company's R&D expenditures and R&D intensity reach a certain scale, and its effective tax rate reaches a certain ratio (12% in 2023, and in principle, 15% beginning in 2024. However, the Executive Yuan may approve the adjustment of the 2024 ratio to 12%, and subsequently to 15% from 2025 to 2029).
(2) Applicable entities: Domestic companies engaged in technological innovation that also play a key role in international supply chains, regardless of industry type or category.
(3) Incentives: Tax credits for investments in cutting-edge, innovative R&D (with a tax credit rate of 25% of investment costs, applicable in the current year); investment tax credits for equipment purchased for use in advanced manufacturing processes (the investment amount must reach a specified level, and the tax credit rate is 5% of the purchase cost, applicable in the current year).
II. Implementation period: January 1, 2023 to December 31, 2029.