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CFC Q&A

Q1:	What is low-tax country or region?
A1:	The term "low-tax countries" refers to foreign enterprises located countries or regions that meet one of the following conditions: 1.The statutory income tax rate does not exceed 70% of the income tax rate in our country. 2.Taxation is only applied to domestically sourced income, and foreign-sourced income is either not taxed or only taxed upon actual repatriation.

Q2:	When does the CFC system take effect?
A2:	The CFC system takes effect from January 1, 2023, and the tax return must be declared from May 2024.

Q3:

Will the CFC system be retroactive?

A3:

For the Individual CFC system, implemented on January 1, 2023, the attribution of rights and obligations is limited to the fiscal year 2022 and earlier, there is no retrospective application. Thus, losses incurred on or before 2022 cannot offset profits generated after January 1, 2023.
For corporate CFC system, the CFC financial statements audited and attested by Certified Public Accountants, along with the calculation of CFC losses for each period according to regulations, must be reported in the specified format and approved by the tax authorities where the profit-making entity is located, the CFC losses incurred in each year within 10 years from the following year can be deducted from the profits of the CFC in accordance with the prescribed sequence.

Q4:	What are the thresholds for individual CFC declaration?
A4:	In the absence of substantial operations (with a fixed location and hiring local employees): 1.An individual or an individual plus a second-degree relative hold more than 10% of the equity. 2.The profit of the CFC company exceeds NTD7 million.

Q5:	Does a CFC company require a Certified Public Accountant? If necessary, is there any special requirement for the Certified Public Accountant?
A5:	Certified Public Accountant is required and only accepts Certified Public Accountant from Taiwan or from the local country of the CFC company.

Q6:	How to declare the tax for individual CFC?
A6:	Basic tax = (basic income - NTD 6.7 million) * 20%. The difference between the basic tax and the individual income tax must be paid.

Q7:	What are the penalties for individuals who fail to report CFC profits?
A7:	According to the Income Basic Tax Act, individuals who fail to report CFC income from profit-seeking, and after investigation by the tax authorities, if there is taxable income, in addition to the additional tax payable, a fine of up to three times the amount of the back tax shall be imposed.

CFC Q&A

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