Acting under authorization granted by Article 35 of the "SME Development Statute," the Executive Yuan has introduced tax credits as incentives for small and medium enterprises (SMEs) to devote more resources in research and development, and thereby upgrade the nation's industries while resolving practical difficulties involving the "Statute for Industrial Innovation." On February 9, 2015, the Executive Yuan enacted the "Regulations Governing the Reduction of Expenditures for Small and Medium Enterprises Research and Development as Investment" and retroactively effected it from May 20, 2014, in the hope of providing SMEs with real tax incentives that they find useful to commit in research and innovation, and eventually improve the growth of the local economy.
This regulation is applicable only to SMEs that have been incorporated as corporate entities. Although the new regulation was established under the framework of "Regulation Governing Corporate R&D Investment Credit," a sub-law of "Statute for Industrial Innovation," it does not require R&D activities to be "highly innovative" or possess a high degree of prospect, risk and originality to be eligible for the incentive, as the sub-law has stated; instead, the new regulation merely requires SMEs to meet a "certain level of innovation," which authorities may set their own assessment criteria depending on the characteristics of the industries involved. This greatly broadens the range of applicable innovations. Furthermore, the new regulation introduces more flexible tax credits than what the sub-law offers, allowing SMEs to now choose between a "15% tax credit for 1 year" or a "10% tax credit for 3 years."
SME tax credits are applied much in the same way as does the sub-law, where SMEs are required to submit proof of R&D activity (e.g., organizational chart, list of researchers, purchase or use of patents, agreements relating to copyrights, exclusive technologies, databases, software, systems etc.) to the central authority for review (see Article 12 of the regulation for details) three months before the profit-seeking enterprise business income tax filing period begins. The central authority will then forward results of its assessment to the applicant's local tax office (National Taxation Bureau), where investment credit is approved. In the meantime, SMEs are required to submit a tax credit application along with the above documentary proof to the National Taxation Bureau when filing business income taxes. The National Taxation Bureau will consolidate assessment results from the central authority and documentary proofs from companies to determine the amount of tax credit.
By introducing this regulation, the Ministry hopes to provide incentives for SMEs to take initiative in research and development and ultimately improve the competitiveness of the industry. For more details about the regulation, please visit http://gazette.nat.gov.tw/ or dial 0800-589-169 or 02-2332-8558 ext. 317.