Taiwan commenced the integrated assessment of the House and Land Transactions Income Tax on January 1, 2016 to address the issues arising from the separate levies of income tax and land value increment tax on housing and land transactions, respectively. In order to curb the continuous surge in housing prices, the Ministry of Finance recently proposed amendments to certain provisions of the Income Tax Act (i.e., the New Rules on House and Land Transactions Income Tax; hereinafter, the "New Rules"). Having gone through three readings in the Legislative Yuan and been announced by the President, the New Rules will take effect on July 1, 2021.

 

A summary of the New Rules is as follows.

 

1.         Scope of Application (Article 4-4 of the Income Tax Act):

(1)      transaction gains on the following types of properties acquired on or after January 1, 2016: (a) any building or land; (b) the right of use to any building obtained via the creation of superficies; and (c) any presold house and the land lot belonging thereto; and

(2)      income derived by any private individual or corporation (i.e., profit-seeking enterprise) from disposing more than one-half of his/her/its direct or indirect shareholding (or capital contribution) in a domestic/foreign corporation of which fifty percent (50%) or more of equity (or capital contribution), in term of the value thereof, consists of buildings and land located within the Republic of China (Taiwan); nevertheless, shares in companies listed on TWSE and TPEx are excluded.

 

2.         To discourage private individuals from short-term real estate speculation, a forty-five percent (45%) tax now applies to property transaction gains on buildings or land sold by private individuals within two (2) years of purchase, i.e., an increase from one (1) year before the amendment. Furthermore, those who sell their buildings or land between two (2) to five (5) years of purchase now face a thirty-five percent (35%) tax (Articles 14-4 and 14-5 of the Income Tax Act).

 

3.         To discourage domestic corporations from short-term real estate speculation and to prevent private individuals from circumventing their tax obligations through setting up corporations, domestic corporations are now subject to the same tax rates as private individuals on their property transaction gains based on how long they were in possession of the buildings or land before the transaction. The 20% corporate income tax (i.e., profit-seeking enterprise income tax) applies only to the property transaction gains on buildings or land sold after five (5) years of purchase (Subparagraph 1, Paragraph 2, Article 24-5 of the Income Tax Act).

 

4.         Foreign corporations now face a forty-five percent (45%) tax on the property transaction gains on buildings or land sold within two (2) years of purchase -- an increase from one (1) year before the amendment (Subparagraph 2, Paragraph 2, Article 24-5 of the Income Tax Act).

 

5.         To prevent corporations from circumventing their income tax obligations by inflating the present transfer value of the land reported thereby to an amount higher than the government assessed value of the land, the New Rules stipulate that, after a corporation completes its construction of a building, the income receives thereby from transferring such building for the first time, less the total amount of land value increment, shall be subject to corporate income tax (Paragraph 4, Article 24-5 of the Income Tax Act).

 

6.         To prevent taxpayers from circumventing their tax obligations by padding the relevant costs and expenses of the transaction, a cap has been imposed on the total amount of land value increment that can be deducted from taxable income. In addition, the presumed amount of expenses (applicable where no evidentiary document can be produced) for real estate transactions are reduced from 5% to 3% of the transaction price with a newly imposed cap of NT$300,000 (Paragraphs 1 and 3 of Article 14-4, Article 14-6, and Paragraphs 2 and 5 of Article 24-5 of the Income Tax Act).

 

7.         The property transaction gains on buildings or land sold by a sole proprietorship or a partnership are subject to the same tax rates as those applicable to private individuals, and the tax return thereof shall be filed by the sole proprietor or the partner, respectively (Paragraph 6, Article 24-5 of the Income Tax Act).

 

A comparison of the pre and post-amendment rules is provided below:

 

 

The New Rules on House and Land Transactions Income Tax take effect on July 1, 2021 and will not only affect the timeline for future transactions but also be a key consideration for making relevant tax arrangements. In this regard, Lee and Li's Real Estate and Construction Practice Group and Tax Practice Group offer legal services on real estate transactions and relevant tax planning. If you have any questions regarding the planning of real estate transactions or the New Rules on House and Land Transactions Income Tax, please feel free to contact Yi-Jiun Su and Lily Kuo of our Real Estate and Construction Practice Group and Frank Lin and Alvin Chen of our Tax Practice Group.