To cope with the global minimum tax rate to be enforced in 2023, the Executive Yuan announced on 14 January 2022 that controlled foreign Corporation (“CFC”) rules under Article 43-3 of Income Tax Act (for profit-seeking enterprises) and under Article 12-1 of Income Basic Tax Act (for individuals) will be enforced from 1 January 2023. Under the CFC rules, the profit derived from the invested offshore company will be deemed to have been distributed disregard whether such profit is actually distributed or not and it shareholders will need to file tax return and pay income tax. We summarize below:
1.If a profit-seeking enterprise or an individual holds 50% or more stake in, or has significant influence on, a foreign company incorporated in the low-tax jurisdiction (less than 14% or only taxed on the domestic-sourced income), the annual profit of such foreign company shall be recognized as investment income of such profit-seeking enterprise or individual unless such foreign company has substantial operating activities in its jurisdiction or the profit in that year does not reach certain threshold.
2.For a profit-seeking enterprise caught under the CFC rules, the offshore investment income generated from the above foreign company will be subject to business income tax at 20%; in the case of individuals, such offshore investment income shall be included in their basic tax and subject to the alternative minimum tax (currently at 20%).
Rady Lee/Sue Su
