Taiwan issues CFC exemption guidelines for 2025 compliance

New guidance confirms Taiwan’s CFC exemption applies to entities with limited earnings or substantial operations.

Taiwan’s Ministry of Finance has released a notice to specify the exemption limit for current-year income under the Controlled Foreign Corporation (CFC) regulations on 10 July 2025.

The National Taxation Bureau of the Central Area, Ministry of Finance expressed that to prevent any multinational enterprise from establishing a controlled foreign company (CFC) with no substantial operating activities in a low-tax country or jurisdiction to influence the CFC’s profit distribution policy and retain earnings in the CFC through equity control or substantial control for tax avoidance in our country, Article 43-3 of the Income Tax Act (hereinafter referred to as ”the Act”) was promulgated on 27 July 2016 to set the CFC rules for enterprises, and was designated by the Executive Yuan to be enforced from the 2023 taxable year for enterprises.

The Bureau pointed out that Paragraph 1, Article 5 of the Regulations Governing Application of Income from Controlled Foreign Company for Profit-Seeking Enterprise stipulates that a CFC that carries out substantial operating activities in its country or jurisdiction, or its current-year earnings are below a standard, may be exempt under Article 43-3 of the Act.

The term “the current-year earnings below a standard” shall refer to where the current-year earnings of an individual CFC are less than TWD 7 million. However, if the sum of the current-year earnings or losses of all of the CFCs under the control of the same profit-seeking enterprise within the territory of the Republic of China exceeds TWD 7 million, the current-year earnings of each controlled foreign company shall be subject to Article 43-3 of the Act. Where the operating period of a CFC is less than one year within a fiscal year, the threshold of TWD 7 million shall be calculated on a pro rata basis according to the actual number of months in operation. Where the operating period of a CFC is less than one month, it shall be taken as one month.