Proposed Changes Affecting Employee Taxation in Hi-tech Industries

Changes have been proposed to amend the Statute of Upgrading Industries (the "Statute"), which if passed into law will affect many employees working in the hi-tech companies in Taiwan. Under current Taiwan law, it is permissible for an employee of a company to share in the profit of his company, and under the Statute, if the profit is distributed to the employee in the form of newly issued shares instead of cash payments, the income will be valued according to the par value of the shares rather than their market value (which can be many multiples of the par value), resulting in significant tax savings to the employee. Given the level of salary of employees in Taiwan, this has been a very popular practice with hi-tech companies to attract talented employees. The committees of the Legislative Yuan yesterday completed the initial review of the proposed changes to the Statute, which as it currently stands will cause these shares to be valued at 80% of their market value. Some have suggested that these shares should be valued at their full market value.