By Hung Ou Yang, Fred Lin, Paul Ma, and Ting-Yu Wu
Common post-acquisition restructuring includes the merger of the acquired company with the existing company. However, the specific forms and methods of post-acquisition restructuring in Taiwan can vary widely due to different situations.
Can tax-neutral spin-offs of businesses be executed in Taiwan?
Tax-neutral spin-off of businesses is indeed permissible in Taiwan, and the preservation of net operating losses for the spun-off business is achievable. In the context of a corporate spin-off, the newly formed company resulting from the spin-off is entitled to deduct the unutilised losses of the original company before the spin-off from its post-spin-off taxable income. The magnitude of this deduction is contingent upon the ownership percentage derived from the spin-off transaction.
In the event of a company opting for a spin-off by transferring its business or assets to another company, the tax implications are structured to ensure a seamless and neutral transition. If the acquiring company acquires more than 80 per cent of the voting shares as consideration and subsequently transfers all acquired shares to its shareholders, any income arising from the transfer of business or assets is granted exemption from corporate tax. This design of tax regulations fosters an environment of tax neutrality throughout the spin-off process, allowing companies to execute strategic restructuring without incurring adverse tax consequences.
Is it possible to migrate the residence of the acquisition company or target company from Taiwan without tax consequences?
Unlike other jurisdictions, there is no provision for the migration of companies under the Taiwanese Company Act. Hence, migration of residence would not generally be considered as a factor in the tax planning of inbound investment.
Are interest and dividend payments made out of Taiwan subject to withholding taxes?
Interest and dividend payments made by a Taiwanese company are subject to withholding taxes. In general, the withholding tax rate is 20 percent for interest payment, and 21 per cent for dividends. However, under most tax treaties between Taiwan and other countries, the withholding tax rates for dividends and interest can be reduced to 15 per cent, 10 per cent, or even lower.
What other tax-efficient means are adopted for extracting profits from Taiwan?
There is no universally applicable method to efficiently distribute profits from Taiwan to overseas while completely eliminating tax liabilities. The feasibility of such a strategy hinges on the unique circumstances of each company or transaction. Broadly speaking, a potential and commonly adopted approach involves structuring payments in a manner that allows for deductions within the Taiwanese tax framework, all the while minimising the withholding tax obligations in Taiwan. Many companies often opt for methods such as payments of interest, royalties, service or consulting fees to effectuate the transfer of profits abroad. Through this method, the payments can be deductible in Taiwan, while simultaneously benefiting from the advantageous low withholding tax rates under various tax treaties. Nevertheless, it is crucial to recognise that, in light of the introduction of transfer pricing regulations, anti-avoidance rules, and Taiwan's commitment to aligning with the legislative trends set forth by base erosion and profit shifting actions, the scope for realising tax advantages through the aforementioned means is progressively narrowing. As Taiwan intensifies its focus on international tax compliance and anti-tax avoidance measures, businesses need to be cognisant of the evolving regulatory landscape and adopt more nuanced and robust tax planning strategies to navigate the complexities of cross-border transactions.
AUTHOR: Hung Ou Yang
Managing Partner
Taipei
+886-2-2707-9976
[email protected]
AUTHOR: Fred Lin
Of Counsel
Taipei
+886-2-2707-9976
fred@btlaw.com.tw
AUTHOR: Ting-Yu Wu
Attorney
Taipei
+886-2-2707-9976
iris@btlaw.com.tw
Copyright: Brain Trust International Law Firm
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
撥打電話