Taiwan Extends Tax Incentives for SMEs to Boost R&D and Employment

The Taiwan Cabinet has approved a draft amendment to extend and expand tax deduction incentives for small and medium-sized enterprises (SMEs) until December 31, 2033. The measures aim to encourage research and development, increased employment, and pay raises in the SME sector.

The key changes in the draft amendment proposed by the Ministry of Economic Affairs (MOEA) include:

• Extending corporate income tax deductions for R&D, increased employment, and pay raises, which were set to expire on May 19 this year.
• Removing the criterion that employment and pay raise deductions only apply when the unemployment rate reaches 3.78% for six consecutive months.
• Introducing a 150% tax deduction for employing workers aged 45 or older, in addition to the existing deduction for those 24 or younger.
• Increasing the maximum deduction rate for pay raises from 130% to 150% of the extra amount.
• Allowing limited partnerships to be eligible for tax incentives involving research and development.
• Excluding SMEs from tax deductions if they have been found guilty of serious offenses related to environmental protection, labor welfare, or food safety in the last three years.

The government estimates that the policy will create 4,000 job opportunities and result in a net benefit of NT$10 million from hiring new employees and NT$7 million from increased employee wages. Over 5,850 employees are expected to benefit from pay raises as a result of the tax incentives.

Why this matters: The extension and expansion of tax deduction incentives for SMEs in Taiwan demonstrate the government's commitment to supporting the growth and competitiveness of this vital sector. By encouraging R&D, job creation, and higher salaries, these measures have the potential to stimulate innovation, reduce unemployment, and improve the overall economic well-being of SME employees.

The draft amendment is part of the government's ongoing efforts to boost the competitiveness and growth of the SME sector in Taiwan. The extension of these tax incentives until 2033 provides long-term support and stability for SMEs, allowing them to plan and invest in their future growth with greater confidence. The MOEA expects the amendment to lead to a net positive effect on tax revenue for the government, despite the initial costs associated with the tax deductions.

Key Takeaways

• Taiwan extends tax deduction incentives for SMEs until 2033 to spur R&D, hiring, and pay raises.
• Removes unemployment rate criterion for employment and pay raise deductions, adds 150% deduction for hiring older workers.
• Increases max pay raise deduction from 130% to 150%, allows limited partnerships to claim R&D deductions.
• Excludes SMEs with serious environmental, labor, or food safety violations from tax incentives.
• Estimated to create 4,000 jobs, increase employee wages by NT$7 million, benefit over 5,850 employees.