Several types of shares without certificate, but registration in TDCC (Taiwan Depository & Clearing Corporation), are still deemed as legal issued shares. Such shares are solely levied on transfer tax. However, other types of transacted stocks without certificate are deemed as property transactions. Such transaction is not levied on transfer tax, but levied higher on individual income tax.  

Here is a similar case occurred recently. A company which original capital is 6 million in TWD. After years gone by, the company is quite reputational and successful, but the founder is too elder to manage this company and decide to transfer his company by stocks in 14 million in TWD to others.  Nevertheless, the issued stocks were not certificated by banks, neglectful of the article 162 in “Company Act”, which means it is not a legal stocks transaction, despite of the success of this transfer. The nature of this transaction is attributed to “contribution of capital”, instead of stocks. The founder not only paid the transfer tax mistakenly, but also failed to declare it in the individual income tax, resulting in being fined up to 3.6 million in TWD for the recovery of overdue tax.

In the course of communication, the founder took the other friend as instance. The friend transferred her stocks without certificate through the book-entry system either, but only had to pay the transfer tax, without the individual income tax, which is very confusing to the founder.

In fact, the stocks of the friend are without certificate indeed, but the issued stocks are reversely registered in TDCC, fully complying with article 161-2 in Company Act. Therefore, the entire procedure of issuance is finished legally. Even if such stocks are not made physically, the stocks still can be defined as legal securities. According to “Security Transaction Tax Act”, all transaction of valued securities shall be imposed with the security transaction tax, but no individual income tax incurring currently.

Kind reminder from Kaizen that from start of January 1st this year, the income from transaction of securities in stocks without listing or registration in emerging stocks is no longer exempted the tax fully. Based on article 12 in “Income Basic Tax Act”, such transaction shall be calculated into individual basic income tax to declare jointly.