The Ministry of Economic Affairs (MOEA) and the Ministry of Finance jointly enacted the Regulations on Tax Double Reduction for Domestic Individual or Corporate’s R&D Expenditures (hereafter, the "Regulations") on September 1, 2016. In the future, an amount up to 200% of the amount of annual R&D expenditures may be deducted from the total annual taxable incomes of an individual or company in the same year, capped at the revenues earned by such individual or company from assignment or license of an intellectual property right owned and independently developed.

The MOEA stated that these Regulations had been enacted for the purpose of promoting the circulation and utilization of innovative R&D outcomes and encouraging individual or corporate’s assignment or license of unused and independently developed intellectual properties so as to improve industrial competitiveness. Enterprises who want to be entitled to such benefits must meet the requirements prescribed in Article 3 of the Regulations. That is, it must be a company incorporated under the Company Act; and shall not have committed any serious act in violation of laws relating to environmental protection, labor or food safety and sanitation in the last three (3) years.

According to the provisions of the Regulations, within the scope of revenues earned for assignment or license of its independently developed intellectual property rights, a domestic individual or company may deduct from its annual taxable incomes an amount up to 200% of the amount of its R&D expenditures in the same year. Wherein, in case where an individual assigns or grants a license of its own and independently developed intellectual property rights twice or more for the same year, the deductible amount pursuant to Article 4.1 of the Regulations shall be counted item by item, and be deducted maximally to the entirety of such each income earned in the same year. As to the upper limit of deductible amount for a company, it shall be counted pursuant to the provision in Paragraph 3 of the same Article.

To avoid the circumstance where a tax payer might receive unjust tax incentive benefits through elevating revenues from intellectual property rights by means of manipulating irregular transactions, it is clearly stipulated in Article 6 of the Regulations that if the revenues from intellectual property rights under the Regulations is not consistent with the common business practices, the tax collection authority may adjust it accordingly. The adjusted revenues will be used in the calculation of amount that is deductible under the Regulations. And in case where the R&D expenditures declared by an individual or company is found containing false statement by the tax collection authority, said individual or company will be subject to the provisions governing penalty against tax evasion or omission in the Income Tax Act and the provisions governing the termination of the incentive benefits ought to be entitled to in the Tax Collection Act.

Regulations on Tax Double Reduction for Personal or Corporate R&D Expenditures

Article 1

The Regulations are enacted in accordance with the provisions in Article 12-1(7) of the Statute for Industrial Innovation (hereafter, the "Statute").

Article 2

When filing an annual “income tax return for profit-seeking enterprises,” a company shall choose to enjoy either Article 10(1) or Article 12-1(1) of the Statute, and once decided, shall not change it after the expiration of the term for filing such annual tax return.

Article 3

A company shall meet the following requirements in order to be entitled to double tax deduction for its R&D expenditures based on the Regulations:

  1. Being incorporated under the Company Act; and
  2. Having not been committing any serious act in violation of laws relating to environmental protection, labor or food safety and sanitation in the last three (3) years.

Article 4

An amount up to two hundred percent (200%) of the amount of annual R&D expenditures may be deducted from the total annual taxable incomes of a domestic individual or company in the same year, capped at the revenues earned by such individual or company from assignment or license of an intellectual property right owned and independently developed.

Where such domestic individual assigns or grants a license of its own independently developed intellectual property rights twice or more for the same year, the deductible amount pursuant to the preceding paragraph shall be counted item by item, and be deducted maximally to the entirety of such each income earned in the same year.

The amount that is deductible for a company pursuant to the provision in the first paragraph shall be limited to the revenues earned in the same year by such company from assignment or license of intellectual property rights owned and independently developed, and the amount may be deducted maximally to the entirety of the taxable income amount for said year.

Where the taxable income amount of a domestic individual or company calculated pursuant to the provisions in Article 24 or Category 5 and Category 7 of Article 14(1) of the Income Tax Act is negative or presents losses, no deduction pursuant to the preceding three paragraphs shall be applicable.

For a company to which the Regulations are applicable, the deducted amount shall be included its amount of basic income pursuant to the provision in Article 7(1)(10) of the Income Basic Tax Act.

The assignee or licensee referred to in the first paragraph shall be limited to enterprises, domestic universities & colleges or research institutes.

The domestic research institutes referred to in the preceding paragraph include the governmental research organizations, teaching hospitals accredited by the central health competent authority, and foundations and aggregate corporations as well as their subordinate research agencies approved by and registered with the government for the primary purpose of research.

Article 5

The R&D expenditures of a domestic individual that is deductible under the provision of the first paragraph of the preceding Article shall be limited to the R&D costs and necessary expenditures related to the intellectual property right(s) that has been assigned or licensed in the same year.

Deduction-eligible annual R&D expenditures and activities of a company shall be certified pursuant to relevant provisions in and to the extent of the amount approved under the Regulations Governing Application for Tax Credits for Corporate Research and Development Expenditures.

Article 6

Where the revenues earned from assignment or license of an intellectual property right referred to in the Regulations is not consistent with the common business practice, the tax collection authority may adjust it according to the general trading practice pursuant to the provisions in Article 43(1) of the Income Tax Act, Article 50(1) of the Financial Holding Company Act and Article 47(1)(1) of the Business Mergers And Acquisitions Act, and the adjusted revenues shall then be applicable for deductions according to the Regulations.

Article 7

The domestic individual or company shall submit the following documents to the central competent authority governing the assignee or licensee to request for certification two (2) months prior to the beginning of the filing period of income tax return for said year:

  1. An agreement for such assignment or license of intellectual property right;
  2. A photocopy of the intellectual property right certificate, or other relevant documents such as opinions, assessment report or technical specification concerning the investigation of such intellectual property right produced by an attorney at law, a certified public accountant, or any other professionals with substantial legal responsibilities;
  3. Relevant documents that are sufficient to prove said intellectual property to be independently developed; and
  4. Other relevant supporting documents.

Where the assignee or licensee under the preceding paragraph is a domestic university/college or research institute, the domestic individual or company shall request for certification with the central competent authority governing the industry wherein said intellectual property right will be utilized.

The central competent authority under the preceding two paragraphs shall notify the requester of its decision via a letter prior to the beginning of the filing period of income tax return for said individual or company in said year, and send a copy of the decision letter to the local tax collection authority where said person's household or said company is registered.

Article 8

For approval of deducting taxable amount, when filing the annual income tax return, said domestic individual shall complete it in accordance with the specified formality and submit the following accompanying documents to the local tax collection authority where its household is registered:

  1. A photocopy of the intellectual property right certificate issued by a central competent authority governing the profit-seeking enterprise concerned;
  2. An agreement and assessment report for such assignment or license of intellectual property right;
  3. Documentary evidences for the R&D costs and necessary expenditures incurred by the independently developed and owned intellectual property rights being assigned or licensed;
  4. Other relevant supporting documents.

For approval of deducting taxable amount, when filing the annual income tax return, said company shall complete it in accordance with the specified formality and submit the following accompanying documents to the local tax collection authority where it is registered:

  1. A photocopy of the intellectual property right certificate issued by a central competent authority governing the profit-seeking enterprise concerned;
  2. An agreement and assessment report for such assignment or license of intellectual property right;
  3. Documents required by the provisions in Articles 4(4) and 12(1) of the Regulations Governing Application for Tax Credits for Corporate Research and Development Expenditures;
  4. Other relevant supporting documents.

In case of any mistake or omission regarding the formality and the documents submitted by the individual or company pursuant to the preceding two paragraphs, correction may be implemented prior to the expiration of the filing period prescribed in the Income Tax Act; for those remain uncorrected after expiration, the tax collection authority may reject such filing.

Article 9

In case where the domestic individual fails to declare R&D expenditures or produce supporting documents, its costs and necessary expenditures concerned shall be calculated for deduction based on thirty percent (30%) of its earnings concerned, and the provision in Article 12-1(1) of the Statutes, which stipulates that an amount up to two hundred percent (200%) of the amount of R&D expenditures may be deducted from the taxable income amount in the same year, is not applicable.

Article 10

In case where the domestic individual expenditure applied for double deduction from taxable income pursuant to the Regulations is found by the tax collection authority as engaging any false statement, the authority may subject it to the provisions governing penalty against tax evasion or omission in the Income Tax Act and the provisions governing the termination of the incentive benefits ought to be entitled to in the Tax Collection Act.

Article 11

Where the provision in Article 12-1(1) of the Regulations is applicable to a domestic individual or company, its R&D Expenditures concerned shall be limited to those incurred during the period from January 1, 2016 to December 31, 2019.

Article 12

The Regulations will be effectuated during the period from January 1, 2016 to December 31, 2019.