For the purpose of encouraging businesses in Taiwan to expand recruitment and reduce unemployment, Article 36, Paragraph 2 of the Act for Development of Small and Medium Enterprises was amended on May 20, 2014. The revision added tax incentives as a method to encourage new hiring and authorized the Executive Yuan to formulate relevant regulations. After inter-departmental meetings and discussions, the Executive Yuan officially formulated and promulgated the "Regulations for the Tax Preferences Provided to Small and Medium-sized Enterprises on Additional Wage Payment" on February 6, 2015.
In total, the "Regulations for the Tax Preferences Provided to Small and Medium-sized Enterprises on Additional Wage Payment" contains ten articles, and the prerequisite condition for the Regulations to become effective is that "the Economic Sentiment Index must reach a certain level". This "certain level" is defined as the unemployment rate reaching or exceeding the limit stipulated by the central competent authority for six consecutive months, which must then be recognized and announced by the same competent authority. Within a two year period starting from the effective date, any small and medium enterprises that a) employs additional workers who are Taiwanese nationals and b) meets certain criteria may apply for a tax deduction for the business income tax of that year based on the actual salary of each additional worker multiplied by 130%. The Ministry of Economic Affairs will make an announcement soon after "the Economic Sentiment Index has reached a certain level". The Regulations are provided as follows:
The Regulations only apply to small and medium enterprises that are not considered small-scale profit-seeking enterprises.
The standard of the Economic Sentiment Index is defined as the unemployment rate exceeding a certain level for six consecutive months.
The effective period for the tax incentive starts from the date of the announcement and continues for two years. However, during the first incentive period, the calculation of tax deduction shall start from May 20, 2014, pursuant to the Act for Development of Small and Medium Enterprises.
To apply for the deduction, small and medium enterprises shall meet the relevant qualifications (for instance, the company that is applying shall a) be a startup business established after the announcement or an existing company that has increased its capital to NT$500,000 or more during the time following the announcement, b) have hired at least two additional workers, and c) met the required total salary amount and required employee number).
In the event that a small or medium enterprise may not apply for the deduction, the company must submit a declaration (for instance, the additional work provided must be in the region of Taiwan, and the nature of the work cannot be part time or part of a certain industry. In the event that the additional employment rate does not increase employment, the applicant will not be penalized if it does not violate regulations regarding environmental protection, labor, or food safety).
Tax incentive application procedures, required documents, and deadlines.
Conditions including the avoidance of overlapping deductions and the possibility of tax deductions being seized due to violation of social responsibilities.
Details of the provisions can be found on The Executive Yuan Gazette Online. The Ministry of Economic Affairs hopes that these Regulations will increase the investment incentive of small and medium enterprises in Taiwan and create more jobs. For more information related to the Regulations, please visit The Executive Yuan Gazette Online (http://gazette.nat.gov.tw/).