NTBNA has reminded profit-seeking enterprises that Controlled Foreign Company (CFC) exemptions apply only where statutory conditions are met, warning that businesses claiming exemptions without demonstrating substantial operating activities may face additional tax assessments.
Taiwan’s National Taxation Bureau of the Northern Area (NTBNA) has reiterated, on 28 July 2026, the key exemption criteria under the country’s Controlled Foreign Company (CFC) regime, urging businesses to ensure compliance with the rules when preparing their annual income tax filings.
Taiwan introduced its CFC regime from the 2023 fiscal year to prevent profit-seeking enterprises from using subsidiaries established in low-tax jurisdictions with little or no substantive business activity to defer or avoid domestic tax liabilities. Under the rules, unless a CFC qualifies for a statutory exemption under Article 43-3 of the Income Tax Act, Taiwanese enterprises must calculate and recognise their share of the CFC’s investment income based on their ownership interest and holding period, and include that amount in their taxable income for the relevant year.
The NTBNA noted that the CFC framework includes exemptions intended to avoid placing an unnecessary burden on multinational groups conducting genuine commercial activities. A CFC may qualify for exemption if it has substantial operating activities or if its annual earnings do not exceed TWD 7 million.
However, the tax authority cautioned that the “substantial operating activities” exemption is frequently misunderstood or misapplied. Under the Regulations Governing Application of Recognizing Income from Controlled Foreign Company for Profit-Seeking Enterprise, a CFC is regarded as having substantial operating activities only if it maintains a fixed place of business in its jurisdiction of incorporation, employs staff to conduct actual business operations locally, and derives less than 10% of its combined operating and non-operating income from passive sources such as investment income, dividends, interest, royalties, rental income, and gains from asset disposals.
The NTBNA emphasised that the CFC rules are designed to strengthen Taiwan’s anti-tax avoidance framework while accommodating the legitimate operational needs of multinational enterprises. Businesses should carefully assess the activities of their foreign subsidiaries and disclose the required CFC information in the prescribed format when filing their annual income tax returns.
Where an exemption is claimed, taxpayers must submit the necessary supporting documentation and complete the filing within the statutory deadline. The tax authority also encouraged businesses to consult the relevant legislation and guidance or seek assistance where necessary.
