When it comes to transactions involving third parties, Taiwanese tax laws provide some tax exemptions or reductions, but it is also essential to note the recent change regarding real estate transaction. 

A. Sales of shares or assets for cash

Dividends or earnings received by Taiwanese PSEs from another Taiwanese PSE are not considered taxable income. However, dividends obtained from foreign PSEs must be included in the taxable scope. In addition, when a foreign PSE invests in a Taiwanese PSE, a 21 per cent withholding tax must be paid on dividends.

In Taiwan, income from securities transaction is not subject to income tax, and transaction losses cannot be deducted. Therefore, whether the sale of company shares by a PSE is taxable depends on whether the target shares are represented in the form of securities. If the invested company has issued securities, the sale of those shares is tax-exempt; however, if the shares being sold are not represented by securities, the transaction is still subject to taxation.

In the case of selling real estate, as mentioned earlier, the sale of land acquired before 2015 is tax-exempt. However, if a PSE sells land acquired after 2016, income tax must be paid, with the buildings situated on that land. Moreover, as a result of the policies to control real property prices, the tax rate on these transactions varies depending on the holding period. Selling within a shorter holding period incurs a higher tax rate, while longer holding periods are subject to lower tax rates. For example, selling land and buildings held for less than two years would incur the highest tax rate of 45 per cent, while the rate is 20 per cent if the holding period exceeds five years.

B. Tax-free or tax-deferred transactions

When a company transfers its main business or assets to another company and acquires shares entitled with voting rights more than 80 per cent of the total consideration, and then transfers all the acquired shares to its shareholders, the resulting income is exempt from income tax. Similarly, if a company undergoes a division and transfers acquired shares to its shareholders, the resulting income is also exempt from income tax.

C. International considerations

When Taiwanese companies engage in mergers, divisions or acquisitions of assets or shares with foreign companies, they can still enjoy the aforementioned tax exemptions. However, as mentioned earlier, dividends received by foreign investments in Taiwanese subsidiaries are subject to a 21 per cent withholding tax. If the investment originates from a country that has not signed a tax treaty with Taiwan, it is necessary to consider whether to avoid dividend withholding tax through the establishment of branches during tax planning. Additionally, when dealing with investments in Taiwan through companies set up in tax havens or profit extraction from Taiwan through related-party transactions, transfer pricing regulations under Taiwanese tax law must be considered in tax planning.