Newsletter
Income Taxation on Taiwan L.P.
For a venture capital fund ("fund") which is set up under the Limited Partnership Act ("LPA"), if it satisfies certain requirements, the fund may apply to adopt the pass-through taxation, so as to avoid double taxation, pursuant to the newly-amended Statute for Industrial Innovation. In other words, the taxable income resulting from the operation of the fund will be passed to its partners directly and fund would not be the income taxpayer under the pass-through taxation.
The criteria to apply for adopting the pass-through taxation are as follows:
1. The fund is required to be set up between January 1, 2017 and December 31, 2019.
2. After the fund is set up, the paid capital contribution within two years based on the partnership agreement is more than NT$300 million and the paid capital contribution in the third, fourth and fifth years is more than NT$100 million.
3. The accumulated investment amount in the startup companies is more than NT$300 million or at least 30% of the total paid capital of the fund.
4. At least 50% of the fund is invested in Taiwan capital or offshore companies with actual operation, which shall be incorporated for no more than five years.
5. The fund has to file an application to apply for the pass-through taxation by the end of February of the second year after it is set up.
6. The fund is required to fall within the scope of the policy determined by the Taiwan Government.
Under the pass-through taxation, the tax will be passed to the partners of the fund. For the Fund's partners which are local enterprises, the taxable income attributed to them is exempted from Taiwan income tax under Article 42 of the Taiwan Income Tax Act. For the Fund partners who are local individuals, the taxable income attributed to them will be subject to Taiwan income tax. However, if the taxable income of the Fund is resulting from the capital gain of a securities transaction, Fund partners who are local individuals will be exempt from capital gain tax.
For the Fund partners which are foreign enterprises or foreign individuals, the taxable income attributed to them will be subject to Taiwan income tax. In principle, the taxable income will be subject to 21% withholding tax before it is distributed to the foreign enterprises or foreign individuals unless any applicable tax treaty or agreement provides for a lower tax withholding rate. However, if the taxable income of the Fund is resulting from the capital gain of a securities transaction, foreign enterprises or foreign individuals will be exempt from such capital gain tax.