MOF Announced Tax Benefit on Capitalization of Patents to Encourage R&D.

The Ministry of Finance announced on 5 October 2005 that individual shareholders who pay the subscription price for their shares in the company by capitalizing the special know-how or patent they own will enjoy income tax benefits which shall operate retroactively with respect to the 2004 income tax returns filed in May this year (2005).  Individuals who receive shares in the company on the patent or special know-how they own are not eligible for the five-year deferred income tax benefit provided by Article 19-2 of the Statute for Upgrading Industry.  As such, the MOF decided that even if such individual shareholders are unable to produce evidence of their cost of the patent and/or special know-how they own and capitalize, they will pay the income tax on the subscription price of the shares they receive less 30% thereof recognized as the cost.

 

The Statue for Upgrading Industry has provided no compliance rules for individual shareholders to follow with respect to the income tax on the shares they receive on the capitalization of the patent or special know-how they own when they do not fulfill the requirements for receiving the tax benefit provided under the Statute and are unable to produce evidence to prove the cost of the patent or special know-how.  The MOF approved the above tax benefit with a view to encouraging R&D by individuals:  When the individual shareholders are unable to produce the evidence of the cost of the patent or special know-how they own and capitalize, a uniform deductible rate of 30% as provided in the Statute shall apply.

 

Before the MOF made the announcement, individuals who provide their patent to the company for use must pay income tax on the subscription price of the shares they received less 20% thereof as their cost on the capitalization of the patent.  For capitalized special know-how, absent any evidence of the cost, the individual shareholder shall be deemed to have incurred no cost and accordingly must pay income tax on the full amount of the subscription price of the shares he or she received on the capitalization of the special know-how he or she owns.  (2005.10)

CYJ /EMA