Taiwan agrees to tax breaks in the fight for more investment in chips

Taiwan agrees to tax breaks in the fight for more investment in chips

Taiwan has expanded tax breaks for companies that invest in technology research and production in a bid to boost the island’s semiconductor industry.

Taiwan has expanded tax breaks for companies that invest in technology research and production in a bid to boost the island’s semiconductor industry and help maintain its leading position in the global chip supply chain.

Technology companies will now be able to cut their income tax bill by a quarter if their R&D spending reaches a specified level, according to amendments approved by the Taiwanese government Thursday. The measure also grants another 5% tax break to companies whose investment in high-end equipment reaches a specified level, and aims to encourage them to continue spending on production and development in Taiwan.

Over the past year, many countries have ramped up support for domestic chip industries, promising tens of billions of dollars in subsidies to companies that ramp up production in those markets and diversify away from China and Taiwan. Those promises have led to a string of new factories being built or planned in the United States, Japan and Europe, leaving some in Taiwan worried that its preeminent position in the semiconductor industry is at risk.

As geopolitical tensions escalate between the United States and China, companies are preparing contingency plans in the event foreign companies are unable to operate in China or a military confrontation occurs over Taiwan. Growing global concern over the concentration of chip production on the island has prompted more companies and countries to try to move production away from Taiwan or away from local chip maker giant Taiwan Semiconductor Manufacturing Co.

Samsung Electronics said this week that the global technology industry is looking for alternative sources of advanced semiconductors, in light of the increasing political risks. And Apple CEO Tim Cook revealed in an internal meeting that the company is preparing to start sourcing chips from a factory under construction in Arizona, in the United States, a major step toward reducing the company’s dependence on Asian production.

However, it is possible that Cook was referring to a plant that will be operated by TSMC. The factory is set to open in 2024 and the company is already considering building a second US facility, as part of a broader drive to ramp up chip production there.

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

The new tax concessions are meant to aid that effort and boost Taiwan’s position in key industries, according to an official from the Ministry of Economic Affairs, speaking at a media briefing after the announcement.

Announcing details of the new tax breaks, the ministry said they were a response to new competition amid global supply chain restructuring and were crucial to the future development of Taiwanese industry. The proposal will be submitted to the Legislative Council for a vote, with the government aiming for it to come into effect from January next year and run until the end of 2029.

“Taiwan needs the world, and the world needs Taiwan more,” said cabinet spokeswoman Lu Bingcheng at a press briefing in Taipei after the announcement. “If Taiwan’s chip sector does better, it will be more beneficial to the global economy.”

Taiwan remains a vital but vulnerable component of the global technology supply chain. Led by TSMC, the island currently manufactures more than 90% of the world’s most advanced chips used in military and corporate computing services. Apple and MediaTek Inc. and Qualcomm Inc. , which controls more than 85% of the global phone chip market, receives supplies from TSMC.

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