“House and Land Tax 2.0” has been implemented since July 1, 2021. It extends the real estate sales holding period for the application of high tax rates for individual taxpayers and applies the same high tax rates on domestic profit-seeking enterprises as those for individual taxpayers, with the highest tax rate of 45%. However, since high tax rate for short-term disposal of real estate might be unfair in certain circumstances, exceptions to high tax rates are provided in relevant laws as supporting measures. For example, a lower tax rate of 20% might be applicable to “transactions due to involuntary causes.”

As to “transactions due to involuntary causes”, a recent interpretation of the Ministry of Finance dated July 1, 2021 provides the following causes for reference:

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I. For individuals residing in the territory of Taiwan (Item 5 of Subparagraph 1 of Paragraph 3 of Article 14-4 of the Income Tax Act, Tai-Cai-Shui-Zi No. 11004575360):

(I) Where a house was purchased at the work location for non-lease and non-business uses with its owner later transferred to another position or leaving work involuntarily under the circumstances prescribed in Paragraph 3 of Article 11 of the Employment Insurance Act, or with the owner’s employment contract being terminated under the conditions prescribed in Article 24 of the Act for Protecting Workers of Occupational Accidents.

(II) Where, pursuant to Paragraph 2 of Article 796 of the Civil Code, a trespassed portion of land is sold to the owner of a building if such building was built on such trespassed portion of land at a time prior to the land owner’s acquisition of such land.

(III) Where the title of house and/or land was transferred due to the foreclosure by judicial sale arising from the owner’s failure to pay off obligations (including tax obligations).

(IV) Where a house and/or land is sold to cover medical expenses in connection with a major illness or injury in a major accident sustained by the owner, his/her spouse, or the individual’s or the spouse’s parents, minor children, or adult children who is incapable of earning a livelihood.

(V) Where an individual, based on an ordinary protection order obtained in accordance with the Domestic Violence Prevention Act, sold the self-use house and land to avoid the counterpart.

(VI) Where an individual is compelled to sell his/her own share of the house/land due to the fact that the house/land was co-owned with others and the co-owner(s) sold such house/land without his/her consent pursuant to Article 34-1 of the Land Act.

(VII) Where an individual inherits a house/land together with obligations to financial institutions from loans using such house/land as collateral, and has to sell such a house/land due to his/her lack of financial resources to pay off the principal and interest of such obligations.

II. For profit-seeking enterprises whose headquarters is located in Taiwan (Item 4 of Subparagraph 1 of Paragraph 2 of Article 24-5 of the Income Tax Act, Tai-Cai-Shui-Zi No. 11004575361):

(I) Where, pursuant to Paragraph 2 of Article 796 of the Civil Code, a trespassed portion of land is sold to the owner of a building if such building was built on such trespassed portion of land at a time prior to the land owner’s acquisition of such land.

(II) Where the title of house and/or land was transferred due to the foreclosure by judicial sale arising from the owner’s failure to pay off obligations (including tax obligations).

(III) Where an enterprise had to sell its own share of the house/land due to the fact that the house/land was co-owned with others and the co-owner(s) sold such house/land without its consent pursuant to Article 34-1 of the Land Act.

(IV) Where a financial institution, in enforcing its mortgages, disposes of house/land it obtained from foreclosure, or in enforcing its liens, disposes of the shares of house/land obtained in accordance with Paragraph 3 of Article 4-4 of the Income Tax Act to the extent that such disposal occurs within four years after obtaining such properties in accordance with Article 76 of the Banking Act (including where the same provision applies mutatis mutandis pursuant to other laws).

However, it should be noted that the exceptions above do not apply to those who are found by the taxation authority to have evaded or reduced tax obligations by abusing legal forms.

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(Author: Zih-Ting You, Intern Attorney)

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