萬國法律事務所

In order to promote industrial innovation, Article 10 of Act for Industrial Innovation (“AII”) provides that a company may credit up to 15% of its total expenditure on research and development (“R&D”) against its business income tax payable for that year; provided that this tax credit shall not exceed 30% of the business income tax payable by the company in that year. Given that such 15% tax credit is only applicable to that year when the R&D expense is incurred, the industry has been asking the authorities to extend the applicable time span for the tax credit. 

In response, the Executive Yuan has decided to include provisions in a special act applicable to the Free Economic Pilot Zones (“FEPZs”) to be enacted, under which companies that are located in the FEPZs, may enjoy an option for taking advantage of the tax credit. That is, in addition to the above provision of the AII, an eligible company may also opt to enjoy a tax credit of up to 15% of its total expenditures on R&D against its business income tax payable for that year as well as the next two years (i.e., three years in total).

According to recent news reports, the Executive Yuan further announced that it is considering an amendment to the AII to include an option regarding the tax credit, subject to the evaluation of impact on tax revenue. The contemplated tax credit that may be available under an amended AII, as opposed to the above-indicated initiative applicable only to companies located in the FEPZs, would be up to 10% of a company’s total expenditures on R&D against its business income tax payable for that year as well as the next two years.