Industrial Innovation Statute Article 19-1

Where a company’s employee acquires stock-based employee compensation, the employee may opt to exclude up to an annual total of NT$5 million worth of the acquired shares from his/her annual taxable income as calculated at the market price prevailing in the year such shares are acquired or the year of the day the acquired shares become disposable. Once an option is chosen, it cannot be reversed. However, where an employee has opted to exclude the acquired shares from the annual taxable income in the year such shares are acquired or the year of the day such shares become disposable, when the shares are transferred or book-entry transferred to an account of a securities depository enterprise, the entire transfer price, the market price of the shares at the time of gift or distribution as estate, or the market price of the shares on the date of book-entry transfer shall be deemed the employee’s revenue for the year of transfer or book-entry transfer, and be declared for assessment of income tax in accordance with the Income Tax Act.Where the employee has opted to exclude a certain value of the acquired shares from his/her annual taxable income in the year such shares are acquired or the year of the day the acquired shares become disposable in accordance with the preceding paragraph, and has held the shares and continued to work at the company accumulatively for two years from the day the shares are acquired, if the shares are transferred or book-entry transferred to an account of a securities depository enterprise, and the entire transfer price, the market price of the shares at the time of gift or distribution as estate, or the market price of the shares on the date of book-entry transfer is higher than the market price on the day the shares are acquired or become disposable, the market price on the day the shares are acquired or become disposable shall be included in the revenue for the year of transfer or book-entry transfer, and be declared for assessment of income tax in accordance with the Income Tax Act. However, if the employee has not declared the price of the shares for assessment of income tax or has declared the price for assessment of income tax but cannot provide documentary proof of the market price on the day the shares are acquired or become disposable, and the information about the market price on the day the shares become disposable is not available from the taxation authority, the above provisions shall not apply.Where an employee of the preceding paragraph has continued to work at the company for two or more years accumulatively, his/her years of service may be combined with the years of service with any of the following companies:1. A company over 50% of whose total issued voting shares is held or over 50% of whose total capital is contributed by the company granting the stock-based employee compensation.2. A company that holds over 50% of the total issued voting shares or contributes over 50% of the total capital of the company granting the stock-based employee compensation.A company employee as referred to in the preceding three paragraphs shall be a person described in one of the following subparagraphs and not be a director or a supervisor of the company granting the stock-based employee compensation:1. An employee of the company that gives stock-based compensation to its employees.2. An employee of a company over 50% of whose total issued voting shares or total capital is held or contributed by the company granting the stock-based employee compensation in accordance with the Company Act or the Securities and Exchange Act.3. An employee of a company that holds over 50% of the total issued voting shares or contributes over 50% of the total capital of the company granting the stock-based employee compensation in accordance with the Company Act or the Securities and Exchange Act.The stock-based employee compensation under Paragraph 1 refers to shares issued as employee compensation, employee stock options at cash capital increase, shares purchased-back and issued to employees, share subscription warrants issued to employees, and new restricted shares issued to employees.Transfer under Paragraphs 1 and 2 refers to change in the ownership of shares as a result of sale, gift, distribution as estate, cancellation of shares for capital reduction, company liquidation or other causes.To be eligible for the incentive under Paragraph 1 to Paragraph 3, the company granting the stock-based employee compensation shall, in the year its employees acquire stock-based employee compensation or the year of the day the acquired shares become disposable, file employees' choices of tax deferral and other related matters in the prescribed formats with the central government authority in charge of the industries concerned for recordation, with copies of the submissions delivered to the taxation authority at the place where the company is located. The formats for filing the above matters shall be prescribed by the central competent authority.Where a company’s employee is subject to Paragraph 2 or 3, the company granting the stock-based employee compensation to the employee shall, in the year when the employee has held the shares and continued to work at the company for two years continuously, submit documents proving that the employee has held the shares and continued to work at the company continuously for two or more years accumulatively to the central government authority in charge of the industry concerned for recordation. A copy of the proof shall be delivered to the taxation authority at the place where the company is located.The regulations governing the procedure for declaring deferred income on the stock-based employee compensation under Paragraphs 1 through 3, setting of the date of acquisition of the stock and the day the stock becomes disposable, calculation of the annual total of NT$5 million worth of the acquired shares, determination of the market price, documents required for submission, and other related matters shall be prescribed by the Ministry of Finance.