On 21 April 2017, the Legislative Yuan introduced Article 12-1 into the Income Basic Tax Act (also known as the Alternative Minimum Tax Act or the "AMT Act") and requires the application of the controlled foreign corporation (CFC) rules to individual shareholders as well.
According to the newly added Article 12-1 of the AMT Act, a Taiwanese tax resident will be required to include his/her pro rata share of CFC earnings in his/her basic income when calculating alternative minimum tax if the Taiwanese tax resident, together with his/her related person(s), directly or indirectly, holds more than 50% of the shares or capital of the CFC located in a low-tax country or region, or has substantial control of the CFC’s operations. When the CFC distributes dividends to the Taiwanese tax resident, the amount of dividends after deducting the amount that had been included in the individual's basic income will be deemed his/her non-ROC-sourced income.
According to Article 43-3 of the Income Tax Act, a low-tax country or region refers to a country or region whose corporate income tax rate or a similar tax is lower than 70% of Taiwan’s current corporate income rate of 17% (i.e., 11.9%) or one which imposes tax only on its domestically sourced income.
Furthermore, Article 12-1 of the AMT Act will not apply in any of the following situations:
(1) The sum of such pro rata share of CFC earnings and other non-ROC sourced income received by a Taiwanese tax resident and any person(s) who is(are) required to file a joint tax return with the Taiwanese tax resident in a calendar year is below NT$1,000,000; or
(2) A Taiwanese tax resident, together with his/her spouse and relatives within two degrees of kinship, holds less than 10% shareholding of the CFC; or
(3) The CFC has actual business activities in its jurisdiction, or the CFC and its foreign affiliates’ aggregate earnings are below the current threshold of NT$7,000,000.
The effective date of Article 12-1 of the AMT Act will be further determined by the Executive Yuan.