Taiwan

Introduction

 

About Taiwan

Taiwan is the 20th largest economy in the world and the 18th largest trading entity. The market is one of the economic powerhouses in Asia, with China as its major trading partner.

China and Taiwan signed the Economic Cooperation Framework Agreement (ECFA) which has enabled Taiwan to export more than 500 products to China with virtually no tariffs.

Taiwan has high domestic purchasing power and its emphasis on technology has made the market an extremely attractive destination for FDI.

The Taiwanese government has established several science parks with low rents and high tax incentives to attract investment. The existence of government grants, some of which are offered to foreign investors, has transformed Taiwan into a regional economic hub with a small-to-medium enterprise-friendly environment.

 

Corporate Treasury in Taiwan

Taiwan is the 20th largest economy in the world and the 18th largest trading entity. The market is one of the economic powerhouses in Asia, and the majority of its trade is with China. Here, we highlight some of the key benefits relevant to treasury and cash management in Taiwan.

 

Financial Market Development

  • The World Economic Forum ranks Taiwan 17th in the world for financial market development in The Global Competitiveness Report 2015-2016.

  • The report ranks Taiwan as having sound banks and good access to capital and financing through local equity markets.

  • Taiwan has an excellent business infrastructure, an educated workforce and a sound legal environment.

  • There are no foreign-exchange restrictions in Taiwan for trade-related transactions. There are no limitations on inward and outward remittances not involving exchange between new Taiwanese dollars and foreign currency. All other remittances involving exchange between new Taiwanese dollars and foreign currency are subject to a USD 50 million annual ceiling for companies. Remittances above this amount may require approval from the Central Bank of the Republic of China. There is a reporting requirement for each foreign transaction involving new Taiwanese dollars that exceeds NTD 500,000.

 

Sophistication of Banking Systems

  • Taiwan has a prosperous banking sector relative to its size with 38 domestic banks. Regulation has been amended to encourage consolidation, as well as to reduce the cost of mergers. In addition, 27 foreign banks also have branches in the market.

  • The total net foreign-exchange trading volumes amounted to USD 705.4 billion in March 2017, with an average daily turnover of USD 30.7 billion.

  • Taiwan's bond market fluctuates between being the second- and third-largest in Asia, but its trading volumes are small. Both government and corporate bonds are available. New issues reached NTD 2,090.2 billion in 2015.

 

Regulatory Bodies

  • The banking industry is regulated by the Banking Bureau, which is part of the Financial Supervisory Commission. Regulations are in line with international standards.

  • Foreign-exchange transactions are administered by the Central Bank of the Republic of China (CBC).

 

Tax

  • The corporate income tax rate is 17%. An additional 10% profit retention tax is charged to resident companies on undistributed profits.

  • Non-resident companies are taxed on income from Taiwan sources. The Taiwan branch of a foreign company may remit after-tax profits to its head office without paying further tax.

  • VAT is charged at 5%.

  • There is a securities transaction tax of 0.3% on gross proceeds from the sale of domestic shares. Trading in corporate bonds and financial bonds issued by Taiwan companies is temporarily exempt.

  • Interests on loans that are used for business purposes are tax-deductible in the year incurred.

  • A withholding tax of 15% or 20% is charged to non-resident companies on interest received on commercial paper and certain other interest-bearing financial instruments, unless it is reduced by a tax treaty.

  • Taiwan has tax treaties with more than 30 countries and territories.

 

Benefits for Local Treasury

  • Taiwan has one of the lowest corporate income tax rates in Asia.

  • Taiwan is one of the offshore renminbi clearing centres, given its proximity and large volumes of trade with China.

  • Formosa bonds, bonds that are issued in Taiwan in a currency other than the new Taiwanese dollar, can be issued by the Taiwanese branches of overseas companies.

  • Domestic notional pooling is permitted, but cross-border notional pooling is not.

  • Domestic and Cross-border cash concentration are permitted; but the sweeping amount will be limited to The Company Act if it is based on intercompany loan.

  • Foreign companies may borrow from abroad but they require the permission of both the CBC's Foreign Exchange Department and the Ministry of Economic Affairs' Investment Commission.

  • There are no foreign-exchange controls in Taiwan on the conversion of currency for trade-related transactions, but some controls remain for the conversion of currency for non-trade-related transactions. Foreign-exchange controls are administered by the CBC, and a declaration statement is required if transactions involving TWD exceed TWD 500,000.

 

Banking

 

Banking System

  • Taiwan has 38 domestic banks, 23 credit co-operative associations and 27 local branches of foreign banks (in Taipei only).

  • The banking sector is made up of a wide variety of private, semi-private and state-owned banks. Its four largest banks (by size of assets) are wholly owned or controlled by the state, with the Bank of Taiwan being the biggest and wholly state owned (it used to be the central bank).

  • The Financial Supervisory Commission (FSC) has made efforts to position Taiwan as a global financial centre, creating favourable conditions for foreign banks.

 

Bank Accounts

  • Residents: Onshore companies may hold foreign exchange (freely convertible) and domestic currency accounts while offshore units are allowed to hold foreign currency accounts. 

  • Non-residents: May hold foreign exchange (freely convertible) accounts, but they are not permitted to have a TWD account, either demand or cheque account.

  • Interest: Residents are subject to a refundable 10% withholding tax on TWD demand and time deposit accounts. Non-residents are subject to a non-refundable 20% withholding tax on domestic currency, demand and time deposit accounts.

 

Legal and Regulatory

  • The Financial Supervisory Commission (FSC) is responsible for overseeing Taiwan's banking sector.

  • A company is resident if it is registered in Taiwan.

  • In order to borrow from overseas, foreign-owned companies must gain approval from the Foreign Exchange Department of the central bank and the Investment Commission of the Ministry of Economic Affairs (MOEA).

  • There are strict foreign exchange controls in Taiwan. A declaration statement must be submitted to the bank for all foreign exchange transactions involving TWD for amounts over TWD 500,000, and accompanied with qualifying documentation for currency conversions involving TWD for amounts over USD 1 million. 

  • Deductible interest expense on intercompany loans is capped at a debt-to-equity ratio of 3:1, as determined by the Ministry of Finance.

  • Cross-border sweeps are not permitted in Taiwan.Domestic notional pooling and cash concentration is permitted, whilst cross-border notional pooling and cash concentration is not.

  • There are no foreign-exchange controls in Taiwan on the conversion of currency for trade-related transactions, but some controls remain for the conversion of currency for non-trade-related transactions. Foreign-exchange transactions are administered by the CBC. Except for the declaration statement, the settlement of foreign-exchange against TWD involving remittances for transactions conducted within the territory of Taiwan, involving goods or services located outside the territory of Taiwan, relevant contracts/ letter of approval are required.

 

Payments

 

Payment Systems

CIFS

(CBC Interbank Funds Transfer System)

 

Taiwan’s Real-time Gross Settlement (RTGS) system

  • Owned and operated by the Central Bank of the Republic of China (Taiwan) (CBC).
  • 70 bank participants, as well as other financial institutions.
  • Processes high value and urgent TWD-denominated electronic funds transfers.
  • Final settlement done for participants’ net balances originating from other domestic clearing houses.

FISC

(Financial Information Services Company)

Multi-purpose electronic funds transfer system with several subsystems (see below):

  • Operated by the Financial Information Services Company, set up by the Ministry of Finance and various banks.
  • Processes electronic interbank funds transfers (no value threshold). Effected through ATMs, IRS, online, mobile phones and bulk transfer systems.

 

IRS

(Interbank Remittance System)

  • Settled in real time for companies, banks and the government.
  • Approx. 47 participants

 

 

Credit Card and Shared ATM System

  • Processes card transactions and 24-hour interbank withdrawals.
  • Platform for enquiries, funds transfers and credit card cash advances.
  • Credit card payments can be processed by FISC or National Credit Card Centre.

 

Foreign Currency Clearing Platform (FISC-FCCP)

  • Processes USD, EUR, RMB and JPY-denominated transactions.

 

Bulk Payments System

  • System for companies to make tax payments, file tax returns and allocate dividends or bonuses through magnetic tape or email bulk transfers.

 

FEDI

(Financial Electronic Data Interchange)

  • System for companies to make electronic transfers of funds and information online.

 

Shared Internet Banking System

  • Online credit transfer system for selected types of payments.

 

FXML

  • Platform for customers to initiate online bank transactions.

 

Internet Banking System

  • Platform for customers to make online payments through payment cards.

 

Mobile Banking System

  • Platform for customers to make payments and balance enquiries through mobile phones.
  • FISC’s Mobile Banking Sharing Center links financial institutions and telecoms providers.

TCH

(Taiwan Clearing House)

Paper-based and cheque clearing system

  • Managed by the CBC.
  • Uses magnetic ink character recognition (MICR).
  • Clearing houses in Hualien, Taitung and Penghu process payments manually.
  • 94 financial institution participants.
  • Final settlement done using participants' CBC accounts via CIFS.

 

ACH

(Automated Clearing House)

  • Operated by the TCH.
  • Participants are financial institutions with CBC accounts.
  • Processes credit and debit transfers.
 

eACH

(Enhanced Automated Clearing House)

  • Operated by the TCH.
  • Participants are financial institutions with CBC accounts.
  • Provide 24/7 real time, low-value payment andcollection service.

 

 

Payment Instruments

 

Credit Transfers

  • Credit transfers can be done online and by phone.

  • High-value and urgent interbank transfers are processed through CIFS same day.

  • Low-value, non-urgent and high-volume credit transfers are processed through FISC (same day) and ACH systems (next day). These transactions include payroll, supplier and third-party payments.

  • Some domestic Taiwan payments require traditional Chinese characters for some of the payment fields. This can create challenges for legacy ERP systems as well as for non-Chinese speaking staff.

 

Direct Debits (autodebits)

  • This mode of payment is used for low-value, regular payments such as utility bills.

  • Direct debits are processed through FISC's Bulk Payment System (same day) or ACH (two working days).

    Cheques

  • Cheques are a common form of cashless commercial payment, especially post-dated cheques. 

  • Cheques are truncated before being processed through TCH.

  • Its final settlement is done through CIFS.

  • Paper cheques can take seven days to clear and foreign cheques up to 14 days.

     

Card Payments

  • This mode of payment is increasing in popularity.

  • Visa and MasterCard are the main payment cards.

  • All cards issued are Europay, MasterCard and Visa (EMV)-compliant and are processed through FISC.

  • There are approx. 27,200 ATMs and 245,000 POS terminals.

 

Other Modes of Payment

  • Cash: Cash is widely used for low-value commercial and retail transactions.

  • Electronic banking: The FISC operates several electronic banking systems that connect companies to their bank accounts via their PCs, including the Internet Banking System, Mobile Banking and FEDI. The FXML system allows customers to initiate bank transactions via the internet.

  • Mobile commerce: Taiwan has a thriving ecommerce market, with online purchases taking up 11% of total retail sales, and 70% of those purchases being made on mobile phones. TSM, Taiwan’s largest mobile commerce platform, was launched in December 2015. It has 30,000 participating retailers and 32 participating financial institutions. The service enables consumers to pay for goods and services via their mobile phone.

 

Demographics

Recent developments

 

Call to Regulate Bitcoin Trades

The governor of Taiwan’s central bank has called for cryptocurrency transactions to be included in anti-money laundering regulations. Yang Chin-long said the Ministry of Justice should include trades involving Bitcoin and other cryptocurrencies in the Money Laundering Control Act. It is the second time he has urged the government to regulate the cryptocurrency sector to avoid disruption to the local financial market.

Read more about the development here

 

Taiwan Mulls Cryptocurrency Liberalisation

Taiwan’s government is showing signs of adopting a liberalising approach towards cryptocurrencies, which could make it easier to trade the likes of Bitcoin. The Financial Regulatory Commission currently takes a neutral view on cryptocurrency, but the ruling party would like to see the introduction of a framework covering cryptocurrencies and the blockchain technology that backs them. It argues that liberalization could help to nurture the country’s FinTech sector.

Read more about the development here

 

Mobile Payment Rewards Planned

The government plans to introduce a range of rewards for consumers and businesses who use mobile payments in a bid to meet its target of having 90% of people using the service by 2025. Incentives include tax benefits for small businesses that offer mobile payment options and an increase in prizes available in the electronic receipt lottery. The government is also looking at waiving processing fees for people who pay utility bills through their mobile phone.

Read more about the development here.

 

 

This Market Profile is brought to you by DBS. Get in touch with us for further insights on doing treasury in Taiwan and take advantage of our innovative solutions to emplower your business. Click here to find out more.

 

 

Sources: IMF World Economic Outlook database, October 2016; CIA World Factbook; Trading Economics; PwC

Please note that the information contained in this document, assembled based on information available and accurate as at July 2017, is of a general nature only and is subject to change whether for economic, political, social or other reasons.

 

Last updated on 20 May 2018