Taiwan 'CHIPS Act' enters countdown for finalization

Bryan Chuang, Taipei; Eifeh Strom, DIGITIMES Asia 0


The approval of Taiwan's government-led incentives, known as Taiwan's "CHIPS Act," for the local chipmaking sector has entered its final stage, according to official sources.

Companies and individuals can submit opinions about the proposed amendments to Article 10-2 of the Statute for Industrial Innovation, the official name of the legislation, to Taiwan's Ministry of Economic Affairs (MOEA) through the end of May.

The main purpose of the policy is to encourage manufacturers to invest more in high-value equipment and R&D, which would help Taiwanese manufacturers maintain their key position in the global industrial chain and give Taiwan a global competitive advantage in important industries.

After consulting with the Ministry of Finance (MOF), the MOEA proposed certain thresholds for companies hoping to apply for the tax incentives, including a minimum annual spend of NT$6 billion (US$194.68 million) in R&D, R&D must account for at least 6% of annual sales, and a minimum spend of NT$10 billion on equipment used for advanced process manufacturing.

According to a survey by the National Science and Technology Council (NSTC), Taiwanese companies with more than 1,000 employees spent NT$496.36 billion on R&D in 2021. The survey also found that 70% of R&D expenditures come from companies with more than 1,000 employees.

Most Taiwan-based electronics companies should far exceed the threshold set by the MOEA, sources said.

To avoid criticism that these preferential policies are tailor-made for TSMC, the draft notes that a company may still enjoy tax breaks if it invests in R&D for innovative applications of mature process technologies and meets relevant requirements, even if it does not invest in world-leading technologies.

Sources pointed out that R&D expenditures in Taiwan's electronics industry are seldom used for the R&D of forward-looking innovations, which has resulted in academics often criticizing Taiwanese manufacturers for being short-sighted.

Taiwanese manufacturers mainly focus investments on improving production line efficiency, fulfilling existing customer order demand, increasing yield, and decreasing costs to achieve the company's operating goals.

As such, when formulating preferential tax policies to reward R&D, the MOEA and MOF could not deviate from Taiwan's existing industrial structure and ecosystem.

The MOEA and MOF will jointly announce the policy once they have finished collecting relevant opinions. Eligible manufacturers will be able to apply for tax breaks in 2024.