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After historic legislation passed in the United States earlier this year that opened up billions of dollars in subsidies for chip manufacturing firms targeting advanced manufacturing processes, Taiwan also passed a similar bill last week to spur its domestic semiconductor supply chain. The region is home to the world's largest contract chip manufacturer, TSMC, and the semiconductor sector in the industry has often lamented a lack of incentives in their home territory similar to firms that operate in South Korea and Taiwan.
The U.S. Chips Act was also the result of semiconductor firms lobbying the government by pointing out how Asian countries heavily support their industries which have led to the continent becoming a dominating player in the global semiconductor manufacturing ecosystem. This has led to two of the three firms capable of producing advanced semiconductors on the 3-nanometer process node being located in Asia, with the third in the U.S.
Taiwan Allows Firms Investing In Advanced Technologies To Make Research and Development Expenses Tax Free
The bill in Taiwan was passed by its governing body, the Legislative Yuan, on Saturday and it aims to make Taiwan more competitive globally when it comes to government support for advanced technologies. The region's premier firm, the Taiwan Semiconductor Manufacturing Company (TSMC), created much fanfare last year when it held the groundbreaking ceremony for a brand new facility in the U.S. state of Arizona. Even though TSMC's Arizona fab will start by producing the older 5-nanometer chips and jump to 3-nanometer only when the firm's Taiwanese facilities have moved on to 2-nanometer fabrication, the decision nevertheless generated quite a bit of controversy in Taiwan.
Lawmakers and the public questioned whether TSMC's decision to set up the U.S. plant meant it was moving away from its home region, and government officials had to jump in to assuage all concerns. TSMC responded by holding a celebration event for kicking off 3-nanometer chip production in Taiwan - a rare event for a company that has never before commemorated mass production commencement.
The bill starts by pointing out that a host of different countries, such as the U.S., South Korea, and Japan, heavily support their industries, Taiwan is also amending its constitution to create room for more innovation. Crucially, the press release by the Ministry of Economic Affairs mentions that the legal changes are not limited to a specific industry. Instead, they will aid any company that holes a crucial supply in the global supply chain and invests in critical technologies in Taiwan.
As a whole, the new law will allow firms to deduct a whopping 50% of their research and development expenditure from tax calculation, and it also extends to purchasing costs for chip fabrication equipment. For the latter bit, companies can deduct up to 5% of their annual expenditures for tax purposes, and the bill does not set an upper limit for these costs either. Additionally, it also limits participating firms to those that have an effective tax rate of 15% from 2013; however, as a 'buffer' period, the governing body is currently evaluating firms through a minimum 12% effective tax rate. The effective tax rate for a company is calculated by dividing its annual tax expense by the income before taxes.
While the law has been passed, the Ministry will formulate the specifics soon, and take a look at a variety of different factors such as annual research and development expenditures of companies, expert opinion, and other details. Application details will be shared later on, and the submission will be evaluated by other ministries as well, in addition to the Economic Ministry.
