On 4 January 2024, the Taiwan Ministry of Finance issued a tax ruling (No. 11204665340) that clarifies how controlled foreign corporation (CFC) taxation applies to trust structures. This ruling provides guidance on calculating shareholding percentages in offshore trusts and extends the scope of “10% direct ownership” to incorporate shares held via trusts. 

Taiwan’s CFC Ruling: Background and Purpose

The purpose of this ruling is to address tax-related concerns associated with offshore trust arrangements under Taiwan’s CFC regulations. Prior to its implementation, direct shareholding percentage calculations did not include shares held in offshore trusts. This caused gaps in the taxation system that enabled individuals to avoid CFC taxation by using trusts to hold shares in low-tax jurisdictions or regions.  

The ruling ensures that shares held through trusts are included when determining direct ownership percentages in an effort to close these gaps. This approach would allow Taiwan to enforce fair taxation and prevent individuals or companies from avoiding taxes through offshore trust arrangements.  

Reporting obligations

• The trustee must report trust income to the Ministry of Finance (MOF) if: 
  1. The settlor includes shares of a foreign enterprise from low-tax jurisdictions as trust assets; and 
  2. The settlor or beneficiaries of the trust fall under applicable CFC tax rulings related to such shares. 
• The trustee must report trust income for all trust assets within the same trust, but only if the trust holds shares of foreign enterprises based in low-tax jurisdictions. 
• The trustee must report the trust income of the settlor or beneficiary starting from the 2024 fiscal year onward. 
• The trustee must apply for a uniform tax ID number from the tax authorities for an effective process of trust income reporting.  

Overall, the changes to the reporting obligations aim to enhance transparency and ensure more comprehensive records. Moreover, the ruling is likely to increase effective ownership percentages, which could reduce the opportunities for tax avoidance. However, its broader scope could also expand the CFC landscape, potentially leading to additional tax liabilities and stricter compliance requirements. As a result, companies or trust holders may consider exploring alternative jurisdictions.  

Alternative trust jurisdictions

The increased reporting obligations in Taiwan might push some entities to look for jurisdictions where the requirements are less burdensome. Jurisdictions like Singapore, New Zealand and the United Kingdom are potential alternatives as they offer several strategic advantages to those seeking to navigate the implications of Taiwan’s CFC ruling while optimising their tax strategies.  

Singapore

• Favourable Tax Regime: Singapore boasts a competitive tax framework with no capital gains tax and a flat corporate tax rate of 17 per cent. Additionally, it has a vast network of double tax treaties that might reduce the adverse impacts of the CFC regulations.  
• Wealth Management Centre: Singapore has emerged as a major hub for wealth management, providing high-net-worth individuals and businesses with advanced legal and financial services.  
• Proximity to Taiwan: Singapore is an ideal option for Taiwanese companies wishing to relocate or expand due to its geographic location in Asia.   

New Zealand

• Reputation as an Onshore Jurisdiction: Due to its strong reputation for transparency and strict adherence to international standards, New Zealand stands out as an onshore jurisdiction compared to traditional offshore tax havens.  
• Ease of Doing Business: New Zealand offers a business-friendly environment with straightforward regulatory procedures, making it one of the world’s easiest countries to do business. 
• Geographical Advantage: As part of the Asia-Pacific region, New Zealand provides Asian countries, including Taiwan, with a convenient time zone for business operations.  

United Kingdom

• Political and Economic Stability: The UK is a reputable jurisdiction for conducting business internationally due to its robust economy and political stability.  
• Reputation for Transparency and Compliance: The UK is an attractive jurisdiction for companies looking to comply with international standards due to its well-known transparency and compliance. This standing strengthens the UK’s appeal as a reliable and trustworthy location for international business, including the Asian market. 
• Indo-Pacific Engagement: The UK’s “Indo-Pacific Tilt” strategy aims to improve its economic conditions and highlights its dedication to fortifying relations throughout the Indo-Pacific region, including Taiwan.  

In conclusion, individuals or companies may find these alternative jurisdictions appealing because they provide legal stability, lessen regulatory burdens and increase tax efficiency. While the benefits may vary depending on the circumstances, these factors offer compelling reasons for entities to look for alternatives outside of Taiwan’s increasingly stringent offshore trust reporting requirements.  

Bolder as your Global Service Provider

Bolder Group provides tailored family wealth solutions based on your unique requirements. We offer professional advice to individuals and family offices on complex matters, including governance. Our team of experts also helps with trust and trustee services and wealth planning and structuring.  

For more information about our services, please contact our Bolder team.  

Bolder Group does not provide financial, tax or legal advice and the information contained herein is meant for general information purposes only. We strongly recommend that before acting on any of the information contained herein, readers should consult with their professional advisers. The Bolder Group accepts no liability for any errors or omissions in the information, or the consequences resulting from any action taken by a reader based on the information provided herein.

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