Taiwan tax incentives for startups

Daisy Kuo, Hazel Chen and Vivian Ho, special to DIGITIMES 0

The Global Entrepreneurship Monitor (GEM), co-issued annually by the US-based Babson College and London Business School since1999, has been the world's largest entrepreneurship research project, with its research results serving as important references for nations to formulate entrepreneurial policies. According to the 2018/19 GEM report, 9.5 out of every 100 adults in Taiwan are engaged in early-stage entrepreneurial activities, and the ratio has risen for two consecutive years, indicating Taiwan's growing awareness of startups.

Compared to the 2017/18 report, Taiwan has made progress in the Entrepreneurial Framework Conditions of Government Policies, Entrepreneurial Finance, and Commercial and Legal Infrastructure, indicating the government is actively improving the entrepreneurial environment, such as helping startups obtain early-stage operating funds through the Business Angel Investment Program enforced by the National Development Fund. This article will discuss the government's tax incentives for startups and its efforts to attract international startup talent.

Based on KPMG's experiences in advising startups, the issues most concerned for their early-stage operations are mostly associated with taxation. For instance, when a startup is smoothly proceeding with fundraising, the tax efficiency for investment paths taken by its domestic and overseas investors have to be assessed. In addition, if a new venture wants to obtain technologies it needs by allowing the technologies to be converted into shares, then the technology-based shareholders will also face the tax payment issue. Even if a new business seeks to retain quality employees by allowing them to become shareholders, they still have to deal with taxation.

But there are substantial tax incentives or preferences stated in the Statute for Industrial Innovation and the Act for Development of Small and Medium Enterprises (SMEs). Moreover, in order to continue promoting the establishment of innovative startups, the government is amending and expanding the Act for Development of SMEs into the Act for Development of SMEs and Startups, highlighting the government's efforts for advancing innovations and startups. The "taxation environment" chapter in the expanded bill may cover tax incentives for knowledge innovation and digital transformation, including tax credits for investments in the segments of smart machinery, IoT, AI and system integration. Also, in view that being acquired is one of the exit strategies for startups, the government is also revising the Business Mergers and Acquisitions Act to allow individual shareholders of a startup to defer tax payment for the shares they purchase at premium prices from the surviving company after the startup is acquired, so as to spur M&A of startups.

Furthermore, the government has spared no efforts recruiting international startup talent. The newly enforced revisions to the Act for the Recruitment and Employment of Foreign Professionals mark the largest opening-up for international talent, sharply relaxing regulations governing their work permits, resident visas and residence applications and offering them pension protection and tax preferences. The biggest highlight of the revised bill is that a foreign professional in a special sector may apply for a four-in-one Employment Gold Card that combines work permit, resident visa, alien resident certificate and re-entry permit. The card will be valid for one to three years, and can be renewed upon expiration, which is quite convenient for some foreign professionals. Moreover, in case a foreign "special" professional has for the first time been approved to reside and work in Taiwan, then within three years starting from the tax year in which the professional meets the conditions of residing in Taiwan for a full 183 days of the year and scores annual salary income of over NT$3 million, the part of the professional's salary income above NT$3 million in each tax year shall be halved in amount in the calculation of total income for the assessment of individual income tax liability in that year, with his or her income earned abroad not having to be incorporated into basic income tax statement. This is a highly attractive tax preference scheme for high-tier foreign professionals.

Despite a growing practice in Taiwan, creating startups is not an easy job. Besides difficulties in raising funds, entrepreneurs have to face complicated taxation and legal issues. The government's high regard for startups can be evidenced by its growing relaxation of relevant regulations. Besides devoting more efforts to R&D or business development, entrepreneurs can well capitalize on diverse resources provided by the government to accelerate their startups' advances on the road to success.

(Daisy Kuo, Hazel Chen and Vivian Ho are accountants from KPMG Startups and Innovation Taskforce)