Introduction to the new version 2.0 of the integrated property tax

Since the implementation of the Integrated Property Tax (房地合一稅) in the year 2016, it has been commonly observed in practice that individuals and businesses avoid taxes by setting up profit-making businesses to buy and sell properties for short-term holding or transferring property through the transfer of company shares. To curb short-term speculation and tax evasion, the Ministry of Finance has amended certain income tax provisions (Integrated Property Tax 2.0), which came into effect on July 1, 2021. The new provisions apply to individuals and businesses engaging in transactions involving eligible properties, pre-sale houses, and equity. The following is a summary of the key points of Integrated Property Tax 2.0:

I. Individuals

1. 1. Taxable Scope
   Starting from July 1, 2021, the following income from transactions is subject to taxation under the new provisions:
   1. Properties acquired after January 1, 2016.
   2. Rights of house usage acquired after January 1, 2016.
   3. Pre-sale houses acquired after January 1, 2016.
   4. Equity transactions: If an individual directly or indirectly holds more than 50% of the shares of a domestic or foreign profit-making enterprise, and the value of domestic properties held by that enterprise accounts for more than 50% of the equity value, the new provisions apply if the individual holds the shares for over half of the year preceding the transaction. Listed and over-the-counter stock transactions are excluded.> >
2. II. Tax Rates
   1. Domestic individuals: 45% (holding period less than 2 years); 35% (holding period between 2 and 5 years); 20% (holding period between 5 and 10 years); 15% (holding period over 10 years). For self-occupied properties held and registered for at least 6 years, a tax exemption of 4 million NT dollars applies, and the tax rate for the excess is 10%.
   2. Foreign individuals: 45% (holding period less than 2 years); 35% (holding period over 2 years).
3. 3. Tax Collection Method: Separate taxation applies, and taxes must be declared and paid within 30 days from the transaction date.

II. Businesses

1. 1. Taxable Scope: Same as individuals.
2. 2. Tax Rates
   (1) Domestic corporations: 45% (holding period less than 2 years); 35% (holding period between 2 and 5 years); 20% (holding period over 5 years).
   (2) Foreign corporations: 45% (holding period less than 2 years); 35% (holding period over 2 years).
3. 3. Tax Collection Method: Domestic corporations are subject to separate taxation and must be reported and paid together with the annual income tax.

III. Differences Between the Old and New Property Tax Systems and Their Impact on Individuals and Businesses

1. 1. Extension of the holding period subject to higher tax rates for short-term property transactions.
   1. Extension of the holding period subject to higher tax rates for short-term property transactions. To curb short-term speculation, higher tax rates are imposed on property sales within 1 to 5 years. Under the old system (1.0), tax rates ranged from 35% to 20%, whereas the new system (2.0) increases the rates to 45% to 35%.
2. 2. Businesses are subject to different tax rates based on the holding period, similar to individuals.
   1.0 Under the old system, a uniform tax rate of 20% was applied. 2.0 Under the new system, a consolidated tax rate ranging from 45% to 20% is levied based on the holding period of the property.
3. 3. Pre-sale house transactions are now treated as property transactions
   Under the old system (1.0), pre-sale houses were subject to property transaction income tax at rates ranging from 5% to 40% for individuals and 20% for businesses. Under the new system (2.0), pre-sale houses are subject to the Integrated Property Tax based on the holding period, with rates ranging from 45% to 15%. The calculation of the holding period does not include the pre-sale period.
4. 4. Transactions involving eligible shares or contributions are treated as property transactions, and the estimated cost ratio is reduced
   (1) Under the old system (1.0), individuals and businesses disposing of unlisted and over-the-counter shares were subject to a basic tax amount. The minimum tax-free amount for individuals was 6.7 million NT dollars, taxed at a rate of 20%. Businesses were taxed at a rate of 12% and could be halved for holdings of more than 3 years (transfer of contributions or unendorsed stocks being treated as property transactions).
   (2) Under the new system (2.0), tax rates for equity transactions depend on the holding period, ranging from 45% to 15%.
   (3) The estimated cost ratio is reduced from 5% to 3%, with an upper limit of 300,000 NT dollars.
5. 5. Setting a limit on the total amount of land price increase that can be deducted
   To prevent tax avoidance through the difference between land appreciation tax and income tax rates, the new system (2.0) limits the deduction to the difference between the announced land current value in the year of the transaction and the previous transfer value. Any excess amount cannot be deducted. Excess land appreciation tax paid can be used as a deduction.
6. 6. Loss offsetting
   Under the new system (2.0), individuals can offset trading losses for up to 3 years, while businesses can offset them for up to 10 years.