Tax Guide to Taiwan Share Transfer
Tax Guide to Taiwan Share Transfer
Unless specified, all companies in this Guide refer to those that established with accordance to Taiwan’s Company Act. Including both limited companies and companies limited by shares.
According to Taiwan’s Company Act, Securities Exchange Act, Security Exchange Tax Regulation, Business Tax Law and Income Tax Act, different taxes are levied on the transfer of shares due to the difference in the identification of the owners and the objectives of the transaction. This Guide, therefore, provides a brief explanation of tax liability incurred during the transfer of shares.
Since 1st January 2016, income tax is no longer charged on securities transactions income made by individuals. Instead, any certified stock transferred by individuals is charged with securities transactions tax at 0.3% of the gross proceeds, rather than securities transactions income tax. Meantime, stamp duty is not imposed in this activity.
In comparison, while the transfer of the capital contribution of a limited company or uncertified stock by individuals is a transfer of rights, stamp duty is not applicable for such activities, only individual income tax is charged. However, Taiwan individual income tax is based on a comprehensive income tax system which implements progressive tax rates with the maximum tax rate of 40%. Hence, the tax burden and tax amount for individuals transfer the capital contribution will be different due to different transfer objectives.
According to Securities Exchange Tax Regulation, certified stock transferred by company is classified as negotiable securities. Thus, securities transaction tax at 0.3% of the gross proceeds is applicable. After securities transaction tax declaration, this part of securities is exempted from business tax under Business Tax Law, and stamp duty is not applicable for negotiable securities trade activity. The securities transaction income tax has been ceased to levy for company’s income generated from securities transactions. However, companies should incorporate the security trading income into the basic income of the profit-seeking enterprise to calculate the basic tax amount. It is up to the situation for whether it will increase the tax payable of the profit-seeking enterprise.
In comparison, while the transfer of the capital contribution of a limited company or uncertified stock by company is a transfer of properties, business tax and profit-seeking enterprise income tax are applicable. Stamp duty and securities transaction tax are not applicable for such activities. The tax burden for company transfer the capital contribution will be different due to different transfer objectives.
This Guide is aimed at providing a general background for clients of Kaizen CPA Limited, who intends to register in Taiwan. A basic understanding of taxation on Capital Contribution and stock transfer (or sale) is expected. For further detail, please contact Kaizen CPA Limited.
- Tax on Individuals Transfer Certified Stock of Companies Limited by Shares
(1) Securities Transaction Tax
According to Securities Transaction Tax Regulation, any certified stock issued by companies limited by shares transferred by individuals should be charged with securities transactions Tax at 0.3% of the gross proceeds.
(2) Securities Transaction Income tax
According to the Amendments of Income Tax Law, the income tax has been ceased to levy for individuals securities transaction income and any loss made cannot be deducted from income, since 1st January 2016. In other words, listed or unlisted certified stock issued by companies limited by shares that sold by individuals is charged with securities transactions tax at 0.3% of the gross proceeds, rather than securities transaction income tax.
- Tax on Individual Transfer Capital Contribution of Limited Companies or Uncertified Stock of Companies Limited by Shares
According to Taiwan Income Tax Act, capital contribution of limited companies or uncertified stock of companies limited by shares transferred by individuals, are classified as income from property transactions. It is taxable as a part of individual income. Since 2020, Taiwan’s applicable progressive individual income tax rate is 5% to 40%.
Income from Property Transactions Equation:
Income from Property Transactions = Gross Proceeds – Expense on Obtaining Capital Contribution
Under the circumstances of loss from property transaction, individuals should apply a proof of loss from tax collection authority. The loss is deductable to property transaction income made in the year, which should not be negative. Any loss from property transactions exceeds income from property transactions can by deferred to next tax year, but 3 years maximum.
- Tax on Corporation Transfer Certified Stock of Companies Limited by Shares
(1) Securities Transaction Tax
According to Securities Transaction Tax Regulation, certified stock of companies limited by shares transferred by corporations is classified as negotiable securities. It is charged with securities transaction tax at 0.3% of the gross proceeds.
(2) Securities Transaction Income Tax
According to the Amendments of Income Tax Act, individual securities transaction income tax has been ceased to levy for individual securities transaction income. Any loss made cannot be deducted from income, since 1st January 2016. Whereas companies should, incorporate the security trading income into the basic income of the profit-seeking enterprise to calculate the basic tax amount.
(3) Alternative Minimum Tax (ATM)
Under the Income Tax Act, when regular income tax amount equals to or higher than basic income tax (ATM), the companies should calculate and pay the profit-seeking enterprise income tax using the regular rules. The security transaction income tax is nil when companies sell any certified stock. In contrast, if the basic income tax (ATM) is higher than regular income tax, the amount of income tax payable shall also include the regular income tax and the difference of the amount of basic tax and regular income tax. By which, the securities transactions income needs to be added back to basic income tax calculation.
Under the Income Basic Tax Act, the companies shall incorporate the securities trading income, which has been ceased to levy securities transaction income tax, into the basic income to calculate the profit-seeking enterprise income tax. After 2013, when calculating the taxable income of current year for the sale of negotiable securities which are hold by the company for more than 3 years, any loss from securities transactions made in the same year which are held for more than 3 years can be deducted from the taxable income. After this deduction exercise, any income from securities transactions should then be taken half into securities transactions income. However, if the income amount is negative, companies should apply a loss verification from Tax Collection Authority. Then the loss can be carried forward within 5 years after the end of the current year and deducted from the same category of income.
(4) Business Tax
According to the regulations of Taiwan Business Tax Law, any corporate selling negotiable securities that are subject to securities transaction tax is exempt from business tax. Therefore, a company selling securities that meet the requirements of the Securities Transaction Tax Regulations is not required to pay business tax.
(5) Stamp Duty
Any certified stock of companies limited by shares transferred by corporations is regarded as negotiable securities under the definition of Securities Transactions Tax Regulation. Stamp Duty is not applicable to such securities. Thus, free from stamp duty.
- Tax on Corporation Transfer Capital Contribution of Limited Companies or Uncertified Stock of Companies Limited by Shares
(1) Profit-seeking Enterprise Income Tax – Income from Property Transactions Tax
The income of transfer capital contribution of limited companies or uncertified stock of companies limited by shares corporations is taxable income stipulated by Income Tax Law. Thus, it should be incorporated into the profit-seeking enterprise income and charged with profit-seeking enterprise tax. The current profit-seeking enterprise tax rate in Taiwan is 20%.
(2) Business Tax
According to Taiwan Business Tax Law, any individual who selling goods or service is subject to business tax. The current business tax rate in Taiwan is 5%. The price of goods or service should include business tax. For the capital contribution of limited companies or the uncertified stock of companies limited by shares transferred by corporations which are not the taxable negotiable securities stipulated by Securities Transaction Law, the business tax is not exempt and should be paid according to Business Tax Law.
(3) Stamp Duty
Capital contribution of limited companies and uncertified stock of companies limited by shares transferred by corporations does not fit the definition of negotiable securities under Securities Transactions Tax Regulation, is free from securities transaction tax. Meantime, capital contribution transfer is a form of rights transfer. Thus, free from stamp duty.
Kaizen CPA Limited provides registration, audit, tax, accounting services and financial management consultancy to a wide range of companies. We aim to provide the most updated information and best services to our clients.
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- Comparison on Method of Filing Tax Returns for Profit Seeking Entities