To encourage investment by companies into its business operation, the Ministry of Finance (MOF), has introduced special tax incentive for surtax calculation under SII where the qualified actual investment made by companies can become one of the deduction items for surtax calculation.
Under Taiwan Income Tax Law, companies are subject to 5% surtax on undistributed earnings which is calculated based on the current year’s accounting earnings after deducting specific items allowed under the income tax laws such as dividend distributed and legal reserves. Companies are required to file their prior year surtax return together with their current year CIT(Corporate Income Tax) return. Prior to the introduction on tax incentive provided for surtax calculation under Article 23-3 of the SII (Statute for Industrial Innovation), the earnings used by companies for investment as opposed to declaring as dividend would be subject to surtax. To encourage investment by companies into its business operation, the Ministry of Finance (MOF), has introduced special tax incentive for surtax calculation under SII where the qualified actual investment made by companies can become one of the deduction items for surtax calculation.
For professional leasing companies which engage in providing operating leases and derive leasing income, the assets they purchased for such leasing purpose could be regarded as being used for their business operation or ancillary business. However, if the assets purchased are leased by the company to its customers under capital lease, as such lease is deemed as sale of assets in substance, the purchase of relevant assets by the leasing company would not be eligible as investment for the surtax incentive.
Recognition of the Investment Date
Required Supporting Documents
To utilize the aforementioned surtax incentive, companies only need to submit the application form, along with supporting documents, when filing or amending their surtax returns on undistributed earnings. Approvals from the competent authorities on the relevant investment plans are not required.
Further, as the earning used to make the investments has already been subject to corporate income tax, the surtax incentive will not give rise to “double dipping” of tax benefits. Where possible, companies should utilize this incentive offered under SII to achieve optimal tax efficiency.
Lynn Chen, Partner
Larry Wu, Manager
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