INCOME TAX EXEMPTION FOR PRIVATE PARTICIPANTS IN IN-FRASTRUCTURE PROJECTS

09/01/2001

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On 28 June 2001 the MOF promulgated its Regulations Governing Exemption from Cor-porate Income Tax for Private Entities Partici-pating in Major Public Infrastructure Projects. The regulations explicitly provide that the ex-emption from corporate income tax available to private entities participating in major public in-frastructure projects is limited to their taxable income from operating the following types of project, and does not apply to income from an-cillary activities:

Transportation infrastructure;

Common conduits;

Pollution prevention and control facilities;

Sewers;

Mains water supply facilities;

Healthcare facilities;

Social welfare facilities;

Cultural and educational facilities;

Major tourist, leisure and forest recreation fa-cilities;

Electric power supply facilities;

Public gas and fuel supply facilities;

Sports facilities; and

Major commercial facilities.

After a qualified project begins operation, the private entity should apply with the MOF for exemption from corporate income tax. The ap-plication must be made within six months after the entity first files a tax return declaring taxable income from the project (or, if the entity files a return declaring no taxable income, but the tax collection authorities determine that it does have taxable income, the application must be made within six months after the date of such deter-mination). The maximum period of tax exemp-tion is five continuous years. However, an entity may elect to postpone, for up to three years, the beginning of its tax exemption period within four years following the year in which there is taxable income since the commencement of the opera-tion of the project. An application should be filed with the MOF for such purposes. Late ap-plications will not be accepted, and no changes may be made once such approval has been granted.

Tax exemption under the regulations is not available to an entity under any of the following circumstances:

The entity already enjoys exemption from corporate income tax on its operating income pursuant to other laws.

It has failed to file an annual tax return in ac-cordance with Article 71 of the Income Tax Law.

It is subject to penalties under Article 110 of the Income Tax Law, in respect of its annual income tax return for a year within its tax-exempt period. But this does not apply if the amount of tax evaded does not exceed NT$100,000, or the undeclared taxable in-come does not exceed 10% of the entity's total income for the year in question.

The regulations are effective retroactively from 11 February 2000 when the Law for Promotion of Private Participation in Public Infrastructure Projects came into force.