Taiwan's Ministry of Finance has reminded profit-seeking enterprises that interest on loans to shareholders or other parties must comply with the reasonable interest requirements under the Income Tax Act, warning that excessively low rates may result in tax adjustments and additional tax assessments.
Taiwan’s Ministry of Finance (MoF) has released a notice on 1 June 2026, reminding taxpayers of the requirements governing reasonable interest on inter-company lending arrangements.
To protect the rights and interests of company shareholders and creditors, the Company Act stipulates that companies may lend to shareholders or any other person only under the circumstances that an inter-company transaction calls for such lending arrangement or an inter-company short-term financing facility is necessary provided. Furthermore, interest income must be calculated in accordance with Paragraph 2, Article 24-3 of the Income Tax Act.
The National Taxation Bureau of the Southern Area, Ministry of Finance stated that, in accordance with Paragraph 2, Article 24-3 of the Income Tax Act, “a company that lends money to a shareholder or any person without charging interest or charging the stipulated interest at an obviously lower rate, except for paying in advance the salary of an employee, shall calculate interest income based on the lending base rate of the Bank of Taiwan on 1 January of each respective year and an interest income tax shall be levied on the profit-seeking enterprise.”
The National Taxation Bureau calls on profit-seeking enterprises to pay attention to these regulations to avoid tax adjustments and being asked to pay any additional tax levied.
For example, the National Taxation Bureau found during an audit that the asset-liability statement of Company A’s income tax return for the year 2023 reported other receivables of TWD 30 million.
Upon investigation, it was determined that this amount was a short-term financing loan to a peer company, for which Company A charged an interest rate of 1% per annum. Since the agreed interest rate was deemed excessively low, the interest income should be adjusted upward based on the lending base rate of the Bank of Taiwan on 1 January 2023 (2.867% per annum), in accordance with Paragraph 2, Article 24-3 of the Income Tax Act.
The Bureau would like to remind profit-seeking enterprises that when lending money to shareholders or any person, they should ensure the reasonableness of the interest charged to avoid tax adjustments and additional tax levied from obviously too low rates.
