Newsletter
STRATEGIC INDUSTRY INCEN-TIVES FOR MANUFACTURING AND TECHNICAL SERVICES
On 27 December 2000, the Council for Eco-nomic Planning and Development (CEPD) ap-proved draft Regulations Governing Incentives for Emerging Strategic Industries as Applicable to Manufacturing and Technical Service Indus-tries. If confirmed by the Executive Yuan, the regulations will take effect retroactively from 1 January 2000.
Article 8 Paragraph 1 of the Statute for Upgrad-ing Industries provides that in order to encourage the establishment or expansion of companies in emerging strategic industries, a profit-seeking enterprise or an individual who subscribes to registered stock in such a company and holds such stock for at least three years may offset its purchase cost against income tax up to certain percentages. The same article empowers the Executive Yuan to designate eligible industries, define associated application procedures, etc.
Article 5 Paragraph 1 of the draft regulations defines eligible manufacturing industries as the 3C Industries (computers, consumer electronics, communications), precision electronic compo-nents, precision engineering, aerospace, bio-medicine and advanced chemical engineering, green technologies and high-grade materials. Eligible technical services are software and content with internet functionality, internet ser-vices, advanced IC design, engineering services for automatic or the introduction of electronic systems, engineering services for turnkey elec-tric power system, product engineering services, environmental protection engineering services, biotechnology and pharmaceutical production technology services, engineering and technical services for reduced emission of greenhouse gases by manufacturing industry, and engineer-ing and technical services for energy conserva-tion or the use of new or clean energy sources. Products or services outside the above categories may also be made eligible on a case-by-case ba-sis on application to the Executive Yuan by the MOEA.
Enterprises within the eligible categories must also meet the conditions imposed by Articles 3 and 4 of the draft regulations. Article 3 provides that for manufacturing industry, the paid-up capital or increase in paid-up capital for the in-vestment project concerned must be at least NT$200 million, except for the environmental protection technology materials and recycled resource products of green technology industry, for which the minimum figure is NT$50 million. The investment project must include expenditure of at least NT$100 million on the purchase of all-new machinery and equipment, or NT$15 million in the case of the above green technolo-gies. For technological service enterprises, the minimum paid-up capital or increase in paid-up capital is NT$50 million; their expenditure on all-new machinery and equipment must be at least NT$7 million or NT$15 million, according to category.
Article 4 provides minimum levels for research and development expenditure during the three-year period comprising the year in which the investment project is completed, and the preceding and subsequent years. For a manu-facturing enterprise, R&D expenditure during that period must be equal to at least 10% of its paid-up capital or increase in paid-up capital, and not less than NT$20 million. For a technical service enterprise, R&D expenditure must equal at least 10% or 15% of its paid-up capital or in-crease in paid-up capital, according to business category, and must be not less than NT$15 mil-lion.
R&D expenditure includes not only R&D ex-penditure approved by the relevant tax collection authorities under the Regulations Governing Tax Credits for Companies' Expenditures on Re-search and Development and Personnel Training, but also donations made to the National Scien-tific and Technical Development Fund of the Executive Yuan during the designated three-year period.
A company which fails to meet the above re-quirements must, if it has opted for a five-year tax holiday under Article 9 of the statute, pay in arrears the corporate income tax from which it was exempted; where it has chosen for its shareholders to enjoy investment tax credit, shareholders become individually liable to pay in arrears tax equal to the amount of credit actually enjoyed, plus interest calculated daily at a rate equivalent to the interest rate for one-year fixed-term deposits set by the Director-ate-General of Postal Remittances and Savings Banks.