Government Finalizes Minimum Alternative Tax System

        The Basic Income Tax Code was promulgated by the President on Dec. 28 and implemented on Jan. 1, 2006, setting alternative minimum tax thresholds and tax rates of NT$6 million and 20% for individuals and NT$2 million and 10-12% for enterprises.

　　For individuals, calculation of the alternative minimum tax will include overseas income, insurance payments, and income from shares in unlisted companies and beneficial certificates from privately placed funds. The scope of overseas income for individuals encompasses income from areas other than the Republic of China and income from Hong Kong and Macau, with, however, an NT$1 million exemption. To avoid double taxation, personal taxes that are paid in the source areas may, with proof of tax payment issued by the tax authorities in those areas, be deducted from tax liabilities in Taiwan. To soften the blow of this new imposition, the inclusion of personal income earned overseas in Taiwan tax filing will, in principle, be delayed until Jan. 1, 2009; depending on the economic situation, however, the Executive Yuan may delay the implementation date to Jan. 1, 2010.

　　For profit-seeking enterprises, the calculation of the minimum alternative tax includes income that is exempt from taxation under the Statute for Upgrading Industries, Statute for Encouragement of Private Participation in Infrastructure Projects, and the Offshore Banking Act. However, tax exemptions that have already been approved, and tax-exempted income on deposits that have not reached term, will not be included in the basic tax calculation.

　　To prevent inflation and the reduction of the amount of money available for use, the new act also provides for the minimum tax threshold to be adjusted in line with the commodity price index.

Table 1  Major Provisions of the Basic Income Tax Code

　

Item	Individuals	Enterprises
Tax Rate	20%	10-12%, as determined by the Executive Yuan depending on economic conditions
Threshold	Over NT$6 million, including net income plus tax-exempted income and deductions	Over NT$2 million, including taxable income plus tax-exempted income
Tax Base	1. Personal income earned overseas or in Hong Kong or Macau (with income less than NT$1 million being exempted); to be implemented Jan. 1, 2009 but may be delayed to Jan. 1, 2010 2. Insurance compensation in cases where the beneficiary and the insured person are not the same (with death compensation of up to NT$30 million paid to single families within a single year being exempted) 3. Income from the trading of shares in unlisted companies and beneficial certificates in privately placed funds 4. Tax exemptions for non-cash donations 5. For stock dividends distributed to employees, the amount by which the market price exceeds the par value on the next day after the date on which the stocks may be sold	Profit-seeking-enterprise income that is tax-exempted under the following laws: 1. Statute for Upgrading Industries 2. Statute for Encouragement of Private Participation in Transportation Projects 3. Statute for Encouragement of Private Participation in Infrastructure Projects 4. Act for the Establishment and Administration of Science Parks 5. Corporate Mergers Act 6. Offshore Banking Act
Penalty	For under-reporting, a fine of up to two times; for failure to report, a fine of up to three times

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