Taiwan passes its own Chips Act with tax benefits for chip manufacturers

The government of Taiwan has passed new chip legislation, which allows the island to allow local chip manufacturers to convert part of their annual research budget into tax credits. Taiwan wants to maintain its lead in advanced chip production.

Under the new legislation, Taiwanese chip manufacturers are allowed to convert 25 percent of their R&D budget into tax credits, writes the Bloomberg news agency. In addition, chipmakers are allowed to apply for a tax credit for the purchase of advanced chip manufacturing equipment. With this, the country wants to stimulate investments in new chip factories and chip research within Taiwan. The total credit may not exceed 50 percent of the annual business tax due.

Taiwan previously provided financial support to its domestic chip sector, but is stepping up efforts to ensure that the most advanced chip technologies ‘stay within Taiwan’. “Any company engaged in technological innovation in Taiwan and occupying a key position in the international supply chain can apply for this tax,” writes the Taiwanese Ministry of Economic Affairs.

Taiwan is doing this in response to support measures from several other countries and regions. “As the United States, Japan, South Korea and the European Union provide massive incentives to promote the autonomy of key industries, Taiwan needs to strengthen its international competitive advantage in key industries,” the ministry said. The Taiwanese government previously warned that its chip sector could be affected by the subsidy schemes of other countries.

Taiwanese chip manufacturer TSMC, currently the market leader, previously announced that it would build new state-of-the-art factories in the United States. However, TSMC also previously indicated that it keeps its most advanced chip manufacturing processes within Taiwan; for example, the company is investing 31 billion euros in the construction of a 1nm chip factory on the island.

With its Chips Act, Taiwan is following, among others, the EU and the US, both of which are working on their own support schemes for the semiconductor sector. These regions are doing this to become less dependent on other countries due to rising geopolitical tensions. The European Chips Act, which frees up billions of dollars in aid for the European chip sector, was adopted by EU member states in November, although the law still has to be discussed by the European Parliament this year. The American chip law, which also makes billions of dollars available in subsidies for chip production in the US, already came into force last year. Countries such as South Korea and Japan are also working on initiatives to strengthen their chip sector.