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A profit-seeking enterprise shall keep sufficient and accurate account books, vouchers and accounting records to calculate its total amount of business income.
All procedures governing the aforesaid keeping, acquisition, use, maintenance, accounting, handing and other matters concerned shall be prescribed by the Ministry of Finance.

The accounting system of a company shall be on the accrual basis. But a profit-seeking enterprise not organized as a company may, if there is an established custom of the business or if the volume of business is small report to the local collect authority-in-charge for adoption of accounting system on the cash basis.
A profit-seeking enterprise not organized as a company may change its adopted accounting system but shall report the change to the local collection authority-in-charge three months prior to commencement of the next fiscal year.

The fiscal year shall commence on the first day of January and end on the thirty-first day of December of each calendar year, provided that a profit-seeking enterprise may, on account of an existing usage of the business or of special circumstances arising from the seasonal nature of the business and upon the approval of the local collection authority-in-charge, change the commencing and expiring dates of its fiscal year.

The amount of income of a profit-seeking enterprise shall be the net income, i.e., the gross yearly income after deduction of all costs, expenses, losses and taxes. When calculating the amount of income in which there are taxable and exempt incomes involved, the costs, expenses or losses, except that those which are attributable to such respective income in a direct, reasonable and definite way, which may be attributed to thereby and recognized as its deductions respectively, shall be reasonably allocated to the respective income. Measures regarding such allocation shall be prescribed by the Ministry of Finance.
The unpaid accounts or expenses or losses or various debts payable recorded in a profit-seeking enterprise's accounts that have yet to have been paid at the time of the expiry of the period for the validing of such claims according to the relevant regulations shall be enumerated under other revenue headings, and shall be enumerated under the accounts of non-operating expenditure at the time of actual payment.
Income derived from interest of short-term commercial papers by a profit-seeking enterprise in accordance with Category 4, of Paragraph 1 of Article 14 shall not be added to the amount of income of the profit-seeking enterprise, but withheld in accordance with the provisions of Article 88. However, where the issuing date of short-term commercial papers held by a profit-seeking enterprise is a day on or after January 1, 2010, the interest income of such short-term commercial papers shall be added to the amount of income of the profit-seeking enterprise.
From January 1, 2010, interest distributed from beneficiary securities or asset-backed securities issued in accordance with the Financial Asset Securitization Act or the Real Estate Securitization Act by a profit-seeking enterprise shall be added to the amount of income of the profit-seeking enterprise, and excluded from the application of the provisions of Paragraph 2, Article 41 of the Financial Asset Securitization Act and Paragraph 3, Article 50 of the Real Estate Securitization Act regarding separate taxation.
The Dividends or earnings received by a profit-seeking enterprise having its head office outside the territory of the Republic of China shall not be added to the amount of income of the profit-seeking enterprise, but withheld in accordance with the provisions of Article 88.

Revenues received by a profit-seeking enterprise from interests on government bonds, corporate bonds, and financial bonds shall be calculated in accordance with the holding period, the face value and interest rate of bonds.
The tax on interest revenues as mentioned in the preceding paragraph calculated in accordance with the prescribed withholding rates shall be deducted from the amount of income tax payable for the annual income tax return of a profit-seeking enterprise.
The gains or losses derived from the securities transaction whereby a profit-seeking enterprise purchases bonds as described in the first paragraph between two interest payment days and then sells them before the next interest payment day shall be the net amount of the sale price minus the purchase price and interest revenues.
From January 1, 2010, where the interest derived from repo (RP/RS) trade whereby a profit-seeking enterprise purchases securities or short-term commercial papers as described in the first paragraph and Paragraphs 2 and 3 in the preceding Article shall be the net amount of the sale price at their maturity in excess of the original purchase price, the interest shall be withheld in accordance with the provisions of Article 88, and added to the amount of income of the profit-seeking enterprise, and the amount of such withholding tax shall be deducted from the amount of income tax payable for the annual income tax return of such profit-seeking enterprise.

The provisions of Article 4-1 and 4-2 shall not apply to gains or losses resulting from the buying or selling of securities or financial derivatives as approved by the competent authority for the purposes of risk management undertaken by a warrant issuer who issues call (put) warrants which have been approved by the competent authority. In such case, the gains or losses shall be included in the profits or losses of issuing of call (put) warrants. Where, however, the losses resulting from the buying and selling of call (put) warrants and the underlying securities as approved by the competent authority, and from the buying and selling of futures which are subject to futures transactions tax in accordance with the Futures Transactions Act, exceed the net amount of premiums received for the issuance of the call (put) warrant after subtracting relevant costs and expenses, such losses shall not be deductible.
The provisions of Article 4-1 and 4-2 shall not apply to profits or losses resulting from the carrying on of the business of financial derivatives transactions as approved by the competent authority. Such profits or losses shall, after the completion of settlement, be included in the amount of the income of the profit-seeking enterprise in the year of settlement and taxed accordingly.

Where a shareholder, a member of the board of directors, or a supervisor of a profit-seeking enterprise organized as a company who receives money on behalf of the company and does not turn in the said sum within a reasonable period of time, or appropriates the sum for his or her own use, a tax shall be charged to the company for interest income based on the lending base rate of the Bank of Taiwan on January 1 of each respective period. However, if the aforesaid person has committed the offence of misappropriation, breach of trust or fraud against the company and has been charged with a lawsuit or prosecuted by the prosecutor, the company shall be exempt from the tax on interest income.
A company that lends money to a shareholder or any person without charging interest or charging the stipulated interest at an obviously low rate, except for paying in advance the salary to employees, shall calculate interest income based on the lending base rate of the Bank of Taiwan on January 1 of each respective period and an interest income tax shall be levied on the profit-seeking enterprise in accordance with this Act.

Beginning from the year 2011, a profit-seeking enterprise which has its head office within the territory of the Republic of China and is engaged in marine transportation, qualified under certain criteria and approved by the central competent authority, will be able to calculate the taxable income derived from marine transportation on the basis of the amount of the net tonnage which is regulated in Paragraph 2. As for the revenue from business other than marine transportation, the calculation of such income is subject to the relevant provisions of this Act.
The taxable income derived from marine transportation as mentioned in the preceding paragraph is calculated by multiplying the accumulated daily profit, calculated in accordance with the following table, by 365 days:
1. For each ship with a net tonnage not exceeding 1,000 tons, the daily profit for each 100 tons up to 1,000 tons shall be NT$67.
2. If the net tonnage of the ship is above 1,000 tons to 10,000 tons, the daily profit for each 100 tons between 1,000 and 10,000 tons shall be NT$49.
3. If the net tonnage of the ship is above 10,000 tons to 25,000 tons, the daily profit for each 100 tons between 10,000 and 25,000 tons shall be NT$32.
4. If the net tonnage of the ship is above 25,000 tons, the daily profit for each 100 tons above 25,000 tons shall be NT$14.
The profit-seeking enterprise which elects to calculate the taxable income derived from marine transportation in accordance with Paragraph 1, once the choice is made to do so, shall be bound to such choice for a period of 10 years and shall not be changed. In case the profit-seeking enterprise fails to meet the requirements with reference to Paragraph 1 within the aforementioned period, and the approval has been cancelled by the central competent authority, such enterprise will not eligible to apply to calculate its income under the terms and conditions in the preceding paragraph for a period of five years commencing from the year in which it fails to meet the requirements.
The profit-seeking enterprise which elects to calculate its taxable income in accordance with Paragraph 2 will not be eligible to apply the following regulations:
1. The provision in Article 39 regarding the deduction of losses.
2. Other tax incentives regulated under other laws.
The regulations governing the scope of business revenue, deadline for filing applications, application procedures and other relevant matters in Paragraph 1 shall be prescribed by the Ministry of Finance in consultation with the central competent authority.

Income or losses derived from transactions of house and land incurred by a profit-seeking enterprise for the current year, where the amount of the income or losses shall be the total revenue minus the costs, expenses, and losses. However, the land value increment tax paid in accordance with the Land Tax Act shall be excluded from the expenses, unless such tax paid is prorated to the part of the total amount of land value increment not being deducted from the amount of the income.
Income derived from transactions of house and land incurred by a profit-seeking enterprise calculated in accordance with the preceding Paragraph, after deduction of the total amount of land value increment calculated in accordance with the assessed present value provided in Paragraph 1, Article 30 of the Land Tax Act, shall not be added to the amount of income of the profit-seeking enterprise. The tax payable shall be computed separately in accordance with the following tax rates. If the enterprise has no fixed establishment within the territory of the Republic of China, its business agent or an entrusted agent shall be responsible for filing of income return and paying the income tax:
1. A profit-seeking enterprise having its head office within the territory of the Republic of China:
(1) The transferred house and land that have been held for a period of no more than 2 years shall be taxed at 45%.
(2) The transferred house and land that have been held for a period of more than 2 years but no more than 5 years shall be taxed at 35%.
(3) The transferred house and land that have been held for a period of more than 5 years shall be taxed at 20%.
(4) House and land that have been held for a period of no more than 5 years and are transferred because of any involuntary cause announced by the Ministry of Finance shall be taxed at 20%.
(5) A profit-seeking enterprise who sells house and land where the house is built in partnership with a business entity, and the share of land associated with the unit has been held for a period of no more than 5 years shall be taxed at 20%.
(6) House and the share of land associated with the house that are transferred for the first time after the completion of construction and have been held for a period of no more than 5 years, where the house and land are acquired through participation in urban renewal by providing land, legal buildings, other rights, or capital in accordance with the Urban Renewal Act or participation in reconstruction in accordance with the Statute for Expediting Reconstruction of Urban Unsafe and Old Buildings shall be taxed at 20%.
2. A profit-seeking enterprise having its head office outside the territory of the Republic of China:
(1) The transferred house and land that have been held for a period of no more than 2 years shall be taxed at 45%.
(2) The transferred house and land that have been held for a period of more than 2 years shall be taxed at 35%.
The amount of losses derived from transactions of house and land incurred by a profit-seeking enterprise for the current year calculated in accordance with provisions of Paragraph 1 shall be deducted first from the income derived from transactions of house and land computed at the same applicable tax rate for the current year. Only when such income is insufficient to be deducted, then the portion of losses which are not yet deducted completely may be deducted from the income derived from transactions of house and land computed at the different applicable tax rate for the current year. If there is a subtraction balance of losses after the subtraction in the current year, the losses may be deducted from the income derived from transactions of house and land within ten years from the year after such losses are derived.
House and the share of land associated with the house that are transferred for the first time after the completion of construction shall be exempt from application of the preceding two Paragraphs. Income derived from such transactions of house and land incurred by a profit-seeking enterprise calculated in accordance with provisions of Paragraph 1, after deduction of the total amount of land value increment calculated in accordance with the assessed present value provided in Paragraph 1, Article 30 of the Land Tax Act shall be added to the amount of income of the profit-seeking enterprise. If the balance is a negative figure, the transaction income shall be counted as zero. The losses derived from transaction of house and land may be deducted from the income of the profit-seeking enterprise. However, the total amount of land value increment prescribed above shall not be permitted to make a deduction.
In the course of an investigation or a recheck conducted by the tax collection authority, where a profit-seeking enterprise fails to present the account books and documents of evidence to prove the amount of his income derived from transaction of house and land, the tax collection authority shall determine the amount of the transaction income based on the investigative information. When the investigative information of the cost or expense is not available, the tax collection authority may assess the cost, based on the assessed value of the house and the present value of land at the time of acquisition (which shall be duly adjusted with the price index announced by the government); and may assess the expense, based on 3% of the transaction price, and such expense shall not exceed NT$300,000.
A profit-seeking enterprise organized as a sole proprietorship or a partnership that has any income derived from transactions of house and land, shall be subject to assessment of income tax in accordance with the provisions of Articles 14-4 to 14-7 of this Act, and such income shall not be added to the amount of income of the profit-seeking enterprise. The provisions of the preceding five Paragraphs shall not apply to a profit-seeking enterprise organized as a sole proprietorship or a partnership.

Any profit-seeking enterprise having its head office outside the territory of the Republic of China, and which is engaged in international transport, construction contracting, providing technical services, or machinery and equipment leasing, etc., in the territory of the Republic of China, and the cost and expenses of which are difficult to calculate may apply for approval from the Ministry of Finance, or the Ministry of Finance may make the decision to consider ten per cent of its total business revenue for an enterprise engaged in international transport business, or fifteen per cent of its total business revenue for one engaged in any other businesses as its income derived within the territory of the Republic of China regardless whether or not it has a branch office or business agent in the territory of the Republic of China. In such cases, however, the regulation in Article 39 regarding the deduction of losses cannot be applied.
Business revenue derived by an international transport enterprise within the Republic of China as provided in the preceding paragraph shall be as follows:
1. Marine transport enterprises: Referring to all ticket fares or transportation charges for outbound passengers and cargo accepted for carriage inside the territory of the Republic of China;
2. Air transport enterprises:
(1) Passenger transport: refers to ticket fares from the stations of embarkation inside the territory of the Republic of China to first-leg stations outside the territory of the Republic of China,
(2) Cargo transport: refers to freight charges for the entire trip for the cargo accepted for carriage. However, whereas an international air transport enterprise has transshipped its outbound cargo enroute to an aircraft of another international air transport enterprise due to the route restrictions or other reasons, its freight charges shall be calculated according to the distance of the trip actually made.
First-leg stations outside the territory of the Republic of China as provided in item 2 of the preceding paragraph shall be prescribed by decree of the Ministry of Finance.

In the case of a motion picture enterprise outside of the territory of the Republic of China which has no branch office inside the territory of the Republic of China, fifty per cent of the revenue from the lease of motion pictures through agents shall be deemed as income within the territory of the Republic of China. Where a branch office has been established inside the territory of the Republic of China, costs may be computed at forty-five per cent of the revenue from the lease of motion pictures.

Where documents of evidence with respect to purchases are not obtained or kept by a profit-seeking enterprise or are found to be incorrect upon verification, the collection authority-in-charge may determine the purchase costs on the basis of the lowest prices prevailing in the year at the locality concerned.
Where documents of evidence with respect to sales are not issued to others or the counterfoils thereof are not kept by a profit-seeking enterprise, the collection authority-in-charge may determine the selling prices on the basis of the highest prevailing in the year at the locality concerned.

The portion of an item of raw material used by a manufacturer in excess of the general raw material consumption standard of the trade shall be disallowed unless justifiable reason is submitted to and found true upon verification by the collection authority-in-charge.

Interest on capital is paid out from the distribution of profit and, as such, shall not be listed as expense or loss.

Interest payable on loans within a business year is deductible as expense or loss of that year.
Where the interest rate on loans as provided in the loan contracts exceeds the statutory rate, computation shall nevertheless be made according to the maximum interest rate chargeable by local commercial banks; provided that in case the collection authority-in-charge has determined the maximum interest rate with respect to a loan acquired from a source other than a bank by reference to the market rate, the maximum interest rate as determined by the collection authority-in-charge may apply.

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Salaries of the staff employees and workers of profit-seeking enterprise in conformity with any of the following provisions may be considered as expenses or losses:
1. Salaries of the staff employees and workers paid by corporations or cooperative societies, or salaries of the shareholders, board directors and supervisors who conduct business under a prior agreement paid by corporations or cooperative societies duly prescribed in the provisions of incorporation or under a previous resolution of shareholders' meeting or members' meeting as payable irrespective of whether the enterprises or societies operate at a profit or loss.
2. Salaries of the staff employees and workers of a partnership or sole-proprietorship and salaries of the partners who conduct the business or owner, paid irrespective of whether the partnership or sole-proprietorship operates at a profit or loss, if the amount of the salaries paid does not exceed the standard generally adhered by other firms of the same trade.

All those profit-seeking enterprises which are subject to the application of the Labor Standards Act may each year set aside an amount within the limit of no more than fifteen per cent of the total salaries and wages paid in that year, as worker retirement reserve according to the Labor Standards Act or as labor pension or annuity insurance premiums according to the Labor Pension Act, and the appropriation thus made may be considered as expenses of the year.
Any profit-seeking enterprise which is not subject to the application of the Labor Standards Act and has established rules for the retirement of staff employees and workers may each year set aside a reserve for retirement pensions of no more than four per cent of the total salaries and wages paid in that year. However, in the case where any profit-seeking enterprise has set aside a retirement fund for staff employees and such fund is operated independently of the aforesaid profit-seeking enterprise under a separate means of custody, operation, distribution, etc. in conformity with the regulations as prescribed by the Ministry of Finance, such profit-seeking enterprise may each year appropriate such retirement reserve within the limit of no more than eight per cent of the total salaries and wages paid in that year and may further consider them as expenses of the year.
Where a retirement fund for workers, or a reserve for retirement pensions for staff employees has been set up pursuant to the provisions of the above two paragraphs, payment of retirement pensions or severance pay in accordance with the regulations shall be paid first from such fund or reserve when staff employees and workers retire or are dismissed henceforward, and only when the fund or the reserve is insufficient to meet requirements, then such payment may be considered as expenses of the year of payment.
In computing income during liquidation proceeding upon dissolution, closure, merger or transfer of ownership of a profit-seeking enterprise in accordance with the provisions of Article 75, the accumulative balance of the retirement fund for workers or the reserve for retirement pensions should transfer to the current year's profit and handled accordingly.

Expenditures incurred in the expansion, replacement, improvement or repair or buildings, vessels, machinery, tools, apparatus, appliances and other equipment for use in business, where such expenditure result in an increase of the value or efficiency thereof that cannot be exhausted within two years, are an increment of the capital and, as such, shall not be considered as expenses or losses.

For damages due to force majeure, the portion of loss that has been indemnified by insurance shall not be considered as expenses or losses.

Voluntary contributions and donations made by a profit-seeking enterprise shall be considered as expenses or losses of the year of payment in accordance with the following provisions:
1. Those that have been made for assisting national defense construction, troop cheering, contribution to government of any level and donation for a designated purpose approved by the Ministry of Finance as a special case. No restriction on the amount of money is placed;
2. In addition to the contributions and donations as provided in the preceding item, those that have been made by organizations and institutions which conform to the provisions of the fourth paragraph of Article 11 to a maximum extent of ten per cent of the amount of income.

Direct expenses incurred in the course of business for social entertainment for which positive evidence of payment has been received may be listed as expenses or losses to the extent as provided hereunder:
1. If the value of yearly purchases of an enterprise is less than NT$ 30,000,000, direct expenses for social entertainment incurred at the time and for the purpose of purchase, shall not exceed 0.15% of the value of purchases for the whole year and, in case of an enterprise approved to use Blue Returns, such expenses shall not exceed 0.2% of the value of purchase for the whole year. If the value of yearly purchases is between NT$ 30,000,000 and NT$ 150,000,000, the expenses for social entertainment shall not exceed 0.1% of the portion between NT$ 30,000,000 and NT$ 150,000,000 and, in the case of an enterprise approved to use the Blue Returns, such expenses shall not exceed 0.15%. If the value of yearly purchases is between NT$ 150,000,000 and NT$ 600,000,000, the expenses for social entertainment shall not exceed 0.05% of the portion between NT$ 150,000,000 to NT$ 600,000,000 and, in the case of an enterprise approved to use the Blue Returns, such expenses shall not exceed 0.1%. If the value of yearly purchase exceed NT$ 600,000,000, the expenses for social entertainment shall not exceed 0.025% of the portion in excess of NT$ 600,000,000 and, in the case of an enterprise approved to use the Blue Returns, such expenses shall not exceed 0.05%;
2. If the value of yearly sales of an enterprise is less than NT$ 30,000,000, direct expenses for social entertainment incurred at the time and for the purpose of sales shall not exceed 0.45% of the value of sales for the whole year and, for an enterprise approved to use the Blue Returns, such expenses shall not exceed 0.6% of the value of sales for the whole year. If the value of yearly sales is between NT$ 30,000,000 and NT$ 150,000,000, the expenses for social entertainment shall not exceed 0.3% for the portion of the value of sales in excess of NT$ 30,000,000 to NT$ 150,000,000 and, for an enterprise approved to use the Blue Returns, such expenses shall not exceed 0.4%. If the value of yearly sales is between NT$ 150,000,000 and NT$ 600,000,000, the expenses for social entertainment shall not exceed 0.2% for the portion of the value of sales between NT$ 150,000,000 and NT$ 600,000,000 and for an enterprise approved to use the Blue Returns, such expenses shall not exceed 0.3%. If the value of yearly sales is exceeds NT$ 600,000,000, the expenses for social entertainment shall not exceed 0.1% for the portion of the value of sales in excess of NT$600,000,000, and for an enterprise approved to use the Blue Returns, such expenses shall not exceed 0.15%.
3. If the amount of yearly freight charges of an enterprise is less than NT$ 30,000,000, direct expenses for social entertainment incurred at the time and for the purpose of transportation of goods, shall not exceed 0.6% of the freight charge for the whole year and, for an enterprise approved to use the Blue Returns, such expenses shall not exceed 0.7% of the freight charges for the whole year. If the amount of yearly freight charges is between NT$ 30,000,000 and NT$ 150,000,000, the expenses for social entertainment shall not exceed 0.5% for the portion of the freight charges between NT$ 30,000,000 to NT$ 150,000,000 and, for an enterprise approved to use the Blue Returns, such expenses shall not exceed 0.6%. If the yearly freight charges in excess of NT$ 150,000,000,the expenses for social entertainment shall not exceed 0.4% for the portion of the value of the freight charges for the whole year and, for an enterprise approved to use the Blue Returns, such expenses shall not exceed 0.5%.
4. If the yearly business income of those businesses engaged in providing services or credit is less than NT$9,000,000, direct expenses for social entertainment incurred at the time and for the purpose of consummating business transaction for the supply of services or credit shall not exceed 1% of the business income for the whole year and, for an enterprise approved to use the Blue Returns, such expenses shall not exceed 1.2% of the business income for the whole year. If the yearly business income is between NT$ 9,000,000 and NT$ 45,000,000, the expenses for social entertainment shall not exceed 0.6% for the portion of business income is between NT$ 9,000,000 and NT$ 45,000,000 and, for an enterprise approved to use the Blue Returns, such expenses shall not exceed 0.8%. If the yearly business income exceeds NT$ 45,000,000, the expenses for social entertainment shall not exceed 0.4% for the portion of business income in excess NT$ 45,000,000 and, for an enterprise approved to use the Blue Returns, such expenses shall not exceed 0.6%.
The limit of various entertainment expenses allowed for disbursement by state-owned enterprises shall be determined by the authority-in-charge and included in their budgets. For a profit-seeking enterprise which engages in export trade and earns foreign exchange receipts, besides listing as expenses the payment of social entertainment expenses as prescribed in the provisions of the sup-paragraphs of the preceding Paragraphs a special social entertainment expense may also be listed as expenses, not exceeding 2% of its total foreign exchange receipt settlement of the current year.

Losses incurred not in the course of operation of business or subsidiary business, family expenses, and such fines and surcharges for delinquent reporting, non-reporting, and delinquent payment of tax as provided in various tax acts shall not be included as expenses or losses.

Losses incurred in the operation of business in previous shall not be included in the computation for the current year provided, however, that in the case of a profit-seeking enterprise organized as a company that keeps a complete set of account books, uses the Blue Returns as provided in Article 77 in the years such losses occurred and in the year of declaring such losses, or such losses have been duly certified by a certified public accountant and declared within the prescribed period, taxation may be made on its net income after deduction of losses incurred in the preceding ten years as verified and determined by the local collection authority-in-charge.
Before the implementation of the amendment of this Act made on January 6, 2009 ,to the preceding losses of a profit-seeking enterprise organized as a company conforming to the requirements set out in the proviso of the preceding Paragraph as verified and determined by the collection authority-in-charge which are not yet deducted completely according to the Act ,the amended provision shall apply after the amendment and implementation of this Article.

Where the period of business operation is under one year, the amount of income derived for such period shall first be converted into corresponding annual income according to the proportion of the length of the period to the year, and the amount of income tax shall then be determined by the tax rate applicable to such annual income but paid basing on the original proportion for the period in which business is actually operated.
Where the period of business operation is under one month it shall be taken as one month.

If a profit-seeking enterprise whose head office is outside the territory of the Republic of China has a fixed place of business or business agent is located inside the territory of the Republic of China, the fixed place of business or business agent shall keep separate accounting books and its profit-seeking enterprise income tax shall be assessed accordingly.

The dividends or earnings received by a profit-seeking enterprise organized as a company, a cooperative, or other juristic person from its investment in another domestic profit-seeking enterprise shall not be included in its taxable income.

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A profit-seeking enterprise which has an affiliated relationship with, or is directly or indirectly owned or controlled by another enterprise within or without the territory of the Republic of China, whereof, if it is found that arrangement of their mutual income, cost, expense, profit or loss distribution does not conform with the regular business practice, hence, results in a tax evasion or reduction, the collection authority-in-charge for the purpose of computing the accurate income of the enterprise may report it to the Ministry of Finance for approval in effecting an adjustment in accordance with the regular business practice.

Beginning from the year 2011, excess interest shall not be considered as expense or loss if the proportion of related party debt to equity of a profit-seeking enterprise exceeds a specified ratio.
The profit-seeking enterprise referred to in the preceding paragraph shall, when filing its tax return, disclose the information regarding the debt-to-equity ratio of the debt owed to related parties and other relevant information in its annual income tax return.
The regulations governing the scope of related parties, liabilities, and owner's equity, the specified debt-to-equity ratio, and other requirements to be observed by the profit-seeking enterprise specified in Paragraph 1 of this Article shall be prescribed by the Ministry of Finance.
The provisions of the preceding three paragraphs shall not apply to banks, credit cooperatives, financial holding companies, bills finance companies, insurance companies and securities firms.

For any profit-seeking enterprise and its related parties directly or indirectly holding 50% or more 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, except in accordance with one of the following provisions, the surplus earnings of the foreign affiliated enterprise shall be recognized as the profit-seeking enterprise’s investment income which is calculated according to the ratio and holding period of the shares or capital, and such investment income shall be included in taxable income of the current year：
1.The foreign affiliated enterprise has substantial operating activities in its country or jurisdiction.
2.The current year surplus earnings of the foreign affiliated enterprise are below a standard. However, if the total amount of aggregating the current year’s surplus earnings of all foreign affiliated enterprises which are held by the same profit-seeking enterprise exceeds such standard, the investment income of the aforesaid foreign affiliated enterprises shall still be included in the taxable income of the current year.
The term "a low-tax country or jurisdiction" as mentioned in the preceding paragraph refers that the tax rate of profit-seeking enterprise income tax or similar tax in the country or jurisdiction where a foreign affiliated enterprise is located is not more than 70 percent of the tax rate set in Items 2 of Paragraph 5 of Article 5, or a country or jurisdiction which only taxes on a territorial basis.
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 by a certified public accountant in a local country or jurisdiction or in the Republic of China, then filed by the profit-seeking enterprise, and verified by the tax authority, such losses may be deducted from surplus earnings of the foreign affiliated enterprise within ten years, and the investment income of the profit-seeking enterprise shall be calculated in accordance with the provisions of Paragraph 1.
When the profit-seeking enterprise receives the dividends or surplus earnings from the foreign affiliated enterprise, it shall not be included in taxable income within the range of the investment income which has been recognized according to the provisions of Paragraph 1; the excess amount shall be included in taxable income of the receiving year. In case income tax has been paid on dividends or surplus earnings in accordance with the tax act of the source country of that income, 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 tax payable 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 investment income; to the extent that such deduction shall not exceed the amount of tax which, computed at the applicable domestic tax rate, is increased in consequence of inclusion of investment income.
The regulations governing the scope of related parties, affiliated enterprises, a significant influence, recognized investment income, substantial operating activities, a standard of the current year surplus earnings, the deduction of losses, and foreign tax credits; the relevant calculation method; required documents; and other requirements specified in the preceding four Paragraphs shall be prescribed by the Ministry of Finance.
If an affiliated enterprise specified in Paragraph 1 is subject to Article　43-4, it is not subject to the provisions of the preceding five Paragraphs.

Any foreign profit-seeking enterprise established according to foreign law but with a place of effective management in the Republic of China shall be deemed as a profit-seeking enterprise having its head office within the territory of the Republic of China, and shall be subject to profit-seeking enterprise income tax in accordance with Income Tax Act and other relevant laws. In case of violation, the foreign profit-seeking enterprise shall be subject to the Income Tax Act and other relevant laws.
A foreign profit-seeking enterprise specified in the preceding Paragraph shall be deemed as a profit-seeking enterprise established according to the Republic of China’s laws, and recognize the payment of various kinds of income from sources in the Republic of China in accordance with Article 8. The tax withholders shall withhold the income tax from various income payments, and issue withholding certificates, dividend vouchers, and other relevant certificates in accordance with Income Tax Act and other relevant laws. In case of violation, the foreign profit-seeking enterprise shall be subject to the Income Tax Act and other relevant laws. However, if the foreign profit-seeking enterprise distributes surplus earnings not earned in the year applying to profit-seeking enterprise income tax in accordance with Paragraph 1, the surplus earnings are not from sources in the Republic of China in accordance with Article 8.
The term "A foreign profit-seeking enterprise with a place of effective management in the Republic of China" as mentioned in Paragraph 1 refers that it is in accordance with the following provisions:
1.The decision maker who makes significant decisions in business management, financial management, and personnel management is an individual resident in the Republic of China or a profit-seeking enterprise having its head office within the territory of the Republic of China, or the place where the significant decisions are made is in the Republic of China.
2.Financial statements, records of accounting books, minutes of meetings of the Board of Directors or minutes of meetings of the shareholders prepared or stored in the territory of the Republic of China.
3.Major business activities carried out in the Republic of China.
The regulations governing the measures applying to levying income tax, withholding tax, and issuing certificates; the standard and procedure of identifying place of management; evidential documents; and other requirements specified in the preceding three Paragraphs shall be prescribed by the Ministry of Finance.

Inventories of merchandise, raw materials, supplies, goods-in-process, finished goods and by-products shall be evaluated on the basis of actual cost. Where the cost is higher than the net realizable value, the taxpayer may take the net realizable value as the basis of evaluation. A loss on a decline in the net realizable value of the inventories is allowed to be the cost of goods sold. In case the cost is not ascertainable or the net realizable value is not derivable by reasonable anticipation, the local collection authority-in-charge shall determine it on the basis of expert opinion or by appraisal.
Net realizable value as provided in the preceding paragraph refers to the expected net margin from the sales under regular operation.
Cost as provided in Paragraph 1 may be calculated by using the specific identification method, first-in first-out method, weighted average method, moving average method, or other methods approved by the competent authority in accordance with the categories or characteristics of an inventory.

Actual cost means the price paid for acquisition of an asset where such is paid, and includes not only the purchase price paid at time of acquisition but also all necessary expenses incidental to acquisition or incurred in making it fit for use in the operation of business. Where an asset is manufactured or constructed instead of purchased, the cost includes materials, labor and all expenses incurred in designing, manufacture, construction and installation necessary to make it fit for use in the operation of business. In the case of an asset brought forward at the beginning of a period, the cost means the original inventory price.
Expense incurred in the expansion, replacement, improvement or repair of any asset as a result of which its value or efficiency is increased may, to the extent of such increase, be added to the balance of the actual cost for computation.

Market value means the current price prevailing at the locality concerned on the day of making final report of the account.

The cost of goods-in-transit is the cost standing at time of commencement of transit, and the market value thereof is the market value prevailing at the place of destination.
Evaluation of a by-product shall be in accordance with the provisions of Article 44 of this Act where cost thereof is verifiable; and on the basis of the market value after deduction of selling expenses where cost thereof is not available.

The provisions of Article 44 of this Act shall apply mutatis mutandis in the evaluation of short-terms investments in valuable securities. Where the market value of such securities at the close of a financial period has been subject to violent fluctuations, the average price during the immediately preceding month may be taken as their market value on the day of making final report of the account.

Accounts receivable and notes receivable shall be evaluated at their respective amounts less deductions for estimated allowance for bad debts.
Allowance for bad debts as set forth in the preceding Paragraph, shall be estimated and set aside in an amount not exceeding 1% of the amount of outstanding balance of the accounts receivable and the notes receivable, or of the amount of outstanding balance of credits in the case of a financial institution.
Where the percentage of bad debt losses actually incurred and declarable by a profit-seeking enterprise under the act exceeds the percentage specified in the preceding Paragraph, the allowance for such bad debts may be estimated and set aside in an amount not exceeding the average of the percentages of actual bad debts declarable by the said profit-seeking enterprise under the act in the preceding three years.
For a profit-seeking enterprise if it is found in the following year that the amount of all ascertained loss in bad debts differs from that of the estimated losses, adjustment shall be made in the estimation of loss in bad debts for the current year to conform to the allowable percentage.
Under any of the following circumstances, an account receivable or note receivable or any other item of uncollected credit may be deemed as an ascertained bad debts loss:
1. Where the outstanding amount is wholly or partially uncollectible by reason of insolvency, dodging of the debtor, compromise or adjudication of bankruptcy, or any other cause;
2. Where the outstanding amount has been past due for a period over two years during which neither the principal nor the interest accursed thereon has been paid despite demands made therefor.
If the outstanding amount as set forth in the preceding Paragraph is collected after being written off as loss, the amount actually collected shall be deemed as a profit for the year in which it is collected.

Buildings, fixtures, appurtenant equipment, vessels, machinery, tools apparatus appliances and other fixed assets shall be evaluated at cost less prescribed depreciation.

Fixed assets must be depreciated by using the straight-line method, fixed percentage on diminishing book value method, sum-of-years`-digits method, production method, working-hour method or other depreciation methods approved by the competent authority. Where the assets belong to different categories, the depreciation may combine the computation based on the respective categories.
The service life of various kinds of fixed assets shall be such as is prescribed in the Table of Service Life of Fixed Assets; however, the service life of equipment installed to the prevention of water pollution or air pollution may be accelerated to two years.
In the computation of depreciation of each kind of fixed assets, the service life of such fixed assets shall not be shorter than the minimum years of service life specified in the said table unless special permission has been granted by the Government to adopt the shortening as a measure of encouragement.

When a passenger sedan newly purchased by a profit-seeking enterprise is depreciated in accordance with the provision of paragraph 1 of the preceding Article, its actual cost shall not exceed the criteria prescribed by the Ministry of Finance.
If the aforementioned sedan, after having been used, is sold, destroyed or scrapped, its income or loss shall be also be computed on the basis of underpreciated value which is calculated in accordance with the formal method of depreciation prescribed by this act.

Where the actual cost of the fixed assets is increased or decreased after a number of years of use, the depreciation of such assets shall be computed on the basis of the cost after such increase or decrease at the prescribed rate of depreciation with the remaining portion of the service life taken as their service life.

Where the fixed assets have at the time of acquisition been used for a number of years, the depreciation thereof shall be computed at the prescribed rate of depreciation with the remaining portion of the service life taken as their service life.
Where it is foreseeable at the time of acquisition of the fixed assets that they will not have the normal length of service on account of certain special circumstances, the actual useful years may, upon presentation of documentary evidence, be taken as their service life for computing depreciation at the prescribed rate.

For valuation of depreciable fixed assets, accumulated depreciation accounts must be established and presented as deductions of the respective assets. The depreciation of fixed assets must be presented on an annual basis.
When the depreciation of fixed assets is computed, the salvage value must be estimated. The balance after deduction of the salvage value shall be used as the basis for the computation.
If a fixed asset continues to be used after expiration of its duration limit, such asset can continue to be depreciated using the salvage value thereof.

Where the fixed assets have reached the full period of their prescribed useful years but the accumulation of depreciation thereof has not amounted to the cost thereof, depreciation at the original rate may be made until full depreciation has been made.

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If the fixed assets which have been completely depreciated are destroyed or become obsolete at the expiration of their useful years, the difference, if any, of the residual value previously estimated over the proceeds from sale of scraps may be charged to loss for the current year. In case the proceeds from sale of scraps exceed the residual value previously estimated, the difference shall be charged to income of the current year.
Where the fixed assets are destroyed or become obsolete on account of specific reasons, at any time before the end of their prescribed service years, their undepreciated value may, upon submission of reliable documentary evidence, be charged to loss for the proper fiscal year, provided, that proceeds from the sale of scraps, if any, shall be considered as income.

Where the service life of the fixed assets in less than two years, the cost thereof may be listed as loss for the fiscal year in which such assets are acquired, manufactured or constructed, and annual depreciation thereof is not required.

Depletion assets shall be valued on the basis of the value left over after deducting from the cost of such assets the depletion charge for each period. Computation of the depletion charge may be made according to one of the following formulas; provided that whichever is used shall not be changed afterwards:
1. To compute at the close of the business year the depletion charge deductible for the current year on the basis of the quantity actually exploited within the current year multiplied by the estimated unit depletion charge, which is worked out by dividing the cost of the depletion assets against the quantity exploitable;
2. To set aside annually from the gross amount of proceeds realized from the exploitation or sale of products the depletion charge according to the Table of Depletion Assets; provided that the depletion charge set aside annually shall not exceed fifty per cent of the amount of gain derived in the current year from the assets before deducting therefrom the depletion charge; and that the aggregation of such depletion charge shall in no case exceed the cost of the assets. In the case of depletion assets producing petroleum or natural gas a depletion in the amount of 27.5 per cent of the gross amount of proceeds realized from sale of the production in the current year may be set aside therefrom annually till the assets are completely exhausted; provided that the depletion charge set aside annually shall not exceed fifty per cent of the amount of gain derived in the current year from the assets before deducting therefrom the depletion charge.

Business rights, trademarks, copyrights, patents and other franchises are assets only if they are acquired by purchase.
Such intangible assets as referred to in the preceding paragraph shall be valued at cost less the amount amortized for each period.
The cost of intangible assets shall be amortized in equal annual installments in accordance with the following prescribed number of years of amortization; provided that Where an intangible asset after acquisition cannot be amortized according to the prescribed number of years of amortization on account of specific reasons, an application stating the reasons therefore may be submitted to the collection authority-in-charge for permission to amortize in a different manner:
1. Amortization of business rights shall be based on a period of ten years;
2. Amortization of copyrights shall be based on a period of fifteen years;
3. Amortization of trademarks, patents and all other franchises may be based on the number of years of enjoyment of such rights after acquisition.

In the case of a 25 per cent rise in prices, the fixed assets depletion assets and intangible assets as referred to in this Act may be revalued. Rules governing the conduction of assets revaluation and formulas of revaluation shall be separately prescribed by the Executive Yuan.

Deposits, loans, or bonds for long-term investment shall be valued at the current value computed based on the period for amortization. Computation of the current value shall be based on the interest at the contracted rate if the debt is interest-bearing, or at the average interest rate prevailing among local banks on deposit at fixed term of one year if the debt is not interest-bearing.
When the debt as referred to in the preceding paragraph is recovered at maturity, the portion of interest accuring from the value in excess of the current value shall be listed as profit for the year in which the debt is recovered.

Where a long-term investment is made to hold all the shares or more than one-half of the shares of a subsidiary enterprise, it shall be valued on the basis of the total net worth of the assets of such an enterprise or a part thereof proportionate to the amount of shares held. Where the amount of long-term investment in any other enterprise is less than a majority of its total amount of capital, the valuation of the investment shall be based on the cost.

Evaluation of the prepaid expenses shall be based on the portion of the amount remaining within the unexpired period; inventory of supplies must be valued on the basis of the portion of amount covering the unused supplies; evaluation of other deferred expenses must be based on the non-amortized amount.
Expenditures of a profit-seeking enterprise incurred during the organizational period must be recorded as current expenses. The term "organizational period" means the period from the preparatory stage to the starting date of the business that commences to generate significant revenue.
The expenses defrayed for the issue of corporate bonds and the difference resulting from the discounted issuance of corporate bonds against their face value shall, where a definite period of amortization is provided for, be amortized in installments according to such a period.

In the case of dissolution, discontinuance, merger or consolidation, division, acquisition, or transfer of ownership of a profit-seeking enterprise, evaluation of its assets shall be based on the current value or the actual price at which the transaction is made.

A taxpayer shall keep an inventory stating therein the quantity, unit, unit price, total price and location of all his assets as well as that whether the price indicated is the cost, or the current value or the appraised value.
Where a taxpayer fails to produce reliable documentary evidence in support of the valuation of his assets, the collection authority-in-charge may directly determine the value of such assets by way of appraisement.

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From 1998 to 2017, if there is any earnings of the current year not distributed by a profit-seeking enterprise, an additional profit-seeking income tax shall be levied at the rate of ten percent on such undistributed surplus earnings. Beginning from the year 2018, the aforesaid tax shall be levied at the rate of five percent.
The term "undistributed earnings" as referred to in the preceding Paragraph shall denote the total amount of after-tax net income for the period and other profit items adjusted to the current year’s undistributed earnings other than after-tax net income for the period as calculated by a profit-seeking enterprise in accordance with the Business Entity Accounting Act, Securities and Exchange Act, or other laws used in preparing financial reports, less the following sums:
1. Make-up of the losses in previous years and the next-year-loss which has been duly audited and certified by a certificated public accountant;
2. The dividends or earnings which have been distributed from the earnings gained in the current year;
3. Legal earned surplus reserve having been set aside from the surplus earnings of the current year in accordance with the Company Act or other acts, the legal reserve and the public interest reserve having been set aside in accordance with the Cooperative Act;
4. Sinking fund reserve or restricted distributable surplus earnings which were required to be set aside or restricted from distribution under any treaty signed by the nation with another country, or under any agreement signed in accordance with the economic assistance or loan agreement signed by the nation with any international organization;
5. Special reserve or restricted distributable surplus earnings which were required to be set aside or restricted from distribution of the surplus earnings of the current year pursuant to the order given by the competent authority in accordance with the provisions of other laws;
6. Capital reserve which was required to be transformed from income after tax pursuant to the provisions of other laws;
7. The amount of other loss items adjusted to the current year’s undistributed earnings other than after-tax net income for the period; and
8. Other accounts as approved by the Ministry of Finance.
The amount of the accounts specifies in Subparagraphs 2 through 6 of the preceding Paragraph shall be limited to those actually occurred prior to the end of the fiscal year following the year in which the respective incomes are taxable.
The term "after-tax net income for the period" and "the amount of other profit (or loss) items adjusted to the current year’s undistributed earnings other than after-tax net income for the period" referred in Paragraph 2 of this Article, in the case where the financial statements in the current year of a profit-seeking enterprise were duly audited and certified by a certified public accountant, shall be based on the amount which was assessed by such certified public accountant. However, if thereafter the authority in charge conducts an assessment of such financial statements and makes an adjustment to the aforesaid items, the original amount shall be replaced by the amount after such adjustment of which the authority in charge has informed the enterprise.
If the reasons why distributable surplus earnings were restricted from distribution pursuant to the provisions of Subparagraphs 4 and 5 of Paragraph 2 of this Article are no longer pertaining, the part of which the distributable surplus earnings therefrom have been undistributed prior to the end of the fiscal year following the year when the reasons no longer pertain shall be added to the surplus earnings of the year when the reasons no longer pertain and be subject to the levy of an additional profit-seeking income tax at the rate provided by the provisions of Paragraph 1 of this Article.