At present, capital gains realized from the sale/disposal of shares issued by ROC companies ("ROC Securities Gains") are exempt from ROC income tax under the Income Tax Act, regardless of whether the investor is an ROC or foreign individual or institution. However, ROC individual and institutional investors as well as foreign institutional investors with a permanent establishment (such as a fixed place of business or business agent) in the ROC ("FINIs With PE") are required to include ROC Securities Gains as part of their basic income in calculating whether alternative minimum tax ("AMT") under the Income Basic Tax Act (also known as the Alternative Minimum Tax Act; "AMT Act") is payable.

On 25 July 2012, the Legislative Yuan passed the latest amendments to the Income Tax Act and the AMT Act. According to the amendments, starting from 1 January 2013, ROC Securities Gains of ROC institutional investors and FINIs With PE will be subject to a higher AMT rate, and the amount deductable against basic income will be reduced. As regards ROC and foreign individual investors, their ROC Securities Gains will be subject to income tax starting from 1 January 2013. The key points of the amendments are summarized as follows:

For institutional investors

The amount deductible against taxable basic income in calculating the AMT payable will be reduced from the current NT$2 million to NT$0.5 million for 2013 onwards, and the AMT rate of 10%~12% will be raised to 12%~15%. Any losses can still be offset against income in the following five years. In addition, only 50% of the ROC Securities Gains from transacting shares that have been held for over three years, after subtracting any losses incurred from transacting shares that have been held for over three years, will need to be included as part of taxable basic income in calculating the AMT payable.

As the amendments are silent on the disputed rule of imposing AMT on the ROC Securities Gains of those foreign institutional investors without a fixed place of business or a business agent in the ROC, such foreign institutional investors' ROC Securities Gains will not be subject to income tax or AMT.

For individual investors

The levy of income tax on individual investors' ROC Securities Gains will be implemented in two stages. In the first stage, from 2013 till the end of 2014, a two-part scheme will apply. Under the first part of the scheme, an individual investor's taxable ROC Securities Gains will be calculated based on a "deemed capital gain" method, and the income tax payable will be withheld by the securities broker upon the sale of securities ("Part 1"). Under the second part of the scheme, an individual investor's taxable ROC Securities Gains will be calculated based on the actual securities gains, i.e., sales revenue less costs and expenses of acquiring and selling the same ("Part 2"). In the second stage, in and after 2015, only Part 2 will apply.

Furthermore, Part 1 will apply only to the trading of listed stocks, stocks traded over-the-counter (OTC stocks) and emerging stocks. When the Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX) falls below 8,500 points, ROC Securities Gains will be deemed zero; when the TAIEX reaches or exceeds 8,500 points, 9,500 points or 10,500 points, ROC Securities Gains will be calculated by multiplying the sales price by 0.1%, 0.2% or 0.3% respectively, and stock brokers should withhold income tax at 20% of the deemed gain, i.e., Part 1.

Under Part 2, the actual ROC Securities Gains should be multiplied by a fixed 15% tax rate to arrive at the amount of income tax payable. Any securities transaction losses can be offset against the ROC Securities Gains received in the same year. If an individual investor had held the shares for over one year, only 50% of the ROC Securities Gains from trading such shares will be taxed. In addition, holders of listed stocks and OTC stocks who had held such stocks prior to their initial public offering ("IPO") and continuously held them for over three years after their IPO, will be entitled to a deduction of 75% of the taxable amount. The income tax payable should be included in the individual investor's annual income tax return and be paid to the national treasury along with his/her other income tax liability.

In the first stage (from 2013 till the end of 2014), Part 2 will apply when an individual investor (1) sells securities that are not listed on the stock exchange or OTC market; (2) sells 100,000 shares or more of emerging stocks in a year; (3) acquires stocks in companies prior to their IPO and sells them after their IPO, except (a) stocks in companies whose IPO is completed on or before December 31, 2012, or (b) where less than 10,000 shares were acquired during the IPO period; or (4) is a non-ROC tax resident. For an individual investor who generates ROC Securities Gains from trading listed stocks, OTC stocks or emerging stocks, he/she may decide whether to adopt Part 1 or Part 2 prior to the beginning of each year, and cannot switch for that year once a decision is made, unless he/she in under the circumstances described in (2) or (3) above.

In the second stage (from 2015), in addition to the four circumstances explained above, Part 2 will also apply if the total sales of listed stocks, OTC stocks and emerging stocks in one year exceed NT$1 billion. As a result, individual investors, except under the five circumstances set forth above, will not be deemed to have any ROC Securities Gains from trading listed stocks, OTC stocks or emerging stocks because he/she will be deemed to have zero gain for income tax purposes.