When acquiring shares in a close-held company by offering services, there are different tax rules to consider. The tax on this income depends on the following factors:

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Key Factors That Affect Taxable Income:

1. How the Equity is Acquired: Shares can be obtained through technical know-how, services, or goodwill. These are considered non-cash contributions, and this impacts how the income is taxed.

2. Transferability of Shares: The company’s rules (called the articles of association) determine when shares can be sold or transferred. If the company’s rules restrict transferring shares, this will affect how taxable income is calculated.​

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Scenario 1: the articles of association have no restrictions on transfer

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Let’s say Jack gets 500,000 shares in ABC Company on August 20, 2018, in exchange for services. Each share is worth NT$10, and the company’s rules don’t stop Jack from selling the shares. Since there are no restrictions, Jack will be taxed on the value of the shares at the time of acquisition. In this case, Jack’s taxable income for 2018 would be NT$5,000,000 (500,000 shares × NT$10).

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Scenario 2: the articles of association have restrictions on trabsfer

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Now, let’s say the company’s rules state that Jack cannot sell or transfer the shares until 2020. In this case, Jack will not pay tax in 2018 or 2019. His taxable income will be calculated in 2020 when the shares become transferable. The tax will be based on the value of the shares on the day after the restriction is lifted.

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Impact of Newly Established Companies

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New companies often lose money in their first year. But even if the company is not making a profit, if there are no restrictions on transferring shares, the shareholder still has to pay tax on the value of the shares they received. This is because tax is calculated based on the value of the shares, not on the company’s profit or loss.

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Special Considerations for Foreign Investors

For foreign investors, it’s important to know that the contribution of technical know-how, services, or goodwill as capital does not apply. Foreign investors may face extra rules and taxes when acquiring shares in this way in Taiwan.

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Conclusion

In summary, the tax on acquiring shares in a close-held company depends on how the shares are acquired and whether there are any restrictions on transferring them. Shareholders should be aware that taxes can apply even if the company is not making a profit, and foreign investors must follow special rules. It’s always a good idea to seek professional advice to ensure everything is done correctly according to Taiwan’s tax laws.