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The MOF Released the Reference List of Low-Tax Burden Countries or Jurisdictions as Defined in the Taiwan CFC Rules



As the Taiwan CFC Rules are going to take effect on January 1, 2023, the Ministry of Finance (the "MOF") released a Reference List of Low-Tax Burden Countries or Jurisdictions (the "Reference List") on December 13th, 2022 pursuant to Paragraph 2, Article 43-3 of the Income Tax Act (the "ITA"), Paragraph 2, Article 12-1 of the Income Basic Tax Act, Article 4 of the Regulations Governing Application of Accrued Income from Controlled Foreign Company for Profit-Seeking Enterprise, and Article 4 of the Regulations Governing Application of Income Calculation from Controlled Foreign Company for Individual (hereinafter collectively referred to as the "CFC Regulations").

 
Criteria for Low-Tax Burden Country or Jurisdiction  
 
Pursuant to the CFC Regulations, a low-tax burden country or jurisdiction indicates that (1) the tax rate of said country or jurisdiction's profit-seeking enterprise income tax or similar taxes is not more than 70 percent of the tax rate as set forth in Item 2, Paragraph 5, Article 5 of the ITA, or (2) said country or jurisdiction only levies income tax on income derived from sources within its territory and does not levy income taxes on incomes derived from offshore sources, or only levies income taxes upon offshore remittance. The MOF collated potential countries and jurisdictions that are likely to be recognized as low-tax burden countries or jurisdictions pursuant to the CFC Regulations and released the Reference List.
 
Countries and Jurisdictions Listed in the Reference List
 
According to the Reference List, the countries or jurisdictions that may be recognized as low-tax burden countries or jurisdictions due to the tax rate of said countries or jurisdictions' profit-seeking enterprise income tax, or similar taxes not being more than 70 percent of the tax rate, as set forth in Item 2, Paragraph 5, Article 5 of the ITA are as follows:
 
Anguilla
Guernsey
Principality of Andorra
Republic of Paraguay
Barbados
Democratic Republic of Timor-Leste
Principality of Liechtenstein
Republic of the Marshall Islands
Bermuda
Hungary
Republic of Bulgaria
Republic of Vanuatu
Bonaire, Sint
Eustatius and Saba
Isle of Man
Republic of Cyprus
State of Qatar
Bosnia and Herzegovina
Jersey
Republic of Kosovo
Turks and Caicos Islands
British Virgin Islands
Kingdom of Bahrain
Republic of Moldova
Commonwealth of The Bahamas
Cayman Islands
Kyrgyz Republic
Republic of North Macedonia
Macao
Republic of Palau
 
 
 
 
According to the Reference List, the countries or jurisdictions that may be considered as low-tax burden countries or jurisdictions since said countries or jurisdictions only levy income tax on income derived from sources within its territory, and do not levy income taxes on incomes derived from offshore sources, or only levy income taxes upon offshore remittance are as follows:
 
Belize
Kingdom of Eswatini
Republic of El Salvador
Reunion
Brunei Darussalam
Malaysia
Republic of Guatemala
Saint Barthelemy
Curacao
Martinique
Republic ofGuinea-Bissau
Saint Martin(French Part)
DemocraticRepublic of theCongo
Mayotte
Republic ofHonduras
Saint Pierre and Miquelon
Federated Statesof Micronesia
New Caledonia
Republic of Kenya
State of Eritrea
French Guiana
Oriental Republic of Uruguay
Republic of Malawi
State of Kuwait
French Polynesia
Palestine
Republic of Namibia
State of Libya
French Republic
Plurinational State of Bolivia
Republic of Nauru
Syrian ArabRepublic
French Southern Territories
Principality of
Monaco
Republic of Nicaragua
Tuvalu
Georgia
Republic of Botswana
Republic of Niger
United ArabEmirates
Gibraltar
Republic ofChad
Republic of Panama
Wallis andFutuna
Guadeloupe
Republic ofCosta Rica
Republic of Seychelles
Hong Kong
Republic of Djibouti
Republic of Singapore
 
 
 
Countries and Jurisdictions that Shall Be Recognized on a Case-by-Case Basis
 
According to the CFC Regulations, if a country or jurisdiction applies a specific tax rate or system to specific regions or specific types of enterprise (e.g., the Independent State of Samoa, Republic of Ireland, Republic of Mauritius), the tax burden of these countries or regions is not necessarily lower than the Taiwan tax rate, and so such a country of jurisdiction is not presented in the Reference List in a definitive manner. In this case, the MOF will determine whether a lower tax burden exists on a case-by-case basis.
 
Conclusion
 
The Taiwan CFC Rules will take effect soon. Whether or not a foreign company invested by a profit-seeking enterprise or an individual is located/registered in a country or jurisdiction with a low-tax burden under the CFC Regulations will directly affect the applicability of these CFC rules relevant to the profit-seeking enterprise or individual. Profit-seeking enterprises and individuals shall confirm whether the foreign company invested is located/registered in a low-tax burden country or jurisdiction as soon as possible, in order to take into account the potential increase in tax costs after the Taiwan CFC Rules take effect. Our firm's tax team is composed of domestic and foreign attorneys and certified public accountants who are familiar with the latest changes in domestic and international tax laws, and we work closely with L&L, Leaven & Co., CPAs, and have an in-depth understanding of tax auditing practices. If you have any questions regarding the Taiwan CFC Rules, please do not hesitate to contact our tax team.


 
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