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Taiwan: Funds for certain investments not subject to surtax imposed on undistributed earnings

Taiwan: Funds for certain investments, surtax

The Ministry of Finance has introduced special investment incentive measures regarding the calculation of the surtax that is imposed on undistributed corporate earnings. Under this investment incentive regime, the amount of the qualified investments made by a company can now be one of the items that can be deducted in calculating the amount of the surtax liability.


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Under Taiwan’s income tax law, companies are subject to a 5% surtax on their undistributed earnings. The tax base for the surtax reflects the current year’s earnings (as determined for accounting purposes) after certain specific items allowed under the income tax law (such as dividends distributed and legal reserves) are deducted. Companies must determine the amount of surtax and then report this on the surtax return for the prior year (that is filed together with the current year’s corporate income tax return).

Prior to the introduction of the investment incentive measures, the amount of earnings used by companies for investment purposes (as opposed to amounts declared as dividends) would be subject to the surtax. However, the new incentive measures provided by the Ministry of Finance are intended to encourage investments by companies in their business operations. The investment incentive, thus, allows the amount of qualified investments actually made by companies to be one of the items that can be “deducted” in arriving at the amount of the surtax liability. Under these incentive measures, there are various requirements or factors that must be satisfied for eligible investments. For example, to be eligible for the investment incentive measures, the investments must be completed within three years after the year in which the earnings were generated.

KPMG observation

To claim use of the investment incentive, companies only need to submit an application form, along with supporting documents, when filing or amending their surtax returns on undistributed earnings. Approval from the competent authorities on relevant investment plans is not required. Further, as the earnings used to make the investments have already been subject to corporate income tax, the surtax investment incentive is not expected to give rise to a “double dipping” of tax benefits.

Read a January 2020 report [PDF 212 KB] prepared by the KPMG member firm in Taiwan

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