Explanatory Decree No. 09404527550 by the MOF on 17 May 2005

Explanatory Decree No. 09404527550 by the MOF on 17 May 2005: Regulations governing taxation of income derived from exercise of employee stock options granted by a foreign associated enterprise to the employees of a Taiwan subsidiary, branch or liaison have been announced.

1.      Employee of a Taiwan subsidiary or branch of foreign enterprise who is granted with employee stock option shall not have the issue of income in Taiwan if the employee does not provide service in Taiwan during the period from the date on which employee stock option is granted to the date on which exercise of the stock option. In case the employee does provide service in Taiwan during aforesaid period, income in Taiwan shall be calculated based on the difference between market price of the stock on exercising date and the price at the time the stock option is granted. Such income is subject to other income of Category 10 in Article 14 of Income Tax Act, which must be calculated as income of the year of exercising and income tax shall be withheld.

2.      According to Paragraph 3 of Article 89 of Income Tax Act, Taiwan subsidiary or branch must declare necessary information (including name, address, ID No. and income derived from exercise of employee stock option) of the employee who is granted with employee stock option issued by foreign enterprise to tax authority and send non-withholding tax statement to the employee.