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Executive Yuan Passed Draft Amendments to the Business Mergers and Acquisitions Act, Introducing Tax Incentives for Share Swap Transactions
Executive Yuan Passed Draft Amendments to the Business Mergers and Acquisitions Act, Introducing Tax Incentives for Share Swap Transactions
On August 21, 2025, the Executive Yuan approved draft amendments to Articles 44-2, 52-1, and 54 of the Business Mergers and Acquisitions Act (the “M&A Act”) to relax taxation on share swap between companies, with the aim of incentivizing Taiwanese enterprises to establish industrial holding companies (the “Draft Amendments”). The Draft Amendments will be submitted to the Legislative Yuan for review. The key points of the Draft Amendments are summarized as follows:
1. Tax Deferral for Share Swap to Promote Business Integration
Under the law, when a share swap is implemented in accordance with Article 29 of the M&A Act, shareholders of the acquired company must pay securities transaction income tax (“STIT”) in the “year of share swap” upon receiving shares of the acquiring company. Nevertheless, Article 44-2 of the Draft Amendments proposes that if a company—either existing or newly established—acquires another as a wholly-owned subsidiary through share swap, STIT realized by the shareholders of the acquired company who transfer their shares to the acquiring company to offset against the subscription price for the acquiring company’s shares can be deferred until the actual share transfer or book-entry transfer into a designated securities custodial account takes place, provided that the acquiring company, acquired company, and its shareholders should meet certain criteria, as well as that the acquiring company being recognized by the National Development Council (NDC) as an industrial holding company. To ensure fairness in taxation, this deferral does not apply if a controlling or subordinate relationship already exists between the acquiring and acquired companies.
2. Reporting Obligation of Tax Deferral to Safeguard Tax Revenue
According to Article 52-1 of the Draft Amendments, an acquiring company recognized by the NDC as an industrial holding company must, in accordance with the regulations promulgated by the Ministry of Finance (MOF), submit to the tax authority documentation of shareholders choosing to exclude the securities transaction gains from their basic income for the year in which the share swap occurs. If the acquiring company fails to file within the prescribed period or fails to file accurately, the tax authority may order rectification within a specified period of time and impose a fine ranging from NT$50,000 to NT$500,000. Failure to rectify within the specified period of time after being ordered to do so will be subject to a fine ranging from NT$100,000 to NT$1,000,000.
The Draft Amendments encourage enterprises to establish industrial holding companies through share swap by introducing tax incentives, thereby removing obstacles under the current tax regime, where shareholders will be taxed despite a non-cash share swap transaction. These amendments are expected to foster business integration among Taiwanese small and medium-sized enterprises and boost their global competitiveness.
The NDC will collaborate with the MOF to establish relevant regulations regarding the scale, type, and operational scope of industrial holding companies eligible for these incentives. The MOF will also stipulate requirements concerning the industrial holding companies (such as the acquiring companies, acquired companies, and their shareholders, and the procedures for the shareholders to select the tax incentives). These tax incentives will take effect alongside the corresponding sub-regulations, with the implementation date to be decided by the Executive Yuan after the Draft Amendments are approved by the Legislative Yuan.
Lee and Li has specialized teams for corporate investments, M&As (non-financial), and tax which can provide comprehensive planning and advisory services on matters such as group restructuring, and acquisitions or disposals of assets and businesses. Should you have any questions regarding the above information, please feel free to contact us.