RULES ON TAXATION OF STRUCTURED FINANCIAL PRODUCT TRANSACTIONS DENOMINATED IN FOREIGN CURRENCIES

03/01/2010

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In response to the amendment to Article 14-1 of the Income Tax Act and the enforcement rules on taxation of structured financial product transactions, the Ministry of Finance announced on 4 January 2010 (Ref. No.: Tai-Tsai-Shui-09804135600) that the profit and loss from trading structured financial products denominated in foreign currencies should be handled separately from the foreign exchange profit and loss from the changes in the currency value of the investment capital used to trade such financial products in order to reasonably reflect the actual profit and loss and facilitate the statutory tax withholder's handling.
l	Trading of structured financial products
	For any trade that is closed after 1 January 2010, individuals and profit-seeking enterprises who trade structured products denominated in foreign currencies with banks should calculate the profit and loss of such trade in the transaction currency on the closing date. The tax withholder should convert the profit and loss so calculated into New Taiwan Dollars based on the exchange rate adopted by the banks they trade with on the closing date and withhold income tax in accordance with the law.
	The income that individuals have generated from trading structured financial products with securities firms or banks will be taxed separately, and the tax will be withheld at source. The tax rates are 10% and 15% respectively for individuals residing in Taiwan and those not residing in Taiwan.
	If a profit-seeking enterprise with a fixed place of business in Taiwan trades structured financial products, 10% of the income that it has generated from such trade should be withheld. Unlike an individual, the profit-seeking enterprise should declare such income in its annual tax return and pay tax thereon accordingly. However, the relevant costs and expenses are tax deductible, and the tax withheld can be deducted from its tax payable. For a profit-seeking enterprise that has no fixed place of business in Taiwan, 15% of the income that it has generated from trading structured financial products should be withheld at source.
l	Foreign Exchange
	Foreign exchange profit and loss from the changes in the currency value of in the investment capital used to trade structured financial products should be considered capital gains and loss and should be calculated when the foreign currency is converted into New Taiwan dollars. All individuals and profit-seeking enterprises should declare such gains and loss in their tax returns.