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Article 10-2 sits inside Taiwan's master industrial-policy instrument, the Statute for Industrial Innovation (產業創新條例), which dates to 2010 and consolidates Taiwan's tax incentives for industrial upgrading. The 7 January 2023 amendment adds two new credits with a sunset on 31 December 2029:
1. 25% R&D tax credit on "forward-looking innovative R&D" expenditure incurred in the tax year. Used to offset up to 30% of the year's profit-seeking enterprise income tax payable. The "forward-looking" qualifier excludes routine engineering and targets next-generation process and architecture work — TSMC's 2nm/A16 node R&D, MediaTek's advanced-SoC and AI-accelerator programmes, ASE Technology's advanced-packaging research.
2. 5% advanced-process equipment credit on the purchase price of brand-new machinery or equipment used in the company's own advanced manufacturing processes. Also capped at 30% of CIT payable. Designed to subsidise EUV scanners, advanced photolithography tools, advanced metrology, and the specialised equipment for High-NA EUV / advanced packaging build-out at TSMC Hsinchu, Tainan, and Kaohsiung sites.
3. Eligibility thresholds (set by Ministry of Finance regulations under Article 10-2 and announced in 2023): - Minimum R&D spend: NT$6 billion (~US$200m) per year - Minimum R&D intensity: 6% of net operating revenue - Minimum effective tax rate: 15% (lowered to 12% for FY2023) - Minimum equipment spend (5% credit only): NT$10 billion The 15% effective-tax-rate threshold is explicitly set to align with the OECD Pillar Two global minimum corporate tax floor — ensuring credits do not erode the effective tax burden below the BEPS 2.0 minimum.
4. Combined cap and concurrence rules. A company claiming both the 25% R&D credit and the 5% equipment credit cannot exceed 50% of the year's CIT payable from the combined reduction (with limited exceptions in the final claim year). Article 10-2 credits cannot be combined with the older Article 10 (general R&D credit) for the same expenditure.
5. Application administration. Companies file an application with the Industrial Development Administration (IDA) of the Ministry of Economic Affairs, which evaluates whether the claimed R&D meets the "forward-looking" and "key supply-chain position" tests. By June 2024, the first four applications had been received — TSMC, MediaTek, and two unnamed others — widely expected to clear the eligibility thresholds.
in the NT$160-180bn range per year (well above the NT$6bn threshold), and capex in the NT$1.0-1.2 trillion range. Even a fraction qualifying as "forward-looking innovative R&D" yields tax savings on the order of NT$10-15bn per year for TSMC alone. MediaTek, ASE Technology, and Realtek add further qualifying baselines.
measure's stated purpose — codified in the legislative committee report — is to ensure TSMC's 2nm and below logic capacity remains predominantly in Taiwan despite US CHIPS Act and Japan METI pulls toward Arizona and Kumamoto. The 25% rate explicitly matches the US CHIPS Act §48D Advanced Manufacturing ITC ceiling.
centrality to the chip-equipment perimeter (the trilateral US-Japan-Netherlands controls all aim at Taiwan-routed leading- edge production), no prior Taiwan-side action had been filed. Article 10-2 closes that gap and registers Taiwan as a counter- party in the global semiconductor subsidy race rather than only as a target of others' supply-chain reshaping.
case (where credit duration is decades), Article 10-2 has a hard sunset that becomes a strategic-decision pressure point in 2027- 2028. The first major review/extension debate is expected during the 2027 budget cycle.
The responds_to edges to the US CHIPS Act and the K-Chips Act reflect the explicit competitive-policy framing in the legislative record:
direct funding).
Executive Yuan and Legislative Yuan for matching incentives; warning that without onshore parity, capex and leading-edge R&D might tilt toward Arizona.
Legislative Yuan committee.
reading (Articles 10-2 and 72).
10-day window after Legislative Yuan passage).
regulations setting NT$6bn / 6% / 15% thresholds.
the same competitive logic.
MediaTek among them).
The Taiwan-Korea-EU sequence in 2023 is the clearest example of the post-CHIPS-Act subsidy diffusion dynamic: each major chip- producing jurisdiction matches the US 25% advanced-manufacturing credit within 12 months, with eligibility tuned to the local champion (TSMC for Taiwan, Samsung/SK Hynix for Korea, ESMC/ Intel for the EU).
~22-25% of EWT NAV; MediaTek and ASE Technology add further semi-sector weight (~30-35% combined). A multi-billion NTD annual tax saving for the leading semiconductor names raises net income and supports the secular re-rating of Taiwan's equity premium that began with the 2024-2025 AI-capex surge.
reduces TSMC's effective tax rate by 1-2 percentage points relative to a no-credit counterfactual, supporting EPS and dividend capacity. More importantly, it lowers TSMC's hurdle rate for committing 2nm and A16 capex onshore vs. Arizona — strengthening Hsinchu/Kaohsiung as the leading- edge centre of gravity.
an onshore subsidy floor that TSMC's Arizona fab subsidies (CHIPS Act $6.6bn direct + 25% ITC) must overcome. The political calculus in Taipei is explicitly to make the offshore expansion incremental rather than substitutive.
9400, automotive SoCs, and AI-accelerator R&D plausibly meet the "forward-looking" test. The 25% credit on MediaTek's ~NT$60-70bn annual R&D (assuming high qualifying share) delivers NT$10-15bn in annual tax relief.
pairs with the Trilateral Chip-Equipment Perimeter actions (2022-10-07 US BIS, 2023-03-31 Japan METI, 2023-06-30 Netherlands) which restrict China access while Article 10-2 subsidises Taiwan retention — joint effect: leading-edge capacity remains concentrated in Taiwan-Korea-Japan-US rather than diffusing to Chinese fabs.
cycle? Capacity decisions in 2026-2028 carry uncertainty about whether the credit is extended.
(TSMC + MediaTek + ASE only) or broadly (extending to Realtek, Novatek, MediaTek subsidiaries, advanced-packaging OSATs)? The first batch of approvals in 2024-2025 sets the precedent.
in, the credit is BEPS-compliant in design — but qualifying refundable credits vs. non-refundable credits matters for the Pillar Two GloBE rule treatment, and the OECD Inclusive Framework guidance on this category has continued to evolve through 2024-2025.