The Legislative Yuan passed an amendment to the Income Tax Act, the so-called “House and Land Tax 2.0,” on April 9, 2021, which will become effective on July 1, 2021. The Ministry of Finance indicated this amendment aims to restrain investors profiting from short-term real estate transactions.

The essential points are:
‍

(I) To extend the real estate holding periods for individual taxpayers of high tax brackets:
1. The real estate holding period for individual taxpayers of the 45% tax bracket has been extended from one year to two years.
2. The real estate holding period for individual taxpayers of the 35% tax bracket has been extended from between one to two years to between two to five years.
3. The real estate holding period for off-shore individual taxpayers of the 45% tax bracket has been extended from one year to two years.
‍

(II) Inclusion of house and land transactions of domestic enterprises (amended Article 24-5 of the Income Tax Act)
1. Existing laws for domestic legal persons apply the same 20% tax rate regardless of holding periods. The amendment will calculate the tax rate based on respective holding periods as the provisions for individual taxpayers.
2. The real estate holding periods applicable to off-shore legal persons of the 45% tax bracket are extended from one year to two years.
‍

(III) Inclusion of presale houses and certain stock right transactions for taxation (amendment to Articles 4-4 and 14-5 of the Income Tax Act)
To treat transactions of a presale house and its associated site or shares or capital that meet certain criteria as house and land transactions.
1. Under the existing laws, the disposition of presale houses is treated as property transaction income. For taxation, individual taxpayers are incorporated into their comprehensive income tax, and profit-seeking enterprises are included into the profit-seeking enterprise’s income tax. Under the amended provisions, disposition of presale houses will be regarded as a real estate transaction, and the “House-and-Land Tax” is applicable.
2. Under the amended provisions, transactions conducted by individual taxpayers or profit-seeking enterprises who directly or indirectly hold the majority of shares or capital contribution of a domestic or foreign profit-seeking enterprise, where houses and land in Taiwan make up more than 50% of the value of the shareholding or capital contribution of the profit-seeking enterprise, shall be deemed a “house and land” transaction, and the “House and Land Tax” applies.
‍

(IV) A limit to the reduction for the total price increase of land has been added (amendment to Article 14-4 of the Income Tax Act)
Under the amended provisions, the basis for taxation is: income from the house minus the cost minus the expenses minus the “total price increase of land (the assessed present value of the land of the year of the transaction minus the value at the last transaction)”
‍

(V) Applicable period
For house and land acquired after January 1, 2016, if they are sold prior to July 1, 2021, the current hold periods apply; if they are sold after July 1, 2021, the amended holding periods apply.

(Author: Zih-Ting You, Intern Attorney)

‍