Taiwan passes law to boost tax credits for AI investments

Taiwan’s Legislative Yuan finished the working week by passing an amendment incorporating AI into its tax credits for businesses investing in particular sectors. Alongside the inclusion of AI, the legislature also accepted an amendment to include carbon emissions reduction technologies.

The new Statute for Industrial Innovation also increases the eligibility for tax credits claimed in the same taxable year, allowing tax credits of up to NT$2 billion, or $61 million USD. Before the amendment, these tax credits only applied to investments in select technological sectors, including software, hardware, 5G mobile, cybersecurity, and smart machines. With AI now included, the tax credits will remain until the end of 2029.

However, the new amendment comes with caveats. To preserve the island’s competitive market and proprietary technologies, businesses that invest overseas in specific industries and countries must apply for special governmental permission to receive the tax credit.

Deputy director of the Department of Investment Review Lu Tseng-hui already said in December 2024 that the list of countries requiring approval included only Iran and Iraq, with certain industries including military-grade carbon fiber, satellite space technology, and post-quantum technology, among others.

Investors who don’t seek government approval before claiming tax credits could face fines of millions if they ignore previous warnings.

Although the headlines have focused on doubling the value of these tax credits, the revised law also allows investors to claim tax relief if they’re running individual startups with more than NT$500,000 in startup investment. Individual investors can also claim an income tax deduction of NT$5 million, up from NT$3 million.

It’s a clear signal that Taiwan is determined to retain its competitiveness as an Asian technology powerhouse. Many observers have speculated that these moves to encourage incoming investments have come as a direct result of China’s increasingly aggressive position with regard to the sovereignty of Taiwan and the U.S.’s global tariffs, with much of the pain resting on Asia’s leading lights.

Taiwan’s tech sector hopes that more attractive tax benefits will encourage more investors and companies to shift into the country to take advantage of its established business community and its long-standing reputation for innovation.