Controlled Foreign Corporation (CFC) Losses: Deductibility Rules
Taiwan’s tax authorities now require that when a profit-seeking enterprise claims losses from its Controlled Foreign Corporation (CFC), it must provide the CFC’s financial statements and other required supporting documents by the annual income tax filing deadline. If not, the opportunity to deduct assessed losses from preceding years (up to 10 years) will be lost or require a certified extension. (ntbt.gov.tw)
Key Compliance Steps
- Timely submission: Make sure all required financial statements (CPA audited or otherwise as required) are ready before the filing deadline (for calendar-year taxpayers, usually May). Late documents may disqualify loss deductions.
- Utilise extension box on return: If expecting delay, tick the A9 box on Page B7 during filing to apply for extension — but this may only be granted once and for up to 6 months. (ntbt.gov.tw)
Real Estate Losses Under Housing-Land Unified Tax 2.0: Loss Deduction Limitations
The authorities in Taiwan have clarified that under the Housing-Land Unified Tax 2.0, losses from selling land in certain situations cannot be deducted from general profit-seeking enterprise income. These rules apply especially where:
- The asset does not fall under “first transfer of completed building and its site” category; and
- The taxpayer is strictly in the real estate development business.
For example, a company that purchased land, prepared it (graded, cleared) but did not complete construction, and then sold it, will find loss from that transaction ineligible to reduce profit-seeking business income. Instead, it must be carried forward and used only against real estate transaction gains going forward under the same rate bracket. (ntbt.gov.tw)
Practical Implications
- Transaction classification matters: Developers should clearly document whether a sale is part of first building transfer or just land disposal.
- Strategic timing: Plan development and transfer stages with care; certain transfers may change tax exposure significantly.
Tips for Smooth Compliance in Both Areas
- Keep robust legal and accounting documentation: purchase and sale contracts, land acquisition costs, proof of construction completion, etc. as well as CPA audits of CFCs.
- Use extension opportunities where needed, but only after confirming eligibility.
- Early planning of property transaction timelines to ensure any losses are used optimally.
Case Example
Company C holds 100% of CFC D in a low-tax jurisdiction. In 2025, CFC D incurs NT$8 million loss. Company C intends to deduct this loss and prior assessed losses for up to 10 years: ensure Company C files its 2025 return with the loss, includes financial statements before deadline, or ticks Box A9 on Page B7. If missed, the deductions are lost.
Meanwhile, Developer E bought land in 2017, cleared it, but sold in 2026 before building a house. Although that transaction resulted in loss, under Housing-Land Unified Tax 2.0 rules, Developer E cannot deduct that loss against general business profits; instead it must be kept to offset real estate-transaction gains.