On 14 January 2022, Taiwan’s Executive Yuan announced that controlled foreign company (CFC) rules will come into force in 2023 in response to Pillar Two of the OECD’s Global Anti-Base Erosion (GloBE) Proposal. Taiwan’s CFC rules aim to prevent the artificial diversion of profits from Taiwan to CFCs operating in low- or zero-tax jurisdictions. They were introduced in 2016 for corporations and in 2017 for individuals but have since been pending an implementation date from the Executive Yuan.
When the Management, Utilisation, and Taxation of Repatriated Offshore Funds Act was enacted in July 2019, an accompanying resolution was made requiring the Taiwanese Ministry of Finance to report to the Executive Yuan for approval of an implementation date within one year after the expiration of a date set in the Management, Utilisation, and Taxation of Repatriated Offshore Funds Act, which fell on 16 August 2021. The CFC rules were estimated to take effect in 2022 at the earliest. Now, so as to align with the OECD’s timeline for domestic implementation of a 15% global minimum tax (which takes effect in 2023), Taiwan’s government has decided that its CFC rules will be implemented on 1 January 2023.
A foreign entity is deemed a CFC if:
The CFC rules would not apply where:
To catch up with global trends and enhance Taiwan’s competitive edge in the international tax community, Taiwan decided to implement its CFC rules in 2023, with the aim of ensuring the effective tax rate of CFCs meets the global tax standards. It is advisable for businesses or shareholders to re-examine their organisational structure and analyse potential tax risks under the CFC rules.
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