Taiwan has become the latest nation to offer financial incentives to encourage semiconductor manufacturers to invest in facilities and new technologies within its territory, passing extra rules to let companies flip research and development costs into tax credits.

Lawmakers within the island nation have reportedly passed additional legislation that will allow local chipmakers to turn up to 25 percent of their annual research and development expenses into tax credits in a move said to be aimed at ensuring Taiwan's continued leadership in semiconductor manufacturing.

According to Bloomberg, Taiwan has offered financial assistance to chip companies before, but the government is said to be stepping up its efforts to ensure the latest chip technologies "remain in Taiwan," perhaps a reference to native chip giant TSMC expanding to include new facilities being built in the US and elsewhere.

Last week it was revealed that South Korea is introducing larger than previously announced tax breaks for companies prepared to invest in strategic technologies such as semiconductor manufacturing, comprising tax credits of up to 15 percent for large corporations such as Samsung Electronics and SK hynix, and up to 25 percent for smaller concerns.

The latest move from Taiwan appears to confirm earlier warnings that governments could find themselves in a subsidy race, bidding to attract and keep semiconductor manufacturers in their country.

The current round of incentives was arguably kick-started by the US CHIPS Act, which was signed into law by President Biden last August, unlocking $52.7 billion of funding to advance chip manufacturing. The new Taiwanese measures have been referred to as its own version of the CHIPS Act.

Notably, the US CHIPS Act allowed for payments to non-US companies so long as they built on American soil, which appears to have paid off with TSMC's decision to build a fab in Arizona that is expected to start producing 4nm chips next year, plus a second facility to make 3nm chips in 2026.

TSMC has also not ruled out building its first semiconductor plant in Europe as the EU moves slowly towards a consensus that would allow it to allocate funding for its own European Chips Act.

Richard Gordon, Gartner VP for Semiconductors & Electronics, said Taiwan's latest move is fairly typical for the industry, and that all governments operate in a competitive landscape when it comes to attracting business investment.

What is different now is that many countries have realized the need for greater self-reliance when it comes to key technologies like computer chips.

"Governments have realized that they need to be 'self-sufficient' in semiconductors, to the extent that this is possible, and so you're going to see them try to [a] create globally competitive business environments and [b] promote inward investment with soft and hard incentives for their preferred sectors," Gordon explained.

Shares in TSMC and fellow Taiwanese semiconductor maker UMC are up 4 percent and 5 percent respectively following the news of the tax breaks. ®

https://www.theregister.com//2023/01/09/taiwan_chip_tax_credits/