Shareholder Alert: Can NT$400,000 of NT$1 Million Transaction Gains Be Exempt from Property Gains Tax? New Rules Explained

Taiwan's Ministry of Finance has introduced revised regulations concerning the taxation of equity transactions that are treated as real estate transactions. These adjustments, implemented by the Ministry of Finance's Central Regional Tax Bureau, aim to align tax assessments more closely with practical realities and safeguard the rights of taxpayers.

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to make relevant tax assessments closer to practical situations and protect the rights and interests of taxpayers

The core of the revision focuses on two main areas: the methods for calculating equity value and the scope of application for these tax rules. The regulations stipulate that individuals or businesses trading more than half of the equity in unlisted, unquoted, or non-publicly traded companies are subject to property gains tax if over 50% of the company's equity value derives from domestic real estate. This rule was introduced to prevent tax evasion through the transfer of equity that effectively represents a transfer of domestic property.

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to avoid shareholders using equity transfer to effectively transfer domestic real estate and evade property gains tax

Previously, calculating the proportion of equity value derived from domestic real estate involved using domestic property value as the numerator and the company's net worth as the denominator. The revised rules introduce more flexibility by allowing the use of the total market value of all assets as the denominator, provided this can be reasonably and objectively measured, such as through an accountant's audited valuation at market prices. This change is intended to provide a more accurate reflection of a company's actual asset situation.

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this move can make the determination of the proportion of real estate value more in line with the actual asset situation and make the calculation results more reasonable

Furthermore, the revisions offer relief for certain older transactions. If shareholders sell equity acquired before July 1, 2021, the portion of their trading gains attributable to the value of "old-system" real estate (property acquired before January 1, 2016) held by the company can be excluded from the property gains tax calculation. For example, if a shareholder sells equity with a NT$1 million gain, and 80% of that equity is considered "old equity" and 50% of the company's assets are "old-system" real estate, then 40% of the gain (80% x 50%) can be excluded from the tax. The tax bureau reminds taxpayers that these beneficial measures apply to cases not yet finalized and encourages them to review the conditions for application.

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both the new regulation of calculating equity value using asset market value and the exclusion of old-system real estate proportion for old equity transactions are measures beneficial to taxpayers