Taiwan amends taxation of property held through offshore structures
The changes mean that a holding company structure set up to own real estate will be disregarded and disposal of the company's shares will be treated as a sale of land in the shareholders' hands. The effect will be that sale of a holding company that directly or indirectly holds Taiwan real estate constituting half of the company's value may be deemed as a sale of the underlying real estate, thus attracting a capital gains tax liability of up to 45 per cent, instead of the 20 per cent tax on share disposals.
The amendment has retrospective effect on property acquired after 1 January 2016.
Taiwan real estate can still be held through an offshore trustee or insurance policy, but investors should make an assessment of the regulatory risk, says law firm Baker McKenzie. Holding property through both an offshore holding company and an onshore holding company requires additional Taiwan regulatory approval, regardless of whether it is under a trust or an insurance policy. Before approving such a structure, the regulator will require information about the ultimate beneficial owner. If a Taiwan individual retains control but the document shows the insurance company or a secretariat company being the only beneficial owner, the combined effect of the amendment and the imminent application of the controlled foreign company rules could risk criminal liability.
'Although this rule reinforces the preference to hold Taiwan real estate through individual title from income tax perspective, wealth planners should review existing structures and consider various angles for planning in the future, in particular on criminal risk assessment of trustees and insurance companies,' says Baker McKenzie. 'Wealth planners should not only focus on tax advice but also legal advice if the planning includes Taiwan regulatory approvals.'
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