Taiwan House and Land Transactions Income Tax

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To curb the phenomenon of flipping properties in Taiwan, the new Income Tax Act is revised the taxation regulations toward to selling estates (abbreviated as “House and Land Transactions Income Tax” hereafter), which was implemented on January 1st, 2016. The taxation brackets are as varied as the holding period, the longer you hold, the lower the tax rate is. This aims to encourage the owner to hold his/her properties as long as possible as well as to curb the property flipped. However, a lot of owners still try to get around the rule to avoid the taxation, so the specific taxation model of house and land transactions income tax was added on July 1st, 2021, which is abbreviated as special shareholdings transactions:

 

  1. Pre-sale houses and situated foundations.
  2. Direct or indirect transactions of holding shares or capital amount is more than a majority of domestic or foreign profit-seeking enterprises. The shareholdings or capital is higher than 50% of Taiwan domestic properties or lands value are not counted. Only stock transactions among listed companies are applicable.

 

In regards to the special shareholding transaction, due to the direct or indirect sales of estate without indistinctive relation, it is easier to make mistakes upon sales.

 

Case 1: Individuals to sell unlisted companies’ stocks, is it possible to combine the income into individual minimum income tax or house and land transaction income tax?

 

Upon the sales of unlisted companies’ stocks, it is required to evaluate with following 2 items, even the shareholding less than 1%:

 

  1. The shares or capital contributions directly or indirectly held by individuals exceed 50% of the profit-making enterprise (second-degree relatives and indirect shares held by other companies must also be included together with your total shareholdings);
  2. More than 50% of the net worth of the company disposing of the shares is composed of houses and land in Taiwan.

 

Case 2: Is it appliable to the abovementioned regulations in the condition of selling the unlisted companies’ stocks which were distributed by a family company from 30 years ago till now?

 

When it came into effect on January 1, 2016, for the real estate held before December 31, 2015, in the subsequent disposal, you can choose to use the old system or the new system to calculate the sales profit and loss (optional). However, for specific equity transactions, only the new system can be used for calculation. In short, as long as the requirements of “shareholding ratio” and “equity value” are met at the same time, no matter whether the equity or real estate acquired before December 31, 2015 (old system) or after January 1, 2016, all fall into the The scope of taxation of unified tax on real estate transactions.

 

Case 3: Since I and my second-degree relatives (or through another company) hold 50% of the total shares, the real estate and real estate tax is applicable. Before I plan to sell the shares, I can reduce the shareholding to 49% to avoid it?

 

In accordance with the article 6th in Taiwan’s real estate and real estate tax declaration operation, it is necessary to look forward one year from the transaction date. Holding more than 50% of the shares still falls within the taxable scope of real estate integration tax.

 

Some families will set up asset management companies to prevent the family from holding real estate in their own names. After multiple inheritances, the real estate ownership will be scattered, which will only increase the difficulty of disposing of real estate in the future. However, in this case, the equity held by individuals and the real estate held by the family asset management company are not for the purpose of short-term real estate speculation, but because of the relationship between real estate and land tax, family members may buy and sell equity among each other or the above-mentioned Equity exchange, which falls into the taxation category of real estate integration tax.

 

Finally, kind remind from Kaizen that for any transaction of holding equity in an unlisted company, as long as more than 50% of the underlying value of the equity in the transaction is composed of houses and land in Taiwan, you should first judge the combined holdings of individuals and second-degree relatives. Whether the shares are more than half, so as to avoid falling into the taxation scope of the integration of real estate and real estate.

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