Taiwan’s Ministry of Finance has released a notice regarding the calculation of interest income for loans provided either without interest or at a rate below the market standard.

The Dajyh Office, National Taxation Bureau of the Central Area, Ministry of Finance stated that companies that loaned funds to others without charging interest or at a rate lower than the market rate should calculate interest income according to regulations of the Income Tax Act.

The Office explained that, according to Article 24-3, Paragraph 2 of the Income Tax Act, if a company loaned funds to shareholders or any other person without charging interest, or at a rate lower than the market rate, except for cases of advance payment of employee wages, the company should calculate the interest income base on the Base Rate announced by the Bank of Taiwan on January 1st of the year in which the loan was made, and include it in the taxable income.

The Office gives an example.

Company A loaned TWD 10 million to its shareholders on January 1st, 2023, without charging interest. By the end of 2023, the shareholders had not repaid the loan. When company A filed its Profit-seeking Enterprise Income Tax Returns for the year 2023, it should have calculated the taxable interest income as TWD 286,700 based on the Base Rate of 2.867% announced by the Bank of Taiwan on 1 January, 2023 【=TWD10,000,000 × 2.867%】.

The Office reminds that when companies file their Profit-seeking Enterprise Income Tax Returns, if they loan funds to shareholders or any other person, even if no interest is actually received or the interest received is lower than usual, they should voluntarily adjust the interest income and report it according to regulations of the Income Tax Act to avoid tax adjustments and additional tax payment.

For queries people are urged to call the toll-free service number (0800-000321) for consultation.