Taiwan is the 22nd largest economy in the world and the 14th largest trading entity. The market is one of the economic powerhouses in Asia, with China as its major trading partner.
China and Taiwan have 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 22nd largest economy in the world and the 14th 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 19th in the world for financial market development in The Global Competitiveness Report 2017-2018.
- The report ranks Taiwan as having sound banks and good access to capital and financing through loans and 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 TWD500,000.
Sophistication of Banking Systems
- Taiwan has a prosperous banking sector relative to its size with 39 domestic banks. Regulation has been amended to encourage consolidation, as well as to reduce the cost of mergers. In addition, 26 foreign banks also have branches in the market.
- Total net foreign-exchange trading volumes amounted to USD618.1 billion in April 2018, with an average daily turnover of USD34.3 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 of Formosa bonds, which are bonds issued in Taiwan but denominated in a currency other than the new Taiwan dollar, totalled USD40 billion in 2017. The government increased the list of issuers that can sell Formosa bonds without prior approval to include all lenders listed on bourses belonging to the World Federation of Exchanges.
- 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).
- The corporate income tax rate is 20% for taxable income in excess of TWD120,000. The first TWD120,000 is exempt. A 5% profit retention tax is charged to resident companies on undistributed profits. Taiwan branches of foreign companies are exempt from this tax.
- Resident companies are taxed on worldwide income. 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. Non-resident companies without a fixed place of business in Taiwan are subject to withholding tax on Taiwan-sourced income.
- Value Added Tax (VAT) rate is 5% for general industries. Financial institutions, special vendors of beverages and food, and small-scale businesses are subject to gross business receipts tax (GBRT), and GBRT is between 0.1% and 25% depending on the type of company.
- There is a securities transaction tax (STT) of 0.3% on gross proceeds from the sale of domestic shares. STT in respect of trading in corporate bonds and financial bonds issued by Taiwan companies is temporarily exempt.
- Interest on loans that are used for business purposes is generally tax deductible in the year incurred, although excessive interest expenses from related party financing will not be tax deductible. Generally, if the debt to equity ratio exceeds 2:1 (or in the case of financial institutions, 5:1), the excess portion will not be tax deductible unless contemporaneous transfer pricing documentation demonstrates the arm’s length nature of interest expenses.
- Dividends received from foreign subsidiaries are taxable. Credits are given for withholding tax paid offshore if a tax treaty signed by Taiwan permits.
- Tax credits of 15% or 10% are available on qualifying R&D expenses depending on certain conditions being met.
- Foreign companies performing certain activities in free-trade-zones are exempt from corporate income tax.
- A withholding tax of 10%, 15% or 20% is charged on interest received on commercial paper and certain other interest-bearing financial instruments, unless it is reduced by a tax treaty, with treaty rates ranging from 0% to 15%. Withholding tax on dividends is 21% if no treaty is in place and ranges from 10% to 15% where one is in place.
- 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 an 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 TWD500,000.
- Taiwan has 38 domestic banks, 23 credit co-operative associations and 29 local branches of foreign banks.
- 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.
- 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.
- The fintech (financial technology) sector has been granted regulatory concessions through the Financial Technology Development and Innovative Experimentation Act 2018 to allow technological development smooth access.
- Cryptocurrency regulation is due to be implemented in November 2018 as part of the country’s Anti-Money Laundering legislation.
(CBC Interbank Funds Transfer System)
Taiwan’s Real-time Gross Settlement (RTGS) system
(Financial Information Services Company)
Multi-purpose electronic funds transfer system with several subsystems (see below):
(Interbank Remittance System)
Credit Card and Shared ATM System
Foreign Currency Clearing Platform (FISC-FCCP)
Bulk Payments System
(Financial Electronic Data Interchange)
Shared Internet Banking System
Internet Banking System
Mobile Banking System
(Taiwan Clearing House)
Paper-based and cheque clearing system
(Automated Clearing House)
(Enhanced Automated Clearing House)
- 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 (auto debits)
- 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).
- Credit and debit modes of payment are increasing in popularity, and are supported by the growing adoption of contactless payment facilities, particularly on public transport and with large retailers.
- Visa and MasterCard are the main payment cards.
- All cards issued are Europay, MasterCard and Visa (EMV)-compliant and are processed through FISC.
- Prepaid, top-up payment cards are the most common form of payment card, with EasyCard, a multifunctional smartcard, the most popular.
- There are approx. 27,800 ATMs and 245,000 POS terminals.
- Compared to its counterparts in the region, Taiwan has been slow to take to the fast-moving developments in the fintech industry.
- However, the government is aiming to be a cashless society by 2025 and is providing the regulatory and technological environment as well as financial incentives to make this happen.
- The FSC launched the Bank 3.0 initiative in 2017 to promote the digitisation of the banking sector. The banks have adopted a conservative approach to fintech, however, the industry is slowly becoming more receptive to the new technologies.
- There is a thriving e-commerce market in Taiwan with local and overseas online retailers. The most popular sites are Taobao/Tmall, Rakuten and Amazon.
- Mobile consumers and small retailers/businesses have been slow to adopt the use of mobile payments, despite the technology and infrastructure being in place and the presence of third-party payment providers, such as Apple Pay and Android Pay.
- 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.
- Banks do not automatically offer online banking and it is a facility that is not readily available. Pass books are still in common use. Similarly, online payment facilities are not widely available with small and medium-sized retailers and businesses.
- According to the Financial Regulatory Commission, the government has adopted a ‘neutral’ stance on cryptocurrency and continues to explore guidelines for the sector. Certain uses of cryptocurrency, such as trading, are not expressly illegal.
Cash, Cheques and Money Orders
- Cash is widely used for low-value commercial and retail transactions.
- Cheques are a common form of cashless commercial payment, especially post-dated cheques, but usage is on the decline as credit transfers gain in popularity.
- Cheques are truncated before being processed through TCH.
- Final settlement is done through CIFS.
- Paper cheques can take seven days to clear and foreign cheques up to 14 days.
- Money orders are available in Taiwan through vendors such as Chunghwa Post, Western Union and MoneyGram. Money can be received or sent domestically or internationally, either online or in person.
1 For taxable income in excess of TWD120,000
2 (Progressive) max rate for incomes over TWD4,530,001
Security Token Exchange Launched
Taiwan-based token exchange MaiCoin has joined forces with Singapore’s Zilliqa, a blockchain technology developer, to launch Southeast Asia’s first exchange for trading security tokens issued by privately-held companies. Hg Exchange will enable institutional and accredited investors to buy into the region’s decacorns – privately-held companies with valuations of USD10 billion-plus – and early stage startups. The exchange has applied to take part in the Monetary Authority of Singapore’s FinTech Regulatory Sandbox.
Read more about the development here.
Taiwan’s Blockchain Ecosystem Soars
Taiwan’s blockchain ecosystem has enjoyed strong growth in the past few years, with 70% of companies using the technology set up in the past two years. A number of homegrown crypto exchanges have developed, including BitoEX, Joyso and MaiCoin, while local blockchain companies and organisations are using the technology in sectors ranging from healthcare to gaming to entertainment. BitoEX has also partnered with more than 3,000 convenience stores in Taiwan to enable consumers to buy crypto currencies with fiat currency.
Read more about the development here.
Steady Increase in Cashless Payments
Cashless payments are increasing steadily in Taiwan as the number of payment channels grows. The penetration rate for non-cash transactions reached 37.73% in September 2018, up from 26% in 2015, according to the latest figures from the Financial Supervisory Commission. The Government has set a target to have a 52% cashless payment penetration rate by 2020. Meanwhile credit card spending hit a new record high for the fifth consecutive year in 2018, with payments totalling NTD2,880 billion.
Read more about the development here.
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Sources: The World Economic Forum The Global Competitiveness Report 2017-2018; IMF; Bank for International Settlements; Export.gov; Financial Supervisory Commission (Taiwan); Bloomberg; PwC; OECD
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