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Taiwan R&D and Equipment Tax Credits for Foreign-Owned Subsidiaries: 15%, 5%, 25% and a 30% Cap
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Taiwan R&D and Equipment Tax Credits for Foreign-Owned Subsidiaries: 15%, 5%, 25% and a 30% Cap

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Four. That is how many companies applied in the first year of the highest-rate credit in Taiwan's Industrial Innovation Statute (產業創新條例), the 25% forward-looking R&D credit and its companion equipment credit (Taxation Administration release, June 18, 2024). The first year was 2023. Entry requires, among other things, NT$6 billion of R&D spending in a single year.

A Taiwan design center or equipment subsidiary spending less than that still has two credits in the same statute: 15% of R&D spending under Article 10 and 5% of smart machinery, AI and similar investment under Article 10-1. The same release confirms that a company missing the Article 10-2 conditions can still use them if it meets their own.

All three share one ceiling. A credit used in a year cannot exceed 30% of that year's corporate income tax payable. As of October 2026 (periods per each article and Article 72):

ArticleWhat qualifiesCreditCapPeriod
10R&D carried out in Taiwan15% same year, or 10% over three years30% of each year's taxNov 24, 2017 – Dec 31, 2029
10-1New smart machinery, 5G, cybersecurity, AI and energy-saving investment5% in delivery year, or 3% over three years30%; 50% with other creditsJan 1, 2025 – Dec 31, 2029
10-2Forward-looking R&D / new advanced-process equipment25% / 5%, same year only30% each; 50% combinedJan 1, 2023 – Dec 31, 2029

Article 10: 15% now or 10% over three years

Companies and limited partnerships without material environmental, labor or food-safety violations in the past three years choose between 15% against the current year's tax and 10% spread over the current year and the next two. The choice goes into the annual return and cannot be changed once the filing period ends (R&D credit regulations, Article 11). For the cap, "tax payable" includes the prior year's surtax on undistributed earnings as assessed by the tax office (Article 12).

Which method yields more? Take a US chip-design company's Taiwan subsidiary with NT$50 million of R&D and NT$4 million of tax payable (an invented example). The 15% method produces NT$7.5 million of credit. Only NT$1.2 million of it is usable, because of the 30% cap. The 10% method spreads NT$5 million over three years; if tax stays flat and no other credit uses the cap, NT$1.2 million comes off each year, NT$3.6 million in all.

Where the R&D happens and who uses the results

Only R&D carried out in Taiwan counts, except approved foreign commissioned or joint R&D (Article 7). Improvements to existing products or processes are excluded (Article 4), and subsidies and R&D-unit income are deducted (Article 13). Joint R&D with the US parent counts only after project approval, with an explanation of why no suitable partner exists in Taiwan (Article 8).

Under Article 10 of the regulations, the results must be for the company's own use, or, if others manufacture with or use them, the company must receive a reasonable royalty or other reasonable compensation. Where the Taiwan company does the R&D, takes orders and sells while related manufacturers produce, no royalty is needed if transfer pricing documents prove a reasonable profit stayed in Taiwan and the tax office confirms it. If the designs flow to the US parent, the transfer pricing documentation should show what Taiwan receives.

Article 10-1: equipment, AI and the NT$2 billion ceiling

An amendment promulgated on May 7, 2025 added AI and energy-saving investment and raised the annual ceiling from NT$1 billion to NT$2 billion (legislative history; Ministry of Economic Affairs, April 18, 2025). Spending on new items for own use from 2025 through 2029 must total NT$1 million to NT$2 billion in one tax year. Its regulations, rewritten on November 27, 2025, apply from January 1, 2025 (regulations history).

There are strings attached. The competent authority must approve an investment plan project by project, and a company may apply only once per tax year (Article 10-1, paragraph 8). Items must be delivered within two years after the order date, with one extension of up to two years (Article 8). They must be installed at the company's own or leased production or business premises in Taiwan (Article 17).

Picture an equipment subsidiary that buys an AI inspection system for its Hsinchu lab, then ships it to a US plant 18 months later (an invented example). Lending, leasing, resale, a change of use or installation outside the permitted premises within three years of delivery means repaying the credit with interest (Article 18). Items ordered under the old rules by December 31, 2024 and delivered from 2025 can still qualify, but only up to NT$1 billion (Article 9, paragraph 2).

Article 10-2: who reaches the 25% credit

Article 10-2 targets a company that innovates in Taiwan and holds a key position in the international supply chain: its products or services feed a supply chain across two or more countries or regions and carry significant influence at some link (regulations, Article 2). Article 3 then requires all of these:

  • R&D spending of at least NT$6 billion in the tax year
  • R&D spending of at least 6% of net operating revenue, both figures taken from the CPA-audited standalone statements
  • an effective tax rate of at least 12% for 2023 and at least 15% from 2025
  • no material environmental, labor or food-safety violations in the past three years

A company that also buys at least NT$10 billion of new advanced-process machinery or equipment in the year may credit 5% of that spending. Fields announced on October 23, 2025 are semiconductors, electric vehicles, communications and displays, plus panel-approved fields (field list).

Approval has a price. Once the 25% credit is approved, none of that year's R&D spending can use Article 10, and once the 5% equipment credit is approved, none of that year's machinery spending can use Article 10-1 (Article 10-2, paragraph 3). So the application states whether the company agrees to fall back to Article 10 or 10-1 if found ineligible. Without that statement, it cannot switch (Article 19).

Two filings, both tied to the May return

First comes the competent authority. For the R&D credit, a company asks for a review opinion between three months before the corporate income tax filing period opens and the filing deadline (R&D credit regulations, Article 14). For a calendar-year company, the Industrial Development Administration puts that at February to May and rejects late applications (application notes). The Article 10-1 window opens four months before the filing period and is online only; late registration and paper filings are refused (Article 12, Article 14). Article 10-2 applications run from three months before the filing period to the deadline (Article 13).

Then comes the return itself. Miss the prescribed credit form in the return before the filing period closes, and the Article 10-1 and 10-2 credits are lost (Article 10-1 regulations, Article 16; Article 10-2 regulations, Article 17). For the R&D credit, gaps in the return data can be fixed until the filing deadline; after that the tax office may refuse to accept the claim (R&D credit regulations, Article 15).

Reinvested earnings and the 5% surtax

Article 23-3 reduces the 5% surtax on undistributed earnings (Income Tax Act, Article 66-9). Earnings spent within the next three years on buildings, equipment or technology for the company's own production or business, totaling at least NT$1 million, are deducted from the surtax base (Article 23-3; regulations, Article 3). Land does not count (Article 2). An investment finished after the surtax return supports a refund claim within one year of completion. Lending, leasing, selling or repurposing the assets within three years after the surtax filing period ends (or, where a refund was claimed, after that claim was filed) brings the tax back with interest (Article 6). The surtax calendar is covered in A Taiwan Subsidiary's Tax Year.

Minimum tax, branches and the US side

Large credits bring the alternative minimum tax into play. When a company's tax after investment credits is below its basic tax, it pays the difference, which investment credits cannot reduce (Income Basic Tax Act, Article 4; Article 6). For tax year 2026, basic tax is basic income minus NT$600,000, times a rate the Executive Yuan sets between 12% and 15% (Article 8). A Central Region tax office release of May 8, 2026 puts the rate in force at 12%.

Foreign ownership is not a bar. Nothing in the statute or regulations turns on shareholder nationality; the regulations ask for a company established under the Company Act, or a limited partnership (R&D credit regulations, Article 3; Article 10-1 regulations, Article 7). Branches are less clear. The Company Act defines a foreign company as one organized under foreign law, and a foreign company must register a branch to do business in Taiwan (Company Act, Article 4; Article 371). A branch should confirm eligibility with its tax office and the competent authority before applying. Entity choices are compared in Semiconductor Component Companies Entering Taiwan. On the US side, a tax adviser can confirm how a lower Taiwan tax bill affects the parent's foreign tax credit.

To test a Taiwan R&D arrangement or entity form against these conditions, write to Hovering International Law Firm at wei@hoveringlaw.com.tw with the fiscal year-end, yearly R&D spending, and equipment order and delivery dates.

Official sources

Checked October 6, 2026.

Frequently Asked Questions

Does a Taiwan subsidiary wholly owned by a US company qualify?
The Industrial Innovation Statute and its regulations do not limit the credits by shareholder nationality. The R&D credit regulations require a company established under Taiwan's Company Act, or a limited partnership, with no material environmental, labor or food-safety violations in the past three years. No current official ruling was found on whether a Taiwan branch of a foreign company qualifies, so a branch should confirm with its tax office and the competent authority before applying.
What happens if we miss the application window?
For the R&D credit, the request for a review opinion runs from three months before the corporate income tax filing period opens until the filing deadline, which the Industrial Development Administration describes as February to May for a calendar-year company. Late applications are not accepted. The smart machinery and AI credit is filed only through the Ministry of Economic Affairs online system, from four months before the filing period until the deadline, and late registration or paper filing is refused.
Can the alternative minimum tax reduce the benefit?
Yes. If a company's tax after investment credits falls below its basic tax under the Income Basic Tax Act, it pays the difference, which investment credits cannot reduce. For tax year 2026 the basic tax is basic income minus NT$600,000, multiplied by the rate in force, which a May 8, 2026 tax office release gives as 12%.

This article provides general information and is not legal advice on any individual matter.

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