Taiwan Approves Tax Breaks in Fight for More Chip Investment

Taiwan expanded tax breaks for companies that invest in technology research and production in an attempt to strengthen the island’s semiconductor industry.

Taiwan approves tax breaks in fight for more chip investment. (Reuters)

Taiwan expanded tax breaks for companies that invest in technology research and production in an attempt to strengthen the island's semiconductor industry and help maintain its leading position in the global chip supply chain. 

Tech firms will now be able to lower their income tax bill by a quarter if their spending on research and development hits a set level, according to the amendments approved Thursday by Taiwan's cabinet. The measure also gives another 5% tax break to companies whose investment in advanced equipment reaches a set level, and is aimed at encouraging them to keep spending on production and development in Taiwan. 

Over the past year many countries have ramped up support for their domestic chip industries, promising to give tens of billions of dollars in subsidies to companies which increase production in those markets and diversify away from China and Taiwan. Those promises have led to a rash of new factories being built or planned in the US, Japan and in Europe, worrying some in Taiwan that its pre-eminent position in the semiconductor industry is at risk. 

As geopolitical tensions have risen between the US and China, businesses have been preparing contingency plans in case foreign companies are no longer able to operate in China or there's a military confrontation around Taiwan. The increasing global concern about the concentration of chip production on the island has prompted more firms and nations to try and move output away from Taiwan or away from local chip giant Taiwan Semiconductor Manufacturing Co.

Samsung Electronics Co. said this week that the global technology industry is in search of alternative sources for advanced semiconductors, given rising political risks. And Apple Inc.'s Chief Executive Officer Tim Cook disclosed in an internal meeting that the company is preparing to begin sourcing chips from a plant under construction in Arizona in the US, a major step toward reducing the company's reliance on Asian production.

However, Cook was likely referring to an factory that will be run by TSMC. The plant is slated for a 2024 opening and the company is already considering a second US facility, part of a broader push to increase chip production there.

To counter these moves away from the island, Taiwan's government has been keen to attract and tout foreign investment in the domestic semiconductor industry. On Wednesday, President Tsai Ing-wen met with representatives from ASML Holding NV, a key supplier for advanced chipmaking equipment. The company plans to invest NT$30 billion in northern Taiwan, CNA reported, citing the mayor of New Taipei city. 

The new tax concessions are aimed at helping that effort and cementing Taiwan's position in key industries, according to an official from the Ministry of Economic Affairs, who spoke at a briefing after the announcement. 

The details of the new tax breaks were announced by the ministry, which said it was a response to new competition amid global supply chain restructuring and was crucial to the future development of Taiwanese industry. The proposal will be delivered to the legislature for a vote, with the government aiming for it to come into effect from January next year and run through the end of 2029. 

“Taiwan needs the world, and the world needs Taiwan even more,” Cabinet Spokesperson Lo Ping-cheng said at a briefing in Taipei after the announcement. “If Taiwan's chip sector is better, it will be more beneficial to the world economy.”

Taiwan remains a vital but vulnerable component of the global tech supply chain. Led by TSMC, the island currently manufactures more than 90% of the world's most advanced chips used for military and corporate computing services. Apple, MediaTek Inc. and Qualcomm Inc., which control more than 85% of the global handset chip market, all rely on supplies from TSMC.