Corporate shareholders will still be subject to the alternative minimum tax (AMT) on capital gains from the sale of shares, but the rate levied will increase from 10% to 12%. The annual deduction, or tax-free threshold, will be reduced from TWD2 million ($65,000) to TWD500,000.
The taxable portion of the capital gain will be reduced by half if the investor holds onto the shares for more than three years.
“Capital losses can be carried forward for five years to offset future capital gains. To encourage long-term holding, only 50% of the capital gain will be taxed where shares have been held for more than three years,” said a Baker & McKenzie alert.
There should be no direct impact on foreign shareholders because they are exempted from the AMT.
“Only foreign companies with a fixed place of business or a business agent in Taiwan are subject to AMT,” said Baker & McKenzie.
However, the increased AMT rate will impact foreign investors who use Taiwan holding companies as part of their structuring. Advisers are therefore recommending that companies thinking about disposing of their Taiwan investments should bring that process forward so as to complete the disposal before the January 1 2013 implementation date.
Finance Minister Chang Sheng-Ford hopes that the tax will raise between TWD6 billion and TWD11 billion each year.
The decision to reintroduce capital gains tax has not been met well by opposition parties. They have criticised the government’s statement that this reform is part of a process to make the tax system fairer.
“I condemn lawmakers for approving the amendments,” said Hsu Chung-Hsin, legislator for the Taiwan Solidarity Union party. “They have defied their professionalism.”
A similar attempt to tax share trading 20 years ago was abandoned after causing the stock market to plunge by more than 35% in a month.