Taiwan Government Claims Minimum Business Tax 'Will Not Hurt Foreign Investment'

by Mary Swire, Tax-News.com, Hong Kong

06 March 2006

The government of Taiwan has moved to reassure the country's business community that a new minimum business tax will not deter foreign investors from buying shares in domestic companies.

Introduced on January 1 to ensure that corporate and wealthy taxpayers contribute their fair share of revenues to the government, the 'Alternative Minimum Tax' requires companies to pay a 10% tax on earnings of more than NT$2 million (US$61,000) and individuals to pay a 20% tax on annual income exceeding NT$8 million.

It is estimated by the Ministry of Finance that the new taxes will bring in an additional NT$10 billion in revenues, a figure that will increase as average per capita income grows.

However, the ministry has moved to fend off growing criticism of the new rules in the country's media, certain sections of which have suggested that the minimum tax will lead to a reduction in foreign investment in Taiwan, by pointing out that the tax will only affect about 0.7% of Taiwan's 600,000 companies and only around 15,000, or only 0.2 percent of individual taxpayers.

"The whole idea of this new mechanism is to find fair tax rules for our country," Minister of Finance Lin Chuan stated last year, after the cabinet had approved proposals for the new tax.

"The basic significance of the minimum income tax system is that any enterprise or individual with high incomes and who enjoy relatively large tax incentives or deductions should pay at least some income tax," he added.

The ministry also says that the new law does not apply to offshore foreign investors with no established operations in Taiwan.

Furthermore, the ministry stressed that the maximum income tax rate for foreign shareholders is now set at 28% - significantly lower than the 40% maximum for local shareholders.

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