Controlled Foreign Company (CFC) Services

Basic CFC Regulations

Starting from 2023, if a profit-seeking enterprise and its related parties directly or indirectly hold more than 50% of the shares or capital of a related entity in a low-tax jurisdiction outside the Republic of China (Taiwan), or have significant influence over such an entity, that foreign entity is classified as a Controlled Foreign Company (CFC). If the CFC does not meet exemption criteria, the profit-seeking enterprise must recognize the CFC's investment income in accordance with Article 43-3 of the Income Tax Act and include it in its taxable income for the year.

Calculation of Gains and Losses, and Offsetting

• CFC Investment Income Formula:

CFC Investment Income = (CFC Current Year Earnings - Legal Reserve or Restricted Distribution Items - Prior Year Approved Losses) × Direct Ownership Ratio × Holding Period

• Current Year Losses of Individual CFCs: Losses from a specific year may offset earnings in future years within a 10-year period starting from the year after the loss occurred.

• For profit-seeking enterprises or individual shareholders to carry forward prior-year CFC losses within the 10-year limit, they must submit the following during income tax filing:

1. Related Party Structure Chart
2. CFC Financial Statements (extensions of up to 6 months can be requested for submission)
3. CFC Loss Deduction Schedule for the Past 10 Years
4. CFC Investment Income Calculation Statement

Submission of Financial Statements

CFC financial statements can be submitted in the following ways:

• Prepared according to Accounting Standards Recognized in Taiwan: Certified by qualified accountants in the CFC’s jurisdiction or Taiwan
• Other Supporting Documentation: Other documents proving the authenticity of the financial statements may be accepted if verified by tax authorities, potentially replacing accountant-certified statements.

Our Professional Services for CFC Reporting and Cross-Border Tax Planning Include:

• Establishment and ongoing maintenance of offshore companies
• CFC accounting services
• CPA certification of CFC financial statements
• Certification and filing of profit-seeking enterprise income tax (including CFC declarations)

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