Thin Capitalization Rule has been adopted in Taiwan

As Article 43-2 of Income Tax Act has been amended since January 26, 2011, the excess interest expenditure on the debts owed directly or indirectly by a profit-seeking enterprise to a related party shall not be considered as expenses or losses if the proportion of related party debt to equity of a profit-seeking enterprise exceeds the specified ratio.

Article 43-2 of Income Tax Act

Beginning from the year 2011, excess interest shall not be considered as expense or loss if the proportion of related party debt to equity of a profit-seeking enterprise exceeds a specified ratio.

The profit-seeking enterprise referred to in the preceding paragraph shall, when filing its tax return, disclose the information regarding the debt-to-equity ratio of the debt owed to related parties and other relevant information in its annual income tax return.

The regulations governing the scope of related parties, liabilities, and owner's equity, the specified debt-to-equity ratio, and other requirements to be observed by the profit-seeking enterprise specified in Paragraph 1 of this Article shall be prescribed by the Ministry of Finance.

The provisions of the preceding three paragraphs shall not apply to banks, credit cooperatives, financial holding companies, bills finance companies, insurance companies and securities firms.

Please contact Chen & Wen, CPAs for more information.