Taiwanese lawmakers pass rules letting domestic chip companies convert 25% of their annual R&D expenses into tax credits; TSMC's stock rises 4%+
Debby Wu / Bloomberg : Tweets: @sehof , @damienics , and @derzuschauer7 Tweets: Sense Hofstede / @sehof : Taiwan passes legislation to keep cutting-edge semiconductor technologies at home and maintain its leadership in chips - Bloomberg: ‘new rules that let local chip firms turn 25 per cent of their annual research and development expenses into tax credits’ https://www.bloomberg.com/... Damien Ma / @damienics : 2022 Overlooked: Industrial policy accelerates regionalism @MacroPoloChina https://www.bloomberg.com/... @derzuschauer7 : Globalisation is dying a slow death. https://twitter.com/...
Context & Ripple Effects
Taiwan's new R&D tax credit lands in the middle of an unresolved domestic argument: the government has already rejected claims that the chip industry crowds out other sectors even as TSMC's expansion strains the island's land, water, energy, and talent supply. The credit is the fiscal side of the same bet — keeping leading-edge work at home while production spreads abroad.
It also mirrors the playbook TSMC itself endorsed: a Taiwanese minister and TSMC board member urged the US Congress to pass the Chips Act, tying the Arizona fab's pace to subsidies. Taipei is now applying the same instrument in reverse, and the 4%+ stock move signals investors read it as a direct cost advantage for TSMC and its domestic peers.
First-order effects
- TSMC and other Taiwanese chip firms can now convert 25% of annual R&D expenses into tax credits, directly lowering the cost of keeping advanced development on the island — and the market repriced TSMC up more than 4% on the news.
Second-order effects
- The credit strengthens Taiwan's counter to talent drain: China has been luring senior Taiwanese semiconductor engineers with fat salaries, and richer domestic R&D budgets give firms ammunition to retain them.
- It also sharpens the subsidy competition with Washington — TSMC's US expansion was explicitly conditioned on Chips Act money, so Taipei's tax break raises the stakes on which jurisdiction offers the better net cost base for advanced work.
Third-order effects
- If the pattern holds, targeted tax credits and subsidies become the standard currency of semiconductor industrial policy, with governments bidding to anchor leading-edge R&D even as fabs globalize — though Taiwan's documented shortages of land, water, power, and engineers may cap how much new R&D activity the credit can actually attract.
The trend: Governments are turning to targeted fiscal incentives to anchor leading-edge chip R&D at home as semiconductor supply chains fragment along national lines — a dynamic TSMC's own leadership has acknowledged, with [[a:879065|Cliff Hou warning that Taiwan must keep improving its chip technology to preserve its global lead]].