By Alvin Teng, C.P.A., Associate Partner of Formosan Brothers, Attorneys-at-LawLately, a Taiwanese movie made in 2020, “My Missing Valentine,” has been in public discussions due to its storyline involving behaviors similar to stalking and harassment. However, having your valentine vanished is, after all, a fictional movie plot. In real life, can your house tax actually vanish!? The most well-known example was demonstrated by a company owned by the family of a candidate running for the mayor of a certain municipality. The company subdivided a building owned by itself into many “house numbers” and rented to a school as a dorm.  It made the value of each “house” lower than NT$100,000 to avoid house tax.

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On April 22, 2021, the Executive Yuan held its 3748th meeting to discuss a proposal to amend the House Tax Act and passed the amendment. The tax exemption for residential use house having a “declared current value” under NT$ 100,000 will be limited to natural person only with a maximum of three of his/her houses across the country. (*Please note, the term “declared current value” is commonly known as “current value.” Current value is a valuation of house attributed by the government, not the market value of a house. Normally the current value is lower than the market value of a house.)Subparagraph 9 of Paragraph 1 of Article 15 of the current version of the House Tax Act provides that house tax is exempted for private houses for residential use with current value under NT$100,000. In other words, as long as one’s houses meet the criteria of residential use and current value under NT$100,000, the house tax is exempted. There is no cap on the number of houses, nor limitation on whether the owner is a natural person; a juridical person can do as well. The purpose of this provision is to help low-income people by easing their burden, with the local fiscal revenues taken into account. Houses with current value under NT$100,000 are usually smaller or older and hence qualify for house tax exemption. Yet, can a juridical person be considered as economically disadvantaged? Can those who own four, five or more houses be considered as low income? Moreover, the house become old is a matter of time, which is not something that can be manipulated. But a house can be divided into smaller units, making the value of the house lower.

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As such, in order to prevent real estate owners from enjoying the tax exemption for house with low value by subdividing a house into smaller units for rent by ways of issuing or adding house number, the Ministry of Finance amends Subparagraph 9 of Paragraph 1 of Article 15 of the House Tax Act. This amendment provides that houses for residential use with current value under NT$100,000 is to be exempt from house tax, to exclude non-natural person owners (e.g. a juridical person) and to set a cap of three houses across the country. To coincide with the house tax collection period, this amendment will be effective on July 1, 2021. In addition, Article 12 of the House Tax Act is also amended to expressly provide that the collection period for house tax shall be May 1 to 31 of each year and the taxable period shall be July 1 of the preceding year to June 30 of the current year.

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● Natural persons owning more than three houses after the amendment

The proposed amendment to Paragraph 4 of Article 15 of the House Tax Act provides that, a natural person shall file to local tax authority for his/her selection of houses to which the tax exemption applies within 30 days after the occurrence of the fact that he/she owns more than three houses with current value under NT$100,000. If he/she fails to make the filing in time, the house tax exemption will apply from the month of filing. For example, a house owner originally owns Houses A, B and C for residential use which are all exempted from house tax. On August 31, 2021, he acquires House D for residential use, which is also under NT$100,000. If he does not file his selection of houses for tax exemption prior to September 30, 2021, Houses A, B, C remain to be exempted. If he files for tax exemption to local tax authority where House D is located and changes the status to Houses A, B, and D on December of 2021, then, starting from December 2021, House D can be exempted from house tax.

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● Natural persons owning more than three houses before the amendment

The proposed amendment to Paragraph 5 of Article 15 of the House Tax Act provides, if a natural person owns more than three houses prior to the implementation of the amendment, the owner shall file to the local tax authority prior to July 31, 2021 for the houses he/she selects for tax exemption to apply ; otherwise, it is for the local tax authority to make the selection on the most favorable basis. However, the taxpayer may apply for a change before June 30, 2022, making the house tax exemption apply retroactively from July 1, 2021 in ways he/she selects. If a taxpayer applies for a change after he filed the selection, or applies for a change after July 1, 2022, house tax exemption for the new selection made by the taxpayer shall be effective starting from the month of filing. As to the verification of the number of private houses owned, the filing procedure, the method used to determine the most favorable selection, and other related matters, the proposed amendment grants the Ministry of Finance the authority to enact relevant rules for regulation.

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This proposed amendment of the House Tax Act which comes after the enactment of Actual Price Registration of Real Estate 2.0 and House and Land Tax 2.0. Although it is still unknown whether such amendment can achieve the Executive Yuan’s goal to balance the real estate market, it is commendable in terms of stopping loopholes and relieving financial burdens for low-income people. As to whether it can be enacted on July 1, 2021 as expected, it will depend on the deliberation process of the Legislative Yuan.

(This article was published in the Expert’s Commentary Column of the Commercial Times. https://view.ctee.com.tw/tax/29497.html)