Newsletter
DRAFT AMENDMENT TO STATUTE FOR UPGRADING INDUSTRIES
The Statute for Upgrading Industries, which took effect on 1 January 1991, will expire on 31 December of this year. To continue to promote industry upgrading, encourage enterprises to undertake R&D and investment in newly emerging important strategic industries, establish a sound system for administering industrial zones, and accelerate adjustment to the industrial structure, the Executive Yuan has already completed a draft amendment of the statute and submitted it for deliberation by the Legislative Yuan, which is expected to pass it into law during the current session.
The draft amendment has 71 articles. Key thrusts are outlined below:
The scope of shareholder tax incentives for investment is limited to investment in newly emerging important strategic industries that offer a substantial contribution to economic development, bear high risk, and urgently require assistance. The holding period for the stock is lengthened from the current two years to three years. The tax credit rate remains at 20% of the price paid for the acquisition of the stock in the case of shareholders who are profit-seeking enterprises; however, it is lowered to 10% in the case of individual shareholders, and is to be further lowered by 1 percentage point every two years beginning 1 January 2000.
A company within the scope of newly emerging important strategic industries may opt for exemption from profit-seeking enterprise income tax if a resolution is passed at a shareholders' meeting to forego shareholder tax credits. A company is also eligible for a five-year tax exemption for a capital increase entirely from the capitalization of undistributed earnings to undertake an investment plan within the scope of newly emerging important strategic industries.
If a company within the scope of newly emerging important strategic industries re-sells its entire production or service equipment or application software to another company that falls within the scope of newly emerging important strategic industries after the transfer, tax exemptions that have not yet expired may be assumed by the transferee.
When a company falling within the scope of newly emerging important strategic industries merges with another company, the post-merger company may continue to enjoy unexpired tax incentives enjoyed by the companies prior to the merger.
The provision allowing for deferment of tax on new registered stock dividends received by shareholders upon capitalization of retained earnings is deleted.
Business tax exemption is provided for research and development projects awarded by the government to profit-seeking enterprises.
Considerable revisions and additions are made to the provisions concerning the establishment, development, and administration of industrial zones.
A 10-year term of enforcement is set for those provisions concerning tax incentives; no expiration date is set for the provisions concerning other matters such as the establishment and utilization of development funds and the establishment and development of industrial zones.