To advance industrial innovation and enhance industrial competitiveness, companies or limited partnerships that have not committed any major violations of environmental protection, labor, or food safety and health laws within the past three years, and whose research and development activities demonstrate a high degree of innovation with expenditure items meeting the requirements of the “Regulations Governing the Investment Tax Credit for Research and Development Expenditures by Companies or Limited Partnerships (tentative translation )” (hereinafter referred to as the “Investment Tax Credit Regulations”), shall apply to the central competent authority in charge of the relevant industry for review during the period commencing three months prior to the beginning of the annual income tax filing period and ending on the last day of such filing period. When filing the annual profit-seeking enterprise income tax return, the enterprise may choose either to deduct 15% of the R&D expenditure from the current year’s profit-seeking enterprise income tax payable, or to deduct 10% of the expenditure from the profit-seeking enterprise income tax payable over a three-year period starting from the current year. However, the total tax deduction shall not exceed 30% of the current year’s profit-seeking enterprise income tax payable.

The National Taxation Bureau of Kaohsiung, Ministry of Finance, stated that where companies or limited partnerships engaged in the aforementioned R&D activities, except for outsourced R&D or jointly conducted R&D agreed to be performed by foreign companies, universities, or research institutions, only R&D activities conducted within the Taiwan area may be recognized as R&D expenditures. Enterprises shall pay attention to Article 5 of the Investment Tax Credit Regulations regarding the expenditure item “salaries of full-time personnel exclusively engaged in R&D work,” which is limited to full-time personnel assigned to R&D units and exclusively engaged in R&D work, or where no R&D unit is established, full-time R&D personnel assigned to non-R&D units who are in fact exclusively engaged in R&D activities. The job descriptions, working hour records, and documents sufficiently proving that the aforementioned personnel are full-time employees exclusively engaged in R&D work shall be provided for tax collection authorities to determine. If personnel engaged in R&D work concurrently handle administrative management, market research, statistics, control, supervision, or other duties, they shall be deemed not to be full-time personnel exclusively engaged in R&D work, and their salary expenses shall not qualify as R&D expenditures eligible for the investment tax credit under the Investment Tax Credit Regulations.

The Bureau further indicated that in a recent audit of Company A’s 2022 profit-seeking enterprise income tax return, in which the company applied for the R&D expenditure tax credit under Article 10 of the Industrial Innovation Statute to offset its current-year profit-seeking enterprise income tax payable, it was found upon review that the reported R&D expenditures included “salaries of full-time personnel exclusively engaged in R&D work,” including salaries of personnel dispatched to overseas subsidiaries to provide technical services. As such personnel were abroad for more than 300 days during the year, they were not considered to be conducting R&D activities within the Taiwan area. Furthermore, their primary duties were management, supervision, and manufacturing operations, and thus they were not full-time personnel exclusively engaged in R&D work. The Bureau therefore excluded over NT$20 million in salary expenditures for these personnel from the R&D expense items. Calculated at the reported credit rate of 15%, this resulted in an additional profit-seeking enterprise income tax assessment of over NT$3 million.

The Bureau would like to remind companies applying for the R&D expenditure investment tax credit to ensure that relevant expenses or expenditures comply with the aforementioned Investment Tax Credit Regulations to avoid tax adjustments and additional tax assessments. For any inquiries, please call the toll-free service number 0800-000-321 or visit the Bureau’s website （https：//www.ntbk.gov.tw）and use the online smart customer service “National Tax Helper” for assistance.

Provided by: Profit-Seeking Enterprise Income Tax Division
Contact Person: Section Chief Liu Miao-Tian    Tel: (07) 7256600 Ext. 7160
Drafted by: Hsu Shu-Jung                                   Tel: (07) 7256600 Ext. 7168