Regulations Governing Application of Calculating Income from Controlled Foreign Company for Individual Article 8

If an individual, either alone or together with their spouse and relatives within the second degree of kinship, holds directly 10% or more of the shares or capital of a controlled foreign company on December 31 of the current year, to calculate the individual’s income from profit-seeking activities based on the individual’s direct holding ratio and holding period of the shares or capital of a controlled foreign company, the said individual shall deduct the legal reserve or items of restricted distribution of surplus earnings in accordance with the laws of the country or jurisdiction of the controlled foreign company, as well as the losses of past years assessed by the tax authority, from the current-year earnings of the said controlled foreign company. The aggregation of such income and other incomes under Subparagraph 1 of Paragraph 1 of Article 12 of the Income Basic Tax Act shall be included into the individual’s basic income of the current year; however, if the said aggregation of a tax household is less than NT$ NTD 1,000,000 for the year, this aggregation shall be exempt from being included into the individual's basic income of the current year.The holding ratio and holding period of the individual mentioned in the preceding paragraph shall be calculated based on the proportion of their holding of the shares or capital of the controlled foreign company relative to the total issued shares or total capital of the controlled foreign company, with the weighted average over the holding period. However, if the tax authority cannot ascertain the holding period, the weighted holding ratio may be determined based on the actual holding of the shares or capital of the controlled foreign company on December 31 of the current year.From the year a foreign affiliated company qualifies as a controlled foreign company, the individual may sequentially deduct assessed losses of previous years from the controlled foreign company’s current-year earnings for up to ten years, starting from the year following the one in which the loss occurred, as prescribed in the first paragraph, provided that, the individual has provided documents within the deadline as prescribed in Subparagraphs 1 to 4 of Paragraph 1 of Article 10, and has calculated the losses of the controlled foreign company as prescribed in Article 6 and the preceding article, and has filed them in the required format and such losses have been assessed by the tax authority of the individual's registered domicile. If the individual falls under one of the following criteria, the said assessed losses of previous years shall still be deducted from the current-year earnings of the controlled foreign company.1. The individual is exempt from compliance with Paragraph 1 since they fail to meet the holding ratio requirement prescribed in the forepart of the main text of Paragraph 1 in the current year.2. The individual is exempt from compliance with Paragraph 1 since the controlled foreign company meeting the criteria of Paragraph 1 of Article 5 in the current year.3. According to the proviso of Paragraph 1, the individual is exempt from aggregating the current-year earnings of the controlled foreign company, calculated based on the individual’s direct holding ratio and holding period of shares or capital, into the individual's basic income.Where a controlled foreign company carries out a capital reduction to compensate the assessed losses mentioned in the forepart of the preamble of preceding paragraph, the amount of loss compensated accordingly shall be sequentially deducted from the assessed losses of previous years.