Introduction:
As global demand for semiconductors continues to surge, countries worldwide are introducing subsidy policies to enhance domestic chip manufacturing capabilities and ensure supply security with the new entry from Taiwan’s Chips act.
Initiatives such as the U.S. “Chips and Science Act,” the EU’s “European Chip Act,” Japan’s “Semiconductor Industry Revitalization Plan,” and South Korea’s “K-Semiconductor Strategy” aim to boost national competitiveness in the semiconductor industry.
Taiwan, a global powerhouse in the semiconductor industry, has taken a significant stride towards reinforcing its position with the introduction of the groundbreaking “CHIPS Act” or the Industrial Innovation Act.
This strategic move aims to provide substantial corporate investment-related tax deductions, fostering an environment conducive to sustained semiconductor leadership. In this blog post, we delve into the key components, incentives, criteria, and implications of this transformative act.
I. Overview of Taiwan’s Semiconductor Industry:
Taiwan’s semiconductor industry accounted for over one-third of total exports in 2022, resulting in a trade surplus of nearly $70 billion. The CHIPS Act is expected to further boost the development of Taiwan’s semiconductor industry, encouraging companies to conduct advanced R&D and adopt state-of-the-art equipment domestically.
This initiative solidifies Taiwan’s position as a global semiconductor leader, enhancing its status in the highly competitive global semiconductor landscape.
Read More: Taiwan Govt. Approves TSMC 3.5 B Euros investment for 12-inch fab in Germany
II. The CHIPS Act Incentives:
The tax incentives provided under this act are the most generous since the inception of the Industrial Innovation Act. The eligibility criteria include R&D expenses of at least NT$6 billion, an R&D intensity of 6%, and equipment expenses exceeding NT$10 billion. The effective tax rate for 2023 must be 12%.
The two main incentives offered are a 25% tax deduction on forward-looking R&D spending and a 5% deduction on advanced machinery spending with no upper limit.
The CHIPS Act introduces two main incentives designed to propel the semiconductor sector forward:
25% Tax Deduction on Forward-Looking R&D Spending:
- Companies engaging in forward-looking research and development can benefit from a substantial 25% tax deduction on their R&D expenses.
- To qualify, companies must incur R&D expenses of at least NT$6 billion (approximately US$185 million) and maintain an R&D intensity of 6%.
5% Deduction on Advanced Machinery Spending:
- Another key incentive involves a 5% tax deduction on expenditures related to advanced machinery, with no upper limit on the amount.
- Companies seeking this deduction must invest in equipment with expenses exceeding NT$10 billion (approximately US$308 million).
Read More: 5 Major Updates on TSMC Global Expansion Plan
III. Criteria for Eligibility:
The eligibility criteria for companies looking to leverage the benefits of the CHIPS Act are well-defined:
R&D Expense Criteria:
- Companies must incur a minimum of NT$6 billion in R&D expenses, demonstrating a commitment to pushing the boundaries of technological innovation.
- The R&D intensity must be maintained at 6%, emphasizing a dedication to substantial research and development efforts.
Equipment Expense Criteria:
- Companies looking to benefit from the 5% tax deduction on advanced machinery must invest in equipment with expenses surpassing NT$10 billion.
- This criterion ensures that companies making substantial investments in cutting-edge technology are the primary beneficiaries.
Effective Tax Rate in 2023:
- To qualify for the incentives, companies must maintain an effective tax rate of 12% in 2023, encouraging financial responsibility and tax compliance.
Read More: 5 Reasons TSMC is World’s Leading Chipmaker, as Per Founder Chang
IV. Implementation and Timeline:
Commencing on January 1, 2023, and extending until December 31, 2029, the CHIPS Act offers companies a seven-year window to leverage the incentives. Starting from February 2024, companies can submit applications for the tax deductions.
If approved, companies can recognize these deductions when filing their 2023 tax returns.
V. Implications and Future Prospects:
The CHIPS Act positions major semiconductor companies such as TSMC, MediaTek, Novatek, and others to reap significant benefits. TSMC, in particular, stands to gain significantly, with estimated annual tax savings of around NT$30 billion.
Anticipation surrounds the positive ripple effect the act is expected to create throughout the entire semiconductor ecosystem, fostering innovation.
Reference: news.cnyes
