The Cabinet yesterday approved a bill proposing larger tax breaks on the research and development (R&D) expenditures of private businesses.
The draft amendment to the Statute for Industrial Innovation (產業創新條例) proposes a 25 percent tax deduction on eligible companies’ R&D costs, up from 15 percent.
It also proposes a tax break of 5 percent on equipment procurement spending, granted that the total deductions do not exceed 50 percent of a firm’s overall income taxes.
Photo courtesy of the Executive Yuan
The draft is to be sent to the Legislative Yuan for review.
The proposed tax break would apply to companies across all sectors, granted they meet the threshold for effective tax rate, and R&D expenditure and intensity.
The effective tax rate threshold would initially be 12 percent and would be raised to 15 percent by 2024, but companies could seek Cabinet approval to defer the increase to 2025, the bill says.
The bill did not specify a minimum R&D expenditure to qualify for the tax break.
An official told the Central News Agency on condition of anonymity that the amount is expected to be at least NT$5 billion (US$60.5 million) annually.
Minister of Economic Affairs Wang Mei-hua (王美花) said the proposed tax break would not only cover semiconductor manufacturers as reported by the media, but also companies in the electric vehicle, 5G and low-Earth-orbit satellite sectors, among others.
Foreign companies and their subsidiaries that engage in R&D in Taiwan would also be eligible for tax deductions, as they contribute to Taiwan’s industrial development, she said.
The bill would result in lost tax revenue for the government, Wang said, but that the tax break’s benefits outweigh its costs.
Local semiconductor companies, including Taiwan Semiconductor Manufacturing Co (台積電) and United Microelectronics Corp (聯電), voiced their support for the proposed tax break.
ASE Technology Holding Co (日月光投控) chief operating officer Tien Wu (吳田玉) said the chip testing and packaging company welcomed the government’s proposal to revise the tax rules in accordance with the evolution of key industries.
The revision would help bolster semiconductor companies’ R&D capabilities and allow them to keep their competitive edge in the long term, Wu said.
Semiconductor firms are to face greater challenges over the next decade, as competition has intensified after several governments launched subsidies to bolster their own semiconductor sectors, ASE said.
Handset chip designer MediaTek Inc (聯發科) said the tax break would encourage local semiconductor companies to increase R&D investment, which would enhance their competitiveness and boost Taiwan’s semiconductor output.
“With the government’s help, Taiwan’s semiconductor industry will further cement its position in the global semiconductor supply chains,” SEMI Taiwan president Terry Tsao (曹世綸) said in a statement.
Additional reporting by Lisa Wang
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