If an individual and his or her related parties directly or indirectly hold 50% or more of the shares or capital of a foreign affiliated enterprise in a low-tax country or jurisdiction, or have a significant influence on such a foreign affiliated enterprise, and the foreign affiliated enterprise does not fall under any of the subparagraphs of Paragraph 1, Article 43-3 of the Income Tax Act, and the individual, either alone or with his or her spouse and relatives within the second degree of kinship, holds 10% or more of the shares or capital of the foreign affiliated enterprise, then the surplus earnings of the foreign affiliated enterprise shall be recognized as the individual's income from profit-seeking activities, which is calculated according to the individual's holding ratio of the shares or capital to the total shares or capital, aggregated with the income calculated in accordance with Subparagraph 1, Paragraph 1 of the preceding article, and included in the individual's basic income of the current year. However, if the aggregate income in a tax household is less than NT$1,000,000, it shall be exempt from inclusion in the individual's basic income.
The term "a low-tax country or jurisdiction" as mentioned in the preceding paragraph shall be determined in accordance with Paragraph 2, Article 43-3 of the Income Tax Act.
From the year in which the foreign affiliated enterprise meets the requirements of Paragraph 1, if the losses of each year incurred in the foreign affiliated enterprise have been duly audited and attested to in accordance with Paragraph 3, Article 43-3 of the Income Tax Act, filed by the aforementioned individual and assessed by the tax authority, such losses may be deducted from surplus earnings of the foreign affiliated enterprise within ten years following the year the losses occurred, and then the individual's income from profit-seeking activities shall be calculated in accordance with the provisions of Paragraph 1.
When the aforementioned individual receives the dividends or surplus earnings from the foreign affiliated enterprise, the remaining sum of the received amount after deducting the income from profit-seeking activities calculated in accordance with Paragraph 1 shall be included in the income of the receiving year calculated in accordance with Subparagraph 1, Paragraph 1 of the preceding article. However, the income from profit-seeking activities calculated in accordance with Paragraph 1 which was exempt from inclusion in the basic income shall not be deducted.
If the income tax on the income from profit-seeking activities provided in Paragraph 1 was paid in accordance with the tax law of the source jurisdiction in the receiving year, such tax paid may, upon presentation by the taxpayer of evidence of tax payment certificates issued by the tax authorities of said source jurisdiction and attested to by an overseas agency of the Republic of China or other organizations recognized by the Government of the Republic of China in the said locality, be credited against the amount of basic tax payable calculated in accordance with the forepart of Paragraph 1, Article 13, within five years from the date following the expiration date of the statutory period for filing the tax return in the year the income from profit-seeking activities is included into the basic income. The credited amount shall not exceed the amount of basic tax which is increased due to including such income from profit-seeking activities under regulations.
The regulations governing the scope of related parties, affiliated enterprises, a significant influence, calculation of the income from profit-seeking activities, the deduction of losses, and foreign tax credits; the relevant calculation method; required documents; and other requirements specified in the preceding five paragraphs shall be prescribed by the MOF.
If an affiliated enterprise specified in Paragraph 1 is subject to Article 43-4 of the Income Tax Act, it is not subject to the preceding six paragraphs.