For any individual and his or her related parties directly or indirectly holding up to 50% of shares or capital of a foreign affiliated enterprise registered in a low-tax burden country or jurisdiction, or having a significant influence on such a foreign affiliated enterprise, and the foreign affiliated enterprise does not fall under the provisions of any of the Subparagraphs of Paragraph 1, Article 43-3 of the Income Tax Act, where the individual, himself or herself, with his or her spouse and relatives within the second degree of kinship holding up to 10% of shares or capital of the foreign affiliated enterprise, the surplus earnings of the foreign affiliated enterprise shall be recognized as the individual’s business income which is calculated according to the ratio of the holding shares or capital. Also, such income shall be aggregated with the income calculated in accordance with Subparagraph 1, Paragraph 1 of the preceding article and be included in the individual’s basic income of the current year. However, if the aggregate of the income in a filing unit is less than NT$1,000,000, it shall be excluded from the basic income.
The term "a low-tax country or jurisdiction" as mentioned in the preceding paragraph shall be in accordance with Paragraph 2, Article 43-3 of the Income Tax Act.
From the current year in which the foreign affiliated enterprise is in accordance with provisions of Paragraph 1, if the losses of each year incurred in the foreign affiliated enterprise have been duly certified in accordance with Paragraph 3, Article 43-3 of the Income Tax Act, then filed by the individual and verified by the tax authority, such losses may be deducted from surplus earnings of the foreign affiliated enterprise within ten years, and the business income of the individual shall be calculated in accordance with the provisions of Paragraph 1.
When the individual receives the dividends or surplus earnings from the foreign affiliated enterprise, the remaining sum of such dividends or surplus earnings deducting the business income calculated in accordance with Paragraph 1 shall be included in the income calculated in accordance with Subparagraph 1, Paragraph 1 of the preceding article of the receiving year. However, the business income calculated in accordance with Paragraph 1 which was excluded from the basic income shall not be deducted.
In case income tax on the business income provided in Paragraph 1 of the receiving year has been paid in accordance with the tax act of the source country, such tax paid may, upon presentation by the taxpayer of evidence of tax payment issued by the tax office of said source country and attested by an overseas agency of the Republic of China or other organizations recognized by the Government of the Republic of China in the said locale, be deducted from the amount of basic tax payable calculated in accordance with the forepart of Paragraph 1, Article 13 by the taxpayer within five years from the date following the expiration date of the statuary period for filing the tax return in the year of recognizing business income into the basic income; to the extent that such tax credit shall not exceed the amount of basic tax which, computed in accordance with the act, is increased in consequence of inclusion of such business income.
The regulations governing the scope of related parties, affiliated enterprises, a significant influence, calculation of the business income, the deduction of losses, and foreign tax credits; the relevant calculation method; required documents; and other requirements specified in the preceding five Paragraphs shall be prescribed by the Ministry of Finance.
If an affiliated enterprise specified in Paragraph 1 is subject to Article 43-4 of the Income Tax Act, it is not subject to the provisions of the preceding six Paragraphs.