A Company or Limited Partnership Using a Certain Amount of Its Undistributed Earnings to Make Substantial Investment Can Benefit from Tax Incentives.
The National Taxation Bureau of the Southern Area, Ministry of Finance expresses that, to encourage profit-seeking enterprises to use their earnings to make substantial domestic investment to upgrade production technology or the quality of products or services, if a company or limited partnership actually spent NT$1,000,000 or more of its earnings to construct or purchase buildings, software or hardware equipment, or technology for use in production or operation as needed for operation of its business or ancillary business within three years from the year after such earnings are derived, such investment amounts may be deducted from the undistributed earnings in calculation of the current year’s undistributed earnings and be exempted from 5% of additional profit-seeking enterprise income tax leviable on undistributed earnings from the year 2018 under Article 23-3 of the Statute for Industrial Innovation.
The Bureau further explains that a profit-seeking enterprise must make substantial investment within three years from the next year of the earnings occurred to acquire said tax incentives. However, the spending of investment on land and instruments or equipment not within the scope of capital expenditure is excluded. Taking investment derived from the earnings of the year 2019 as an example, the total amount of the actual spending shall be the balance of the sum of the amounts listed on the invoices, import declarations, and receipts involved in constructing or purchasing buildings, software or hardware equipment, or technology for use in production or operation as needed for operation of its business or ancillary business deducted government grants from January 1, 2020 to December 31, 2022. Furthermore, the profit-seekingenterprise should make sure the payment occurred within the aforesaid period. If a profit-seeking enterprise completes the investment after declaring its undistributed earnings, and the actual investment amount is more than NT$1,000,000, it shall apply to the local taxation authority for recalculation of its undistributed earnings for that year and refund of the overpaid tax by filing the corrected undistributed earnings tax return forms within one year from the date of completion of investment.
For example, Company A chose the calendar year as its fiscal year, and its undistributed earnings of the year 2018 and year 2019 counted by the total amount of after-tax net income less deductions allowed by law and distributed dividends were NT$5,000,000 and NT$4,000,000 respectively. Therefore, Company A’s undistributed earnings from the year 2018 shall be levied at the tax rate of 5%, or NT$250,000, when filing undistributed earnings of year 2018 tax return in May 2020. After that, Company A purchased machines by using the earnings from the years 2018 and 2019, acquired machines and paid NT$9,000,000 on March 1, 2021. The actual investment amount of NT$4,000,000 derived from the earnings of 2019 could be presented as a deduction of undistributed earnings of 2019 when declaring undistributed earnings of year 2019 tax return in May 2021. As to the actual investment amount of NT$5,000,000 derived from the earnings of 2018, Company A could request corrections for recalculation of undistributed earnings of year 2018 tax return within one year from the date of completion of the investment (March 1, 2021), and apply for refund of the overpaid tax NT$250,000.
The Bureau would like to remind profit-seeking enterprises if the substantial investment subject to tax incentives were borrowed, rented, resold and returned, or owners using parts of those investment but not as needed for operation of its business or ancillary business within three years, the profit-seeking enterprises should make supplementary tax payment involved in undistributed earnings in such shortfall tax return, or return the refund of tax and calculate daily interest for such amount of short paid tax.
Press Release Contact: Ms. Wu, First Examination Division
TEL: 06-2223111 ext. 8035
Reference URL：https://www.mof.gov.tw/Eng/singlehtml/f48d641f159a4866b1d31c0916fbcc71?cntId=d13ca58b47cc470982e9efb9bcd39ad1