In an attempt to curtail rising property prices, the Taiwanese legislature has passed amendments to the Income Tax Act, set to take effect Jan. 1 2016, imposing a capital gains tax of up to 45% on profits made from property sales. The amendment’s adoption will abolish Taiwain’s current “luxury tax” on home and land sales, which levies a 15% tax on the sales price of a property sold within one year of purchase.. Online publication Lexology offers an extensive breakdown of the Income Tax Act amendments, but the most relevant portions for foreign investors are the following: Beginning the effective date (January 1, 2016), and subject to certain exemptions, owners who are natural persons ("Individual Owners") and sell their property within 1 year of purchase will be subject to a 45 percent capital gains tax. Individual Owners who sell their property after 1 year of purchase will be subject to a 35 percent tax. For Individual Owners resident in Taiwan, the tax rate falls to 20 percent if a property is sold between 2 and 10 years of ownership, and falls further to 15 percent if they hold their properties for more than 10 years.
For foreign headquartered companies with a Taiwan presence, whether as a foreign branch or a registered office, their rates of capital gains tax will be subject to the amendments in the Income Tax Act of a 45% tax for sales within 1 year, and a flat 35% tax for sales of property held longer than 1 year. The rate also applies to a direct or indirect share transfer transaction by such foreign companies with holdings in buildings and land in Taiwan exceeding 50% of its equity value. These amendments should affect the strategies of foreign companies that invest or plan to invest in real estate development in Taiwan. The Luxury Tax Act provided a luxury tax exemption for developers (including foreign companies) for first time ownership transfers of their completed buildings to customers. However, the newly approved capital gains tax scheme does not provide the same exemption and [sic] further impose higher tax rates (35% to 45%) on foreign companies compared to that on domestic companies (17%), which aims to achieve the government's aim of to deter foreign investors from propping up property prices. As a result, foreign developers will have to carefully plan and structure their investments and development projects in Taiwan to cope with the implications of the amendment.
While the amendment’s tax implications won’t take effect until the start of 2016, it will also apply to homes purchased on or after Jan. 2, 2014 and sold after less than two years time. [Lexology]