On 16 May 2014, the Legislative Yuan passed the draft amendments of some provisions of the Income Tax Act regarding the shareholder deductible tax and a 10% surcharge of profit-seeking income tax that may be applied as a tax credit against the withholding tax that the Taiwanese company should withhold upon distributing dividends to each foreign shareholder in proportion to its shareholding. ("The shareholder deductible tax and the tax credit") According to the new amendment of the Income Tax Act (Article 66-4, 66-6 and 73-2), starting from 1 January 2015, the said shareholder deductible tax and the tax credit will be decreased by 50%.

 

In other words, according to the new amendment of the Income Tax Act, the 100% deductibility on the shareholder deductible tax and the tax credit used in the past will be decreased by 50%, starting from 1 January 2015.

 

The new amendment of the Income Tax Act will cause the shareholders to have to pay higher income tax because the deductibility on the shareholder deductible tax and the tax credit will be decreased by 50%. Moreover, the above shareholder deductible tax and the tax credit will be decreased by 50% no matter whether the shareholder deductible tax is booked into the Shareholder Deductible Tax Account or the retained earnings tax is paid after 1 January 1998 before 1 January 2015. Therefore, the new amendment of the Income Tax Act will have a huge impact on the tax burden on the shareholders.

 

Although the above-mentioned new amendment of the Income Tax Act is controversial, it will be in effect until the administrative court or the Grand Justice Committee rules against it. Therefore, if it is feasible, your company should consider distributing larger dividends this year as it will then be able to apply the higher outstanding shareholder deductible tax and tax credit against individual income tax payable on the dividends distributed to the domestic individual shareholders or the withholding income tax on the dividends distributed to the foreign shareholders in order to avoid increasing the tax burden because the shareholder deductible tax and the tax credit will be decreased by 50% starting from 1 January 2015.