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Taxation provisions for obtaining the equity of the closely held company limited by shares by technical know-how, service or goodwill provided.
1. For the investors obtain the equity by the technical know-how, service or goodwill, if the equity is not transferable within a certain period of time according to the company's articles of association, the shareholder's income is calculated at the price per share on the next day of the transferable date.
However, if the company's articles of association are not restricted from being transferable, the shareholder's income shall be calculated on the basis of the amount of equity registered in the company's articles of association.
For example, on August 20, 2018, Jack acquires his 500,000 shares of a close-held-company, named ABC company, by committing to working for the company for the next 2 years. The par value of the share is NT$10. There is no term to restrict Jack from selling the shares to others in the ABC Company's article of association. The taxable income for Jack in 2018 is 5,000,000. However, if there is a term in the ABC Company's article of association like that Jack can't sell any shares until 2020. No taxable income for Jack in 2018 and 2019. But there will be a taxable income in 2020.
Q: What is Jack's taxable income if he is allowed to transfer his shares on August 19, 2020?
If the equity is not transferable within a certain period of time as stipulated in the company's articles of association, the shareholder's income is calculated at "the current price" per share on the next day of the transferable date if the financial report of the company has not be verified by a certified public accountant; use the net financial value of the latest financial report if the financial report of the company has verified by a certified public accountant.
You just start the company and may not be profitable in the first year. If there is not such restricting term in the company's article of incorporation, the shareholder has to pay the personal tax for incorporating the company even the company has a loss.
Please note the contribution of technical know-how, service or goodwill as the capital does not apply to foreign investors.
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