Newsletter
LEGISLATURE BEEFS UP AMT ACT
On 23 November 2005, the Finance Committee of the Legislative Yuan reviewed the draft Al-ternative Minimum Tax Act, which introduces the alternative minimum tax (AMT) system in Taiwan. The committee accepted most of the wording proposed by the Executive Yuan, but in a number of major and controversial areas, it introduced amendments to improve the provi-sions of the original draft. The amended version approved by the Finance Committee then rapidly went to its third and final reading in the Legisla-tive Yuan on 9 December 2005, and was prom-ulgated by the President on 28 December 2005. The new law takes effect on 1 January 2006.
The most salient point in which the version en-acted by the Legislative Yuan differs from the Executive Yuan’s draft is in Article 12, Para-graph 1, Subparagraph 1, whereby non-ROC-source income not included in the calculation of individuals' consolidated income for income tax purposes, and income exempted from income tax under Article 28 Paragraph 1 of the Act Governing Relations with Hong Kong and Macao, are included in individuals’ alterna-tive minimum taxable income for AMT purposes. This provision is the first step toward the prin-ciple of taxing individuals’ worldwide income. It is scheduled to take effect from 2009, but the Executive Yuan is empowered to defer imple-mentation until 2010 if necessary.
To reduce the impact of introducing taxation of overseas income, the Act provides for a tax-free allowance of NT$1 million in overseas income per filing household, and allows tax already paid overseas to be offset against ROC tax on the same income, to avoid income from a single source being taxed twice.
The rate of ATM on profit-seeking enterprises is raised from 10%, as proposed by the Executive Yuan, to "not less than 10% and not more than 12%," with the actual rate to be set by the Ex-ecutive Yuan. Moreover, the level of individ-ual's alternative minimum taxable income above which AMT will be levied is reduced to NT$6 million from the NT$8 million proposed by the Executive Yuan.
The above changes made by the Legislature Yuan to the Executive Yuan’s draft have clearly made the Act harsher. However, in its amended form the Act is a step of significant reform in terms of promoting fairer taxation and gradually adjusting the income tax system, which has long proved difficult to achieve. In addition to mak-ing individuals’ overseas income taxable, the Act also includes securities transaction income in the alternative minimum taxable income, applies fixed tax-free allowances to insurance payouts, and moves toward taxing employees’ bonus which is in the form of shares of the company on a market-price basis. On balance, the Act represents a highly positive contribution to building a healthier tax system.
The main points of Taiwan’s new AMT system can be summarized as follows:
。Educational, cultural, public welfare, and charity organizations, public-sector enter-prises, non-resident individuals or profit-seeking enterprises, and profit-seeking enterprises in liquidation or bankruptcy, are exempted from the AMT system.
。The AMT tax-free allowance is set at NT$2 million for profit-seeking enterprises, and NT$6 million for individuals.
。The AMT tax rate is set at 10–12% for profit-seeking enterprises, and 20% for indi-viduals.
。The alternative minimum taxable income for AMT purposes will include income from se-curities transactions (for individuals, only those from unlisted and non-OTC-traded se-curities), and business income that is ex-empted from ordinary business income tax by incentives for industries under various legis-lations, including any additional incentives under future legislation.
。AMT paid by a profit-seeking enterprise may be added to its shareholders’ imputed tax credit account, and is deductible for the pur-poses of the additional tax on undistributed retained earnings.
。Payouts from life insurance policies and an-nuity policies for which the beneficiary and the applicant are not the same person are in-cluded in the alternative minimum taxable income for AMT purposes. But death pay-ments are exempt up to NT$30 million per filing household.
。The amount of non-cash gift that is deductible for income tax purposes is included in indi-viduals’ alternative minimum taxable income.
。The amount by which the market value of the shares of employees’ bonus exceeds their par value is included in individuals’ alternative minimum taxable income.
。Investment plans or investment contracts meeting certain criteria need not be included in a profit-seeking enterprise’s alternative minimum taxable income.
。Underreporting, or failing to report, any amount that should be included in the alterna-tive minimum taxable income will be penal-ized by administrative fines of up to twice the amount of underpaid tax. Failure to file for the alternative minimum tax return will be subject to fines of up to three times the additional tax payable.