The Ministry of Finance has announced the implementation of CFC (controlled foreign company) rules on September 20, 2017. The main features of the CFC rules are summarized below:

CFC definitions:

Under the rules, a foreign company located in a low-tax country or region is defined as a controlled foreign company (CFC) if a profit-making enterprise and its associated person directly or indirectly hold more than 50% of the shares or capital of, or if the profit-making enterprise has significant influence over, that foreign company.

Low-tax jurisdiction:

For CFC purposes a low-tax region refers to a jurisdiction with a statutory tax rate is below 70% of the Taiwan rate (11.9% given current Taiwan rate of 17%); or the jurisdiction only taxes on a territorial basis or only taxes overseas source income when remitted. The Finance Ministry will publish a list of low-tax countries or regions. Additionally, a jurisdiction that exempts foreign-sourced income or only taxes foreign income on a remittance basis is also considered to be a low-tax jurisdiction.

Exemptions from CFC:

Exemptions under the rules apply to CFCs that are engaged in genuine business activities or whose investment income accounts for less than 10% of their total business income.  Exemptions also apply to profit-making Taiwan-based companies whose annual profit of its CFC is less than TWD7, 000,000 (subject to certain conditions).

Compliance requirements:

Taiwanese taxpayers with CFCs are essential to provide information including the organizational structure of the taxpayer and the related parties, the percentage ownership in CFCs, financial statements or other documents examined and verified by an accountant in accordance with the regulations and calculates the losses of various periods of CFC according to the regulations, and the examination and approval authority of the place where the profit and loss business is located obtains the CFC Deduct from the surplus within 10 years from the next year of the year in which the loss occurred and then calculate the investment income from the for-profit business.

The implementation rules also consider potential double taxation and allow claims of tax refund in the event of tax overpayment.