The Ministry of Finance in Taiwan has released a notification regarding eased taxation regulations concerning profits from Controlled Foreign Corporations (CFCs) invested in enterprises situated in non-low-tax jurisdictions that are acknowledged under the equity method.

The Ministry of Finance amended the Regulations Governing Application of Recognising Income from Controlled Foreign Company for Profit-Seeking Enterprise to facilitate the implementation of the CFC system launched in 2023.

Under these amendments, profits from invested enterprises in non-low-tax jurisdictions recognised under the equity method for the 2022 fiscal year, and previous years, may be exempted from taxation if the CFC has reached a resolution on profit distribution before 31 March, 2024. This relaxation in taxation rules aims to accommodate the investment patterns of Taiwanese businesses overseas.

The National Taxation Bureau of Kaohsiung clarified that, before the amendment, CFCs’ profits from such invested enterprises could be recorded as deductions. However, the amendment allows for the exemption of profits from taxation if certain conditions are met, including timely resolution on profit distribution.

An example provided by the Bureau illustrates the process: if a domestic company invests in a CFC in a low-tax jurisdiction, which in turn invests in a company in a non-low-tax jurisdiction, and if the latter reaches a resolution on profit distribution for 2022, and previous years before 31 March, of the current year, the application for exemption should be submitted within the prescribed income tax return filing period.

Taxpayers are reminded to provide sufficient evidence of profit distribution within the specified filing period to benefit from the exemption. Additionally, taxpayers are encouraged to familiarise themselves with relevant regulations and filing procedures to protect their interests. For further information, taxpayers can contact the free service hotline or visit the Bureau’s website.