Proposed Amendment to Reduce Corporate Income Tax in Taiwan

In response to the economic downturn, the Ministry of Finance (MOF) has proposed an amendment to the Income Tax Act (the “Act”), which if passed into law will adjust the minimum corporate taxable income of the highest bracket from NTD100,000 to NTD120,000, and the corresponding corporate tax rate from 25% to 20%, eliminating the lower tax rate of 15% in 2010. Currently under Paragraph 5 Article 5 of the Act, there are three (3) tax brackets for corporate income taxation: (i) the minimum corporate taxable income of the lowest tax bracket is NTD50,000 (under which no tax needs to be paid), (ii) taxable income between NTD50,000 and NTD100,000 is subject to a 15% tax rate and (iii) taxable income over NTD100,000 is subject to a 25% tax rate. The proposed amendment was finalized by the Executive Yuan on March 5 and is being forwarded to the legislature for consideration. Under this proposal, income tax will be paid when taxable income is over NTD120,000 and the rate is singular at 20%. Without a doubt, the proposed amendment if passed into law will benefit small as well as large corporations, and result ultimately in Taiwan’s economic advantage.

In addition to the version proposed by the executive government, the legislature may be considering a somewhat different version which will (i) increase the minimum taxable income at the lowest bracket from NTD50,000 to NTD100,000, (ii) adjust the second bracket of taxable income to between NTD100,000 and NTD 200,000 (for which the 15% tax rate will remain), and (iii) adjust the highest bracket to over NTD 200,000 (for which the 25% tax rate will remain). Under this proposal, there will be still three (3) brackets with three (3) tax rates at 0%, 15% and 25% respectively.