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In the recent years in reply to the worsened economic environments, such as strict environmental requirements, escalating labor cost etc.. more and more businesses in Taiwan have reached out to overseas regions including China in pursuit of profitability and sustainable operations. Among the said regions, China has become the major region attracting investments from Taiwanese businesses on the following grounds: Mainland of China provides vast land, rich resources, low labor force, large market, and language and habits/customs similar to those in Taiwan; and the economic; authority of China offers various privilegeous measures and incentives to actively invite foreign investments after launching economic reform and ban-elimination strategies.
However, it is critical for Taiwanese businesses to assess/evaluate the local situations for investment and to realize the taxation practice, tax privileges and tax planning in China before they actually pool their money into the investment there in Mainland of China and this importance also motivate the writer to focus on the present study.
In fact the present study aims at clarifying the available requirements and provisions of the privilegeous polices and laws for tax exemptions to serve as reference for Taiwanese businesses in selecting the optimal locations and planning their tax strategies. It is also hoped that the business promote their competing strength through lowered tax cost and the governments enjoy suggestions directing the law modifications. Furthermore, it is especially expected that the present study provides evidenced facts for the interested researchers to take as reference during their study on the same.
The earliest incentive measures to businesses in Taiwan is “Investment Incentive Acts” enacted on January 1, 1960, expired on December 31, 1980, and proven to be invaluable and constructive to the promotion of economic development in Taiwan. The timing background of the incentive strategy is that during 1980’s the domestic businesses in Taiwan were confronting the impacts such as high land prices, sharply raised wages, the rise of laborers identity, and the steadily enhanced environmental protection awareness, etc. At the very moments, scholars and experts with prospect proposed that Taiwan economy will create another miracle only by developing the industries of hi-tech and high added-value products, therefore, they strongly recommended the government agencies to keep establish laws and acts that encourage businesses to put more investments and efforts for optimal operations, As a result, immediately after the said expiration, the government agency established and enacted “The Industry Upgrading Promotion Acts” in 1992, and further expanded it’s scope of applicable businesses (targets) and increased incentive items.
Such establishments and enactments made tremendous contribution to the industry upgrading and global competing strength enhancement. Under the said acts, the government agencies also formulated and enacted specific incentive acts and regulations for specific target business sectors, including but not limited to “The Small & Medium Business Development Acts”, “The Incentive Acts for Private Business to Participate in Communications & Transportation Infrastructure Construction“, “The Scientific Industrial Park Establishment Acts”, Besides the governmental authorities also entered mutual tax agreements/treaties with the authorities of other countries for seeking protection and security for our businesses to invest overseas and for encouraging foreign businesses to invest in our country and preventing any occurrence of overlapped taxation.
Regarding the privilegeous measures in taxation for Taiwanese invested businesses in Mainland of China. Article 5 of “The Regulations Encouraging Taiwanese Businesses’ Investment in Mainland “ enacted by PRC State Dept in 1988 specifies that. A Business invested by Taiwanese investors in Mainland shall be subjected to all laws and regulations pertinent to foreign economy and thus enjoy the status as a foreigners‘ invested business. Form this view, Taiwanese businessmen are deemed as foreigners. The taxation privilegeous measures are widely spread and found in “Business Income Tax Law for Foreigner Invested Businesses and Foreign Businesses in PRC” and “The Practice Ordinance of Business Income Tax Law for Foreigner Invested Businesses and Foreign Businesses in PRC” and other laws and regulations pertinent to taxation.
Our Tax-Privilegeous items fall into categories, according to the incentive items, as the follows “Accelerated Depreciation” “Equipment Investment Exemption for Specific Industrial Sectors” “Exemption for Investment in R&D Expert Training and Global Image and Brand” “Exemption for Investment in Sources-Shortage-areas or Delayed Development Areas” “Exemption for Loss from Overseas Investment” “5-years Tax Exemption” “Exemption form Re-evaluation of Assts” “Exemption for Excessive Price Issuance of Shares” “Exemption of Re-investment Income” “Surplus-Transfering to Capital Increment” etc.. While the taxation privileges to the so-called “Three-Sourced-Capital-Businesses” enacted by the taxation authorities in PRC include: “Region-Specific Taxation Privileges” “Sector-Specific Taxation Privileges” “Sector-Specific Long-Range Investment Taxation Privileges” “Local Income Tax Taxation Privileges” “Withdrawal of Tax from Re-investment” “Surplus-Investment Weighting Exemption” “Technological Loyalty Income Privileges” “Exemption of Re-investment Surplus” “Accelerated Depreciation” “Domestically Made Equipment Investment Exemption” “Incentives to R&D Center” “Software Inteqrated Circuit Industries Incentives” etc..
However, there is neither “Allowance Alloted for Loss in Overseas Investment” nor “Exemption of Tax For Excessive Value from Assets Re-evaluation or Share Prices” , While the “Surplus-transfering to Capital Increment Exemption Regulations” used to be active was abolished in 1998 already. Thanks to no local income tax in Taiwan, Taiwan offers no local tax exemption at all.
As for the exemption items, such as “Accelerated Depreciation” “Exemption from Investment in Special or Critical Industrial Sectors, R&D, Investment in Rural Areas” “Exemption of Business Income Tax within a Certain Period of Years” “Surplus-Transfering to Capital Increment etc.. the taxation authorities across Taiwan Strait both have some regulations for Taxation privileges that are different only in amplititude and formats”.
From the present study it is known that, operating business in Taiwan the Taiwanese investors enjoys mare wrieties in privilegeous items. However in some items or sectors, the investment put in China brings better feedback than in Taiwan. In general, the privilegeous amplitude given by China taxation authorities is larger than that by Taiwan authorities, Hence in view of only income tax privilegeous factors, Taiwanese businesses will enjoy better privileges in China than in Taiwan, however, the actual outcomes depend also on individual business operations.
Therefore, Taiwanese businesses are entitled the right to enjoy taxation privileges of various aspects no matter in China or in Taiwan, under the pre-requirements of being qualified. So what it takes for a Taiwanese business to lower the business operating costs, maximize overall profit for the businesses and to strengthen its competing edges should be evaluating the whole situation analytically, selecting carefully the investment target-organizations, investment locations, industrial sectors that ensure decrement in tax burdens.
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