National Taxation Bureau of the Southern Area, Ministry of Finance (hereinafter “the Bureau”) indicates that profit-seeking enterprises should provide relevant supporting documents in conformity with regulations when they have a loss on investment due to capital reduction for covering losses, merger, bankruptcy, or liquidation of overseas invested enterprises, and only a realized loss could be declared on taxation.
The Bureau explains that, in accordance with Article 99 of the Regulation Governing Assessment of Profit-seeking Enterprise Income Tax, profit-seeking enterprises’ investment losses are restricted to realized losses. If the invested enterprise had a loss but the amount of original capital has not been reduced, the loss would not be recognized. Profit-seeking enterprises should present their documents of evidence when reporting investment losses which result from capital reduction to offset their losses, merger, bankruptcy, or liquidation of the invested enterprise. If the overseas invested enterprise has no substantive operating activities in its country or jurisdiction, profit-seeking enterprises should provide the documents of evidence to prove that the losses are operating losses derived from its reinvested enterprise with substantial operating activities. And the documents shall be attested by diplomatic missions or commercial representatives or foreign trade agencies of the R.O.C. If the invested enterprise is in mainland China, profit-seeking enterprises should provide the documents of evidence authenticated by an institution or organization entrusted by the Mainland Affairs Council of the Executive Yuan, of dealing with the bilateral affairs between the people of the Taiwan area and the Mainland area.
For instance, Company A declared a loss on investment of NT$10 million in 2022 due to the reduction in capital to cover losses by its overseas Company B, which is registered in the British Virgin Islands and does not engage in substantial operational activities. The losses of Company B result from the operational losses of the reinvested Company C having substantial operational activities in mainland China. Therefore, to report the aforementioned overseas investment losses in addition to providing the documents of evidence of the reduction in capital for covering losses by Company B, Company A is also required to present the documents of evidence of the operating losses incurred by Company C due to substantial operational activities, along with certifications from the Strait Exchange Foundation.
The Bureau reminds profit-seeking enterprises that they should meet relevant reporting requirements and attach supporting documents for verification by the National Taxation Bureau.
Press Release Contact: Mr. Chang
Profit-seeking Enterprise Income Tax Division
TEL:06-2223111 ext. 8040