MOF Explains Scope of Basic Income Tax for Foreign Investors

        To eradicate the concerns of foreign investors about the regulations governing the payment of the basic income tax in Taiwan, on Aug. 17 the Ministry of Finance (MOF) issued an interpretation stating that overseas foreign institutional investors that have a fixed place of business and/or business agent in Taiwan and that trade in domestic securities in accordance with the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals need not pay the basic income tax on earnings resulting from such trading, with the exception of trading done on a proprietary basis. They must, however, submit certification by a qualified CPA at the location of the overseas headquarters institution, plus certification by a CPA commissioned by the business unit or agent within the Republic of China. This explanation is expected to encourage more foreign investment in Taiwan and to enliven the islandˇ¦s capital market.

The MOF further explained that according to Article 3, paragraph 1, item 5 of the Income Basic Tax Act, overseas foreign institutional investors having no fixed place of business or business agent in Taiwan need not pay the basic income tax on earnings derived from trading in domestic securities.

The MOF emphasized that the interpretation is based on the principle of consistency with the tax rules for domestic investors dealing in securities. In other words, the profit or loss on investment by a securities investment trust fund that is raised and managed by a domestic securities investment trust firm is shared by the investors in that fund in accordance with their ratio of investment, and not by the fund manager. Further, income derived from trading in securities by the brokerage department of a domestic securities firm on commission belongs to the consignor and not the securities firm. All of this income from securities trading need not be included in the minimum tax liability of fund managers or securities firms. For the full content of the interpretation, please go online and visit http://gazette.nat.gov.tw/EG_FileManager/eguploadpub/eg012157/ch04/type2/gov30/num3/Eg.htm.

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