Oct 2009
Taiwan Ministry of Finance ("MOF") has recently reconfirmed its announcement that, from beginning of 2010, Taiwan residents will pay Income Basic Tax ("IBT") on offshore income, if their annual offshore income is more than TWD1 million and annual consolidated personal income exceeds TWD6 million. This announcement led to heavy debates and discussions in the global investment fund industry concerning the unequal tax treatment between redemption gains realized from onshore and offshore funds. Notwithstanding the strong arguments of the industry players the MOF has decided to hold on to the announced new taxation rules, which will become effective from 1 January 2010.
Currently for individuals resident in Taiwan that invest in onshore open-ended mutual funds, gains from redemption of onshore funds are not subject to income tax assessment. Additionally, as redemption of onshore mutual fund is not regarded as a "transfer" of securities, Securities Transaction Tax ("STT") does not apply either. This ultimately means that an individual investor would not be subject to any taxes on investments in onshore mutual funds.
On the other hand, from an individual tax perspective, the IBT calculations will include the original tax exempt offshore income (including gains realized from offshore mutual fund) from 2010 onwards, which results in an unequal tax treatment between the taxability of gains realized from offshore and onshore mutual funds.
Industry players are concerned that the adoption of the new IBT provisions to include offshore income in the taxable income may bring adverse effect to the offshore funds market in Taiwan. Thus, fund companies urge the MOF to consider fair and equal tax treatment for onshore and offshore mutual funds.
