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Contents
Executive summary Foreword Introduction - Doing business in Taiwan Conducting Business in Taiwan Taxation in Taiwan Audit and Accountancy Human Resources and Employment Law Trade Banking in Taiwan HSBC in Taiwan Country overview Contacts 4 6 8 12 14 29 31 36 38 40 42 44
Disclaimer This document is issued by HSBC Bank (Taiwan) Company Limited (the Bank) in Taiwan. It is not intended as an offer or solicitation for business to anyone in any jurisdiction. It is not intended for distribution to anyone located in or resident in jurisdictions which restrict the distribution of this document. It shall not be copied, reproduced, transmitted or further distributed by any recipient. The information contained in this document is of a general nature only. It is not meant to be comprehensive and does not constitute financial, legal, tax or other professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. This document is produced by the Bank together with PricewaterhouseCoopers (PwC). Whilst every care has been taken in preparing this document, neither the Bank nor PwC makes any guarantee, representation or warranty (express or implied) as to its accuracy or completeness, and under no circumstances will the Bank or PwC be liable for any loss caused by reliance on any opinion or statement made in this document. Except as specifically indicated, the expressions of opinion are those of the Bank and/or PwC only and are subject to change without notice. The materials contained in this publication were assembled in November 2010 and were based on the law enforceable and information available at that time.
Executive summary
Located in the heart of the Asia Pacific region, Taiwan is a strategic platform connecting some of the largest economies, including US, Japan and China. Based on International Monetary Fund statistics, Taiwan is currently the 26th largest economy in the world, and consistently scores very highly in global competitiveness rankings by leading economic organisations such as the World Economic Forum (placing Taiwan 12th among the 133 world economies covered in 2009). This general guide highlights some of the areas that investors should be aware of when doing business in Taiwan, although professional advice may be required in specific circumstances. Below are a few competitive advantages for investors conducting their business in Taiwan: Attractive incentives are offered by the government to make Taiwan more investor-friendly, with foreign investors enjoying the same rights and privileges as local investors. The reduced corporate income tax rate, from 25% to 17%, applies to the tax year 2010 and onwards. Personal taxation depends on the individuals length of stay in Taiwan and whether they are domiciled in Taiwan. Recently, the government has been promoting the development of six emerging industries (biotechnology, medicine and health care, culture and creativity, tourism, green energy and high-end agriculture) and four intelligent industries (cloud computing, smart electric vehicles, smart green building and patent commercialisation), and offering new incentives to attract domestic and foreign privatesector investment in these target sectors. The improvement in relations with China, the signing of the Economic Cooperation Framework Agreement (ECFA) between China and Taiwan, continued deregulation and streamlined procedures for setting up operations on the island, along with a series of tax reforms, have made Taiwan a more attractive place for business investment.
Foreword
The global focus on emerging markets is greater than ever. This is particularly true of the Greater China region, in which Taiwan is a key constituent. As the worlds leading emerging markets bank, HSBC is the ideal partner to enable your business to achieve full potential in this exciting area. HSBC has been in Taiwan since 1984. We now have 40 branches located across the Island and will expand this to 47 branches by the end of 2011. As a sign of our long-term commitment to Taiwan, HSBC locally incorporated on the 1st of May 2010 and HSBC Bank (Taiwan) Limited is now a wholly-owned subsidiary of the HSBC Group. HSBC Group has been doing business in the Greater China region since 1865. We have a comprehensive network across Asia Pacific with major presences in Hong Kong SAR and mainland China. Looking further afield to other major emerging markets, HSBC is well established in both the Middle East and Latin America, both of which have increasingly important links with the Greater China region and Taiwan. The purpose of Doing Business in Taiwan is to help you gain valuable insights into the Taiwan market and unlock its very significant potential. The guide has been co-written by HSBC and PricewaterhouseCoopers (PwC). Like HSBC, PwC has a strong global network and understanding of the Greater China region.Together we possess a wealth of experience to support your ambitions in this market. On behalf of HSBC, I hope that you find this guide useful and that we have a chance to be your business partner in Taiwan and beyond. John Li President & CEO HSBC Bank (Taiwan) Limited
Introduction
Doing business in Taiwan
Taiwan is one of the worlds trading powerhouses and offers one of the most favourable environments for investment in Asia. Industrial Structure Taiwan currently is the 26th largest economy in the world, according to International Monetary Fund statistics, and consistently scores very highly in global competitiveness rankings by leading economic organisations such as the World Economic Forum (placing Taiwan 12th among the 133 world economies covered in 2009). Since the 1950s, Taiwan has evolved from an agrarian economy based on rice and sugar to one focused on capital- and technologyintensive industries, as well as creative industries. Agriculture now constitutes just 1-2% of gross domestic product, down from 35% in 1952, while manufacturing and services account for 30% and 69% respectively. Taiwan is now one of the worlds largest manufacturers of computer-related products, and has become a leading global producer of semiconductors and liquid crystal display (LCD) products. In the late 1980s, facing rising costs, Taiwans manufacturing industries began to move 8 their production bases overseas. Initially, most relocated to countries in South East Asia, but after Taiwans government began to ease restrictions on economic ties with the Peoples Republic of China in the early 1990s, China became the investment location of choice. High-tech firms have since joined more labour-intensive industries in shifting capacity to China, encouraged in part by the Taiwan governments gradual easing of restrictions on technology transfers to the mainland. Not withstanding the industrial migration to China, Taiwan remains an important hub for high-tech sector activities. Production of higher-end goods such as semiconductors and LCDs has largely remained in Taiwan, as have local firms R&D facilities. The government has also encouraged multinational companies to establish their regional R&D centres on the island. In addition to the high-tech sector, the Taiwan government has successfully encouraged the growth of a domestic petrochemicals industry. Other important industries include cars (mostly auto electronics, components and assembly), steel, textiles, plastics and machinery. More recently, the government has been promoting the development of six emerging industries (biotechnology, medicine and health care, culture and creativity, tourism, green energy and high-end agriculture) and four intelligent industries (cloud computing, smart electric vehicles, smart green building and patent commercialisation), and offering new incentives to attract domestic and foreign private-sector investment in these target sectors. International Trade Foreign trade has been the engine of Taiwans rapid economic growth since the 1960s. The economy remains export oriented, so much so that Taiwan depends on an open world trade regime and remains vulnerable to downturns in the global economy. In 2009, Taiwan was ranked the worlds 18th largest trading entity, according to the World Trade Organisation (WTO). Bilateral economic relationships with other countries have benefited from Taiwans membership of the WTO (since January 2002, under the title of The Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu) by further deepening its integration into the global economy and opening up its domestic market to foreign investment, products and services.
In January 2009, Taiwan officially joined the WTOs Government Procurement Agreement, which now grants foreign contractors access to procurement opportunities, such as the i-Taiwan 12 Projects the i indicating an emphasis on investment and infrastructure which the government launched in 2009 to stimulate the islands recession-hit economy. Foreign Investment Taiwan welcomes foreign direct investment, except in a limited number of industries involving national security and environmental protection. Liberalisation has reduced the negative list for investment by foreigners and overseas Chinese which can be found at www.moeaic. gov.tw to less than 1% of manufacturing categories and less than 5% of service industries. Also, most foreign ownership limits have been removed, though several restrictions still remain on mainland Chinese investment into Taiwan. The improvement in relations with China, continued deregulation and streamlined procedures for setting up operations on the island, along with a series of tax reforms, have made Taiwan a more attractive 10
place for business investment. Its 2009 ranking in the World Banks Ease of Doing Business index jumped 15 places to 46th place among the 183 territories covered. The government also offers various attractive incentives to make Taiwan more investor-friendly, with foreign investors enjoying the same rights and privileges as local investors. These incentives are generally in the form of tax breaks aimed at encouraging investors to step up their capital investment R&D and human resource cultivation in Taiwan. Most of the tax breaks were previously offered under the Statute for Upgrading Industries, which expired at the end of 2009. This law has since been replaced by a new Statute for Industrial Innovation, which retains tax breaks for investments in R&D and innovation. Additional incentives are available under the Statute for Investment by Foreign Nationals/Overseas Chinese, the Business Mergers and Acquisitions Act, the Financial Institutions Merger Act and other laws and regulations. Principal Government Agencies For companies looking to do business or invest in Taiwan, the main regulatory agencies and their areas of jurisdiction are as follows:
M inistry of Economic Affairs The MOEA is responsible for issuing business laws and regulations. Four of its most important agencies for investors are the Department of Commerce, Department of Investment Services, the Investment Commission, and the Industrial Development Bureau: Department of Commerce reviews applications for company registration, including the establishment of branch offices and subsidiaries of foreign-owned entities. Department of Investment Services promotes and facilitates foreign investment in Taiwan, and also acts as a coordinator between investors and all agencies involved in the investment process. Investment Commission is responsible for matters relating to the screening and approval of inward investment and technical cooperation by foreigners and overseas Chinese, as well as outward investment from Taiwan. Industrial Development Bureau is responsible for promoting industry upgrading and providing comprehensive assistance to investors to overcome investment obstacles. Bureau of Foreign Trade The BOFT is an agency of the MOEA charged with executing
trade policies and promoting trade. It is responsible for regulations covering all import and export activities, and for supervising the import and export of controlled items. Taiwan Intellectual Property Office The TIPO is an agency of the MOEA and deals with patent, trademark and copyright matters, as well as the enforcement of intellectual property rights. Financial Supervisory Commission The FSC is an independent, cabinet-level authority charged with the supervision and examination of the banking, securities and insurance industries, as well as financial holding companies. The FSC comprises four bureaus: Monetary Affairs, Securities and Futures, Insurance and Examination. Ministry of Finance The MOF is responsible for the administration of taxation, customs and the national treasury, as well as the management of state property. The Taxation Agency is an administrative authority directly subordinate to the MOF and is in charge of taxation matters, including tax auditing. Five tax collection agencies are also under the supervision of the MOF.
Fair Trade Commission The FTC is in charge of competition policy and fair trade law. It also investigates and handles various activities that may impede competition, such as monopolies, mergers, and restraints on competition or unfair trade practices. Food and Drug Administration Taiwans FDA was formally inaugurated on 1 January 2010 and integrates four existing agencies under the cabinetlevel Department of Health. The FDAs responsibilities cover the licensing and inspection of food and pharmaceutical products in Taiwan. Environmental Protection Administration The EPA is the agency responsible for protecting and conserving the natural environment in Taiwan. It sets pollution control regulations and carries out various programmes to monitor and protect the environment. Council for Labour Affairs The CLA is in charge of administering labour policies and regulations covering labour rights, labour security, labour insurance, work quality, and so on. It is also responsible for issuing work permits for foreign professionals.
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Taxation in Taiwan
Corporation Tax
Scope and Rates Taiwans income tax system consists of individual income tax and profit-seeking enterprise income tax (corporate income tax). The term profit-seeking enterprise refers to any entity that engages in profit-seeking activities, including companies, sole proprietorships, partnerships and other forms of business organisations. Any company operating within the territory of Taiwan must pay income tax, except where exemptions are provided. A companys tax status determines how and at what rate the income tax is levied. The tax status of corporate taxpayers is divided into three categories: A resident enterprise that has its head office located in Taiwan (including the locally incorporated subsidiaries of foreign companies) subject to income tax on its worldwide income. A non-resident foreign enterprise with its head office outside Taiwan but a permanent establishment (PE) in Taiwan (such as a branch office) subject to income tax only on its Taiwan-source income. A non-resident foreign enterprise with no PE in Taiwan subject to withholding tax at source. Under Taiwan tax law, the PE concept refers to a fixed place of business or a business agent. Corporate Income Tax Rates
Taxable Income Up to NT$120,000 NT$120,000 and over 0% Tax Rate
17%
On 28 May 2010, Taiwans Legislative Yuan (parliament) amended the Income Tax Act to reduce the corporate income tax rate to 17% from 20%, having previously cut the rate from 25% a year earlier. The reduced tax rate applies to the tax year 2010 and onward. The additional cut was made in response to the elimination of several tax incentives under the Statute for Industrial Innovation, which was ratified by the Legislative Yuan on 16 April 2010. In addition to normal tax calculations, Taiwan resident companies and foreign companies with a PE in Taiwan are subject to a separate alternative minimum tax calculation under the Income Basic Tax Act.
14
16
Withholding Taxes A foreign company with no PE in Taiwan is subject to withholding tax at source on its Taiwan-source income. Withholding tax rates on dividends, interest and royalties may be reduced if the recipient is a tax resident of a tax treaty country and the relevant treaty provides for a reduced rate. A Taiwan branch of a foreign company may remit after-tax profits to its head office without further Taiwan tax. Withholding taxes on wages, commissions, rentals, interest paid to non-financial institutions, royalties, cash awards and professional fees must be paid to the tax authority within ten days after the close of the month in which the payment was made. The withholders should prepare withholding certificates and submit them to the tax collection office for verification by the end of January of the following year. According to MOF guidelines issued in September 2009, a foreign enterprise with no PE in Taiwan is subject to withholding tax if it receives Taiwan-source income from service fees, rental income, business profits, awards/ grants and other income. However, the enterprise may appoint a tax agent in Taiwan to claim a tax deduction for costs and expenses incurred (supported by evidentiary 18
Type of Income Dividends Commissions Rentals Interest Royalties Technical service fees Prizes/Awards Professional Fees
6
Resident
Income subject to AMT = Regular taxable income + add-back items; AMT = (Income subject to AMT NT$2 million) x 10%. Tax Administration The tax year in Taiwan runs from 1 January to 31 December; companies must obtain prior approval to adopt a fiscal year other than the calendar year. Tax payments are filed on a selfassessment basis. All Taiwan resident companies, as well as foreign companies with a PE in Taiwan, must file annual returns with the tax authority no later than five months after the end of the tax year. Penalties are imposed for late filing and failure to file a return, and interest is charged on delayed payments. Tax Returns Corporate taxpayers must file returns using one of the following prescribed forms: Ordinary return used by all types of profit-seeking enterprises; or Blue return used by enterprises with good filing records, subject to prior approval. Group companies qualifying under the Business Mergers
N/A 10 N/A
4,5
& Acquisitions Act, and financial holding companies as defined by the Financial Holding Company Act, can file a combined return for the parent and its first tier subsidiaries. Consolidated returns are not permitted for other enterprises. Consequently, the losses of one affiliate cannot be used to offset the profits of another. As a general rule, losses incurred by a profit-seeking enterprise in an accounting year may not be carried forward. However, companies which keep a complete set of accounting books and records, use blue returns, or have their returns examined and certified by a certified public accountant (CPA), may carry losses forward for a period of up to 10 years. Losses cannot be carried back. Certification Submission of audited financial statements with tax returns is neither required nor customary That said, certain enterprises must have their income tax returns examined and certified by a qualified CPA, including: Banks, credit cooperatives, insurance companies, investment trust companies, short-term bill and finance companies, capital leasing companies, and companies engaged in securities and futures trading;
1.
Commissions, rentals and royalties received by resident enterprises that issue unified invoices are exempt from withholding tax. or non-resident enterprises, a 15% F withholding tax applies to interest income derived from short-term bills, securitised certificates, corporate bonds, government bonds or financial debentures, as well as interest derived from repurchase transactions involving these bonds or certificates. The rate in all other cases is 20%, unless reduced under a tax treaty. oyalties received by foreign R enterprises that are specially approved in advance by the government are exempt from income tax. A 3% withholding tax rule may be applicable if approved by the tax authority. Technical service fees received by foreign enterprises in relation to the construction of factories for manufacturing, and approved by the government are exempt from income tax. For prizes or payment from contests and games won by chance, the withholding tax rate is 10% for resident individuals and enterprises and 20% for nonresident individuals and enterprises. However, cash awards less than NT$2,000 from lottery tickets issued by the government are not subject to withholding tax.
2.
3.
documents), and it may apply for a tax refund within five years from the payment date. Alternative Minimum Tax In addition to normal tax calculations under the Income Tax Act, Taiwan imposes a so called alternative minimum tax (AMT) under the Income Basic Tax Act, effective from 1 January 2006. There are two AMT systems, one for companies and one for individuals. The AMT applies to all Taiwan resident companies, as well as foreign companies with a PE in Taiwan, if they earn certain income that is tax exempt or enjoy certain tax incentives, or if their annual basic income (that is, income subject to AMT) exceeds NT$2 million.
The following are not subject to AMT: Sole proprietors and partnerships; Non-profit organisations; Government-owned enterprises; Enterprises with no PE in Taiwan; and Businesses in liquidation or declared insolvent. If the regular taxable income is greater than the AMT taxable income, no special action is required. If the AMT taxable income is greater than the regular taxable income, taxpayers have to calculate and pay AMT based on the following formulae:
4.
5.
6.
Public companies; Companies that have received approval for corporate income tax exemption in accordance with the Statute for Encouragement of Investment and other relevant laws, and have annual net sales and non-operating income in excess of NT$50 million; Companies that have filed a consolidated income tax return in accordance with the Business Mergers and Acquisitions Act or the Financial Holding Company Act; and Companies other than those listed above whose annual net sales and non-operating income are in excess of NT$100 million. Payment Tax is paid on a selfassessment basis in two instalments. A company must pay provisional income tax equal to 50% of the tax liability declared for the previous year between 1 and 30 September. However, if the taxpayer meets certain requirements, it can opt to pay the provisional tax based on its taxable income for the first six months of the current tax year. The second payment is made when filing the annual return. The return is then reviewed by the tax authority and a final assessment is issued.
Penalties are imposed for late filing and failure to file a return. The taxpayer is also required to pay interest on any unpaid taxes from the original due date to the date of payment. The interest charge is based on the prevailing one-year time deposit interest rate set by the Directorate General of the Postal Remittances & Savings Bank each year. The charge may be waived if the amount is under NT$1,500. Assessments The tax authority is allowed to examine tax returns, accounting books and supporting documents. After a tax audit has been completed, the tax authority may request the taxpayer to explain any questionable items and present additional supporting documents. If the tax authority comes up with a different assessment, it will issue a formal assessment notice to the taxpayer, who then can opt to pay the tax as assessed or follow the appeal procedures provided under the relevant tax provisions.
Tax Incentives Investment incentives for eligible direct investors are generally in the form of tax breaks aimed at encouraging them to step up their capital investment, R&D and human resource cultivation in Taiwan. Certain tax incentives are provided to investors if they are located in prescribed areas such as science parks, economic processing zones, free trade zones and so on. Other tax credits are granted to qualifying companies that invest in specific businesses or industries being promoted by the government. Most tax breaks were previously offered under the Statute for Upgrading Industries, which expired at the end of 2009. This law has since been replaced by a new Statute for Industrial Innovation (SII), which retains tax breaks for investments in R&D. Under the SII, R&D credits are available up to 15% of qualified R&D expenses incurred, with the maximum amount of tax credit capped at 30% of the tax payable for the year in which the expenses are incurred. The unutilised R&D credits will be forfeited, and cannot be carried back or carried forward.
Additional tax incentives are available under the Statute for Investment by Foreign Nationals/ Overseas Chinese, the Business Mergers and Acquisitions Act, the Financial Institutions Merger Act and other laws and regulations
Double Taxation Agreements In addition to Taiwans domestic arrangements that provide relief from international double taxation, Taiwan has entered into bilateral double taxation treaties with 19 countries as of the end of 2010. These treaties generally follow the Organisation for Economic Co-operation and Development (OECD) model and their contents are summarised in the table on the next page. Transfer Pricing Taiwan has transfer pricing rules requiring that transactions between related parties be conducted on arms length terms. The Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax on Non-Arms Length Transfer Pricing were issued in December 2004 and are in line with OECD transfer pricing guidelines.
Foreign Tax Credit Taiwan companies (including the Taiwan subsidiaries of foreign companies) are subject to income tax on their worldwide income, regardless of whether that income was derived inside or outside Taiwan. Taiwan uses the credit method (unilaterally) to avoid the double taxation of income. Foreign taxes paid on foreign source income may be credited against a companys total Taiwan income tax liability. However, the credit is limited to the amount of Taiwan income tax derived from foreign source income.
5,15 10 10 10 15
10 10 10 10 10
1.
0% for shareholders that are 1 companies (other than partnerships) with at least a 25% shareholding. % of the gross amount of the 7 interest arising in a territory and paid on any loan of whatever kind granted by a bank of the other territory. The withholding tax rate on technical service fee payments is reduced to 7.5%.
4.
The total tax burden of corporate income tax and dividend tax must not exceed 40% of the total profits of the company. 5% for shareholders with at least a 10% shareholding.
2.
5.
3.
22
A foreigner who is present in Taiwan for more than 90 days is taxed on salary, bonuses and commissions earned for work done in Taiwan, regardless of where payment is made, but is not taxed on compensation for services performed outside Taiwan. Expatriates working in Taiwan are also taxed on fringe benefits such as housing, living, education and transportation allowances. Fringe benefits to individual taxpayers in the form of cash allowances are all taxable regardless of the nature of the benefits. Fringe benefits provided directly by the employer without cash payment to the employee are also taxed unless the recruitment of a foreign employee satisfies certain criteria for special tax incentives applied to foreign professionals. Capital Gains Taiwan does not impose a separate capital gains tax, as all gains, unless specifically exempt by law, are assessed as ordinary income and subject to income tax. Gains from the sale of land and qualified securities transactions are currently exempt from income tax. Note however, that resident individuals must include any gains attributable to sales of unlisted shares in Taiwan in their alternative minimum tax calculation.
5 12 20 30 40
Filing Obligations Taiwans tax year runs from 1 January to 31 December. Individual taxpayers are required to report all their Taiwan-source income, irrespective of the payment location of such income, and to file an annual return with the tax authority by 31 May of the following year, with no extensions allowed. or resident individuals, a F consolidated personal income tax return must be filed with respect to Taiwan-source income. Married couples must
file joint returns if both spouses have resided in Taiwan for more than 183 days in a taxable year. However, a spouse can opt to calculate taxes due on that spouses wages and salary separately. The income of any dependants for whom the taxpayer has claimed a personal exemption must also be included in the joint tax return. Non-residents who stay in Taiwan for 90 days or less in a year are not required to file income tax returns, although tax is withheld by employers on any compensation
paid in Taiwan. Income tax is withheld on locally paid salaries. Any additional tax due must be paid at the time of filing. Taxable Personal Income Taxable income includes salaries or wages (and any allowances, bonuses or similar compensation), professional fees, rental income from property in Taiwan, dividends, interest and royalties derived from sources in Taiwan. Awards and prizes are also subject to income tax.
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Dividends For resident individuals, dividends received are not subject to withholding tax. The gross dividend received is included in an individuals taxable income, and the associated imputation tax credit (for the tax paid by the company distributing the dividend) can be used to offset their income tax liability. Any excess credit is refundable to resident individuals. For non-resident individuals, dividends received are subject to 20% withholding tax. Exemptions and Deductions Certain exemptions and deductions are available for a resident individual taxpayer, their spouse and dependants. A resident taxpayer may elect to claim either the standard deduction or itemised deductions, in addition to other special deductions. Non-resident individuals are not entitled to personal exemptions and deductions.
Dependants over 70 years of age
Exemption amount Taxpayer Spouse Dependants not over 20 years of age Dependants over 20 years of age and studying in an approved college or university Dependants over 60 years of age NT$82,000 NT$82,000 NT$82,000 NT$82,000 None.
Supporting documents
Copy of marriage certificate. Copy of birth certificate. 1. Copy of birth certificate. 2. Copy of tuition receipt and valid student ID.
NT$82,000
1. C opy of the birth certificate of the taxpayer/spouse. 2. Document certifying the parent is supported by the taxpayer/spouse. 1. Copy of the birth certificate of the taxpayer/spouse. 2. Document certifying the parent is supported by the taxpayer/spouse. 3. Documents evidencing the parents living arrangements.
Life insurance premiums Medical and maternity expenses Calamity losses Interest paid on loans for the purchase of an owner-occupied residence in Taiwan* Rental expense for the lease of a self-use residence in Taiwan*
Original receipts. Original receipts issued by a qualified hospital or clinic. Certificate issued by local tax office. Interest payment receipt. Title deed. Documents evidencing the residence was owner-occupied in the tax year. Rental contract with the name of the taxpayer as lessee. Rental payment receipt issued by the landlord. D ocuments evidencing the residence was for self-use in the tax year.
NT$123,000
* Either interest paid on loans or rental expense is to be claimed. A taxpayer can claim either the standard deduction or itemised deductions, depending on whichever gives a higher total deduction amount. There is no ceiling on the itemised deduction total.
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subject to AMT after adding back certain items and compare the result with the regular income tax amount. If the AMT tax payable is greater than the regular income tax payable, the taxpayer has to calculate and pay AMT based on the following formulae: Income subject to AMT = Regular taxable income + add-back items; AMT = (Income subject to AMT NT$6 million) x 20%. The add-back items include qualified insurance benefits, capital gains from unlisted securities, non-cash charitable contributions, the excess of market value over par value of stock dividends granted to employees, and foreign-source income totalling NT$1 million or more. Except for overseas income, the other items have been included in the AMT since 1 January 2006. Although the inclusion of foreign-source income will increase the AMT burden, any foreign taxes paid on such income may be credited against AMT payable, with certain limitations.
Certificate issued by local tax office. Purchase and sales contracts showing the purchase and sales price, and other relevant documentation detailing the related costs and expenses incurred. None.
Businesses are required to maintain accounting records and prepare annual financial statements in accordance with Taiwan Generally Accepted Accounting Principles (GAAP), which largely follow International Financial Reporting Standards (IFRS) and US GAAP. Taiwan requires financial statement audits for any company with paid-in capital exceeding NT$30 million.
Bookkeeping Language All accounting books, documents and financial statements prepared by a company should be in Chinese, but may also be written concurrently in a foreign language. Accounting Basis Business entities must follow the accrual basis of accounting in performing recognition, measurement and reporting for accounting purposes. All income realised and expenses incurred or attributable to the current period should be recognised as income or expenses in the current period regardless of when the income is received or expenses are paid. Accounting Books Companies are required to maintain accounting records and prepare annual financial statements in accordance with Taiwan GAAP. They must keep journals, a general ledger and subsidiary ledgers, as well as appropriate memorandum records. Computerised accounting systems, if utilised, can be regarded as the companys accounting records.
Financial Statements Basic financial statements such as balance sheet, income statement (profit and loss account), cash flow statement, statement of changes in owners equity and notes to financial statements, along with comparative data for the previous year, are all required. Reporting Format The format of financial statements is set forth in the Statements of Financial Accounting Standards issued by Taiwans accounting standard-setting body, the Accounting Research and Development Foundation (ARDF). Public companies are also required to follow the format and guidance prescribed by the Securities and Futures Bureau (SFB) of the Financial Supervisory Commission (FSC). Preservation of Books and Records All accounting records must be kept for at least five years, and all accounting books and financial statements must be kept for at least ten years after the completion of annual closing procedures.
Limited to NT$270,000 per tax filing unit NT$104,000 per taxpayer, spouse and dependant, if handicapped T$25,000 per N dependant child if studying in an approved college or university
Copy of a psychiatrists diagnosis certificate or copy of Disability Identification. Student certificate or tuition receipts issued by the dependant childs college or university.
Alternative Minimum Tax In addition to normal tax calculations under the Income Tax Act, Taiwan imposes a so-called alternative minimum tax (AMT) on individuals who are tax residents in Taiwan (including expatriates who stay in Taiwan for 183 days or more in a tax year). Effective from
1 January 2010, the overseas income of resident individuals is included in the AMT calculation. Resident taxpayers with AMT taxable income of more than NT$6 million may be subject to AMT at the current rate of 20%. Under the Income Basic Tax Act, a taxpayer must calculate the amount of AMT due on income
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injury insurance, including work-related injury and sickness benefits, disability benefits and death benefits.
Pensions Two pension schemes are currently in effect in Taiwan, with an older scheme under the Labour Standards Act (LSA) being phased out in favour of a new scheme, launched in July 2005, under the Labour Pension Act (LPA). Employees who began their employment with an enterprise after 1 July 2005 are all covered under the new pension scheme, which is a defined contribution plan where employers make monthly contributions to employees individual pension accounts. An employee who is 60 years old or older with more than 15 years of service is entitled to monthly pension payments. An employee with less than 15 years of service should take a lump-sum pension payment of the principal and accrued dividends in their pension account.
Labour insurance is compulsory, with coverage extended to all local and foreign workers, including executive and administrative staff, except the responsible persons (typically the owners) of enterprises. In other words, those who are employed by, and receive wages from, an employer are entitled to coverage. Employers actually performing work may voluntarily join the labour insurance programme. National Health Insurance Taiwans National Health Insurance programme is designed to provide comprehensive medical services for the prevention and treatment of illness and injury, and for childbearing. It is essentially compulsory and universal, with coverage given to all citizens who have resided in Taiwan for at least four months, and to foreign employees (together with their dependants) who do not have Taiwan citizenship but do have an Alien Residence Certificate.
injury insurance, including maternity benefits for female workers and the wives of insured male workers, injury and sickness benefits (other than medical expenses), medical care benefits, disability benefits, and old age and death benefits.
Labour Regulations
Wages and Salaries Wages may not be less than the statutory minimum wage, and must be paid at least twice a month except where otherwise agreed to by the parties in an oral agreement or labour contract, or where wages are paid in advance on a monthly basis. Employers are prohibited from docking wages as a disciplinary penalty or indemnity. Retirement An employer can compel an employee to retire only if one of the following conditions holds:
1. The
required public service. Employers cannot reduce the eligibility of an employee for attendance bonuses (if any) simply because the employee has taken leave for those purposes. The following types of special leave are not granted at full pay:
1. Ordinary
An employee may ask for normal leave to settle personal affairs. Normal leave without pay may not exceed 14 days within one year. Other Types of Leave Maternity leave eight weeks at full pay if employed for six months, at half pay if employed less than six months. Maternity leave of up to four weeks may be taken in the case of a miscarriage; Paternity leave three days at full pay; Unpaid parental leave after one year of service, an employee may apply for unpaid parental leave to care for children under three years of age; the duration of this leave cannot exceed two years; and Family leave an employee working for an employer with five or more employees may request up to seven days of family leave per year, treated as normal leave, to care for a family member who is suffering serious illness or who must handle major events.
sickness and injury leave that does not exceed 30 days within one year must be paid at 50% of the ordinary wage. Leave for sickness or injury, other than from occupational accidents, is as follows:
employee is age 65 or older. However, the employer may request the concerned authorities to lower the compulsory retirement age if the work performed by the employee is dangerous or physically demanding. The minimum retirement age allowed in such cases is 55. mental or physical condition makes it impossible for the employee to undertake the work assigned.
Sick leave excluding hospitalisation leave may not exceed 30 days within one year. Hospitalisation leave may not exceed one year every two years. The total of hospitalised and non-hospitalised sick leave may not exceed one year every two years.
2. Female
2. Some
Special Leave Employees are entitled to take leave with full pay for weddings (up to eight days), funerals, work-related medical care and/or recovery, or legally 32
employees may request menstruation leave, incorporated into sickness leave, for one day per month. Days of menstruation leave are included in sick leave and the wage during menstruation leave is to be calculated in the same manner as sick leave.
Hours worked Rules on working hours are provided under the LSA. The normal working hours for an employee are eight hours a day, up to 84 hours every two weeks. Employees are entitled to breaks of 30 minutes for every four hours of work. Children under 15 years of age are not allowed to work, while children between 15 and 16 years of age may work (with consent from legal guardians) up to eight hours a day. Employers are not allowed to have female employees work between ten oclock in the evening and six oclock the following morning except under certain conditions. Exceptions to the rules specified above are made, subject to the prior approval of the authorities, for supervisory/managerial personnel and authorised specialists, and for monitoring or intermittent jobs. Paid holidays and vacations In addition to Sundays off, employees are entitled to time off on all national holidays. Employees are entitled to special annual leave on the following basis:
1-<3 3-<5 5-<10 Over 10
Termination of Employment Suspension or transfer of business operations; Operating loss or substantial contraction in business; Business operations suspended for more than one month due to force majeure; Substantial change in business nature which requires a reduction of workers and the particular workers cannot be assigned to another suitable position; and A worker incapable of undertaking the assigned work. Under the above circumstances, an employer is required by the LSA to give a worker 10 days advance notice of dismissal if the worker has been employed more than three months but less
than one year; twenty days notice if employed more than one year but less than three years; and 30 days notice if employed for more than three years. Also, under the above circumstances, an employer may terminate a labour contract immediately by paying wages for the period of advance notice. For employees who come under the new pension scheme, severance pay is calculated at half the monthly average wage for each year of service. Severance pay for a period of service of less than one year is to be calculated proportionately, and total severance pay is not to exceed six times the monthly average wage. Different conditions apply for employees under the old pension system. See the LPA and related laws for further details. For layoffs, different restrictions apply depending on the number of employees employed and the number of intended layoffs. The specific rules are given in the Protective Act for Mass Redundancy of Employees.
*14 plus one day for each service year over 10 years of service; maximum of 30 days per year.
Trade
Competition and Anti-trust Policy Free competition is encouraged under the rules of the Fair Trade Act, which governs monopolistic enterprises, mergers and acquisitions and any concerted action that may limit competition. Mergers and Acquisitions The government encourages the merger or consolidation of two or more companies if this will improve their operations and efficiency. The Financial Institution Mergers Act and the Financial Holding Company Act govern consolidation among financial institutions. For companies in other industries, the Business Mergers and Acquisitions Act provide the legal framework and also certain benefits to encourage mergers, acquisitions and spinoff activities. Intellectual Property Rights In Taiwan, IPR regulations protect patents, trademarks, copyrights, industrial designs, trade secrets, indications of geographic origin, and integrated circuit layouts. Intellectual property rights granted outside Taiwan do not necessarily guarantee protection within the territory, and foreign inventors are strongly advised to seek 36 broader protection through the MOEAs Taiwan Intellectual Property Office, which coordinates and administers Taiwans IPR policies. Concerted action Enterprises are prohibited from engaging in any concerted action with another unless: (a) It is beneficial to the economy and in the public interest; (b) An application to the Fair Trade Commission (FTC) for such concerted action has been approved; and (c) It is one of a limited number of types listed in the Fair Trade Act, such as joint R&D, joint importation, etc. Fair competition Pricing is to be determined through market mechanisms, and in principle, interference with free competition is not allowed. Foreign exchange controls Taiwan has substantially liberalised its foreign exchange controls. All foreign exchange transactions are administered by the Central Bank of the Republic of China (Taiwan), which imposes a limit of US$50 million and US$5 million per year for business entities and resident individuals, respectively, on any foreign exchange transfer, inward or outward, other than trading or service revenue. Companies and individuals are required to report certain foreign exchange transactions to the central bank.
Banking in Taiwan
Overbanked Environment
As of December 2009, there were over 396 depository institutions operating in Taiwan; including 37 local banks, 32 foreign banks, 26 credit cooperatives, 300 credit departments of farmers, and fishermens associations and one postal savings bank. These financial institutions, along with numerous trust and investment companies, securities finance corporations, non-life insurance corporations, bills finance companies and others compete to cater to the financial needs of Taiwans population of 23 million. Therefore, it would not be an exaggeration to state that Taiwans financial services industry is saturated. Finding the right bank and operation model can thus be very challenging. Account types In Taiwan, the most common account types are as follows:
Type Savings Account Current Account Time Deposits Features The initial starting point of your banking relationship. Payment and transfers your most liquid assets. Cheques for day-to-day payments (overdraft facility available depending on credit standing). Safe return with higher interest rate. Wide range of currencies and tenors.
Business and Banking Taiwans currency, New Taiwan dollar (NT$), is not fully circulated or convertible in global markets. Therefore, all entities wishing to conduct transactions denominated in NT$ must open onshore accounts. To qualify for onshore accounts, entities must register with the Taiwan government. There are many different options for a company to establish a presence in Taiwan. These include branch offices, subsidiaries, representative offices and more, depending on the specific business needs (Please refer to the Business in Taiwan section for details). Your decision will have implications on your business scope, legal responsibilities and taxes.
Offshore Banking Units Companies that are not Taiwan-registered can establish Offshore Banking Unit (OBU) accounts, if they wish to operate in foreign currencies only. The primary advantage of OBU accounts is that business owners can enjoy additional flexibility for prudent tax mitigation. Despite its well known flexibility, however, OBU accounts still face several restrictions. For example, no cash bank withdrawals are allowed. Customers first need to wire the money into a Domestic Banking Unit (DBU) account and then withdraw it from there. In summary, OBU entities mainly deal with virtual transactions only. Foreign Exchange Declaration All foreign exchange transactions over NT$500,000 (or equivalent) must be declared to the Taiwans Central Bank for monitoring purposes. Information such as the exact amount and nature and purpose of such transactions needs to be provided. Companies and individuals wishing to exchange an aggregate amount exceeding US$50 million and US$5 million within a year, respectively, must apply for prior permission to the Central Bank.
Banking Authority Taiwans foreign exchange policy is a managed float, which means that the exchange rate will fluctuate freely under the influence of market forces but is still bounded by a band monitored by the Central Bank. The latter also uses various instruments to implement monetary policies. ECFA and Financial Services MOU Taiwans banking and financial services industry, as a whole, is about to embark on a challenging journey as governments from Taiwan and mainland China are loosening restrictions for investment across the Strait. Banks from either side are vying for opportunities to expand due to the extraordinary potential in the region.
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HSBC in Taiwan
Overview
HSBC Bank (Taiwan) Limited started operations in Taiwan on 1 May 2010 as a locally incorporated entity of The Hongkong and Shanghai Banking Corporation Limited. The Hongkong and Shanghai Banking Corporation Limited is the founding member of the HSBC Group, which is headquartered in London. HSBC (Taiwan) plays a key role in HSBCs Greater China business. Headquartered in Taipei, it serves the financial and wealth management needs of an international customer base and provides a complete range of banking financial services for those with cross border needs. The current network of HSBC (Taiwan) comprises 40 outlets, including 24 branches in the Greater Taipei area. HSBCs presence in Taiwan dates back to 1885 when The Hongkong and Shanghai Banking Corporation Limited appointed an agent in Tamsui. A full-service branch was established in Taipei in 1984 and the business has expanded through a combination of acquisition and organic growth to become one of the leading financial services groups in Taiwan. HSBC Group is one of the worlds largest banking and financial services organisations with over 8,000 offices in 87 countries and territories at 31 December 2010. Awards for Excellence Best PCM Bank in Taiwan 2008-2009 by Euromoney. Best Sub-Custodian in Taiwan 2008 by Asset Magazine Top-rated Sub-Custodian Award by Global Custodian, 1997-2008. Worlds Best Sub-Custodian Banks by Global Finance, 2005-2009. Direct won the 2009 Financial Insight Innovation Award (FIIA) for its Innovation in Online Insurance. Corporate Sustainability For HSBC, Corporate Sustainability is about bringing social and environmental issues together with financial performance to maintain and grow a successful business for the benefit of our stakeholders. We apply clear policies and processes to manage potential social and environmental risk in our lending and other financial activities in sensitive sectors. We help our clients to seize the opportunities presented by the shift to a low-carbon economy. We try to reduce our own environmental footprint and share good practice on this with our clients and other stakeholders. We focus our community investment (philanthropic activities) on education and the environment. Our education programmes help to lift people out of poverty, build financial literacy and promote environmental awareness. In Taiwan, besides its longterm sponsorship of Guandu Nature Park, HSBC launched a well-organised staff volunteer programme in 2005 encouraging staff involvement in a wide variety of environmental conservation and community service initiatives. Key Business Development 1984 1988 1989 1991 1993 1994 1995 1996 1997 1998 1999 2000 2001
Taipei Branch opened. Multinational Corporate Business introduced HSBC Securities Taiwan established Kaohsiung Branch opened. Credit Card Acquiring introduced Custody and Clearing introduced Local Corporate Business launched Taichung Branch opened Credit Card Issuing introduced Tainan Branch opened AssetVantage, Mortgages, and PowerVantage launched Panchiao Branch opened Taoyuan Branch opened. Insurance Brokerage launched Chienkuo Branch opened. Syndicated Loan Business introduced HSBC Asset Management (Taiwan) Limited established Assumed Republic National Bank of New York, later integrated with HSBC Republic. Tienmu Branch opened online@hsbc launched. HSBC Premier introduced Smart Mortgage introduced Nang Kang Central Processing Centre established Taipei Branch relocated Agreed with Global Payments Inc. to establish a joint venture Global Payments Asia Pacific. Limited Taiwan Branch Launched HSBC Direct, Taiwans first direct banking services Acquired Chailease Credit Services Co., Ltd. and established HSBC Factors Taiwan Limited. Established HSBC Life (International) Limited Taiwan Branch. Announced the acquisition of the assets, liabilities and operations of The Chinese Bank Completed the acquisition of the business and operations of The Chinese Bank. HSBCs islandwide branch network has increased from 8 to 34. Obtained approval to set up a local subsidiary HSBC Bank (Taiwan) Limited established
2008
2009 2010 40
Country overview
Capital city Area and population Taipei Area (Taiwan and associated islands): 36,191 square kilometres Population: 23.16 million (December 2010) Language Currency International dialling code National Holidays (2011) Official: Mandarin Chinese; Others: Taiwanese, Hakka, Austronesian languages, English New Taiwan Dollar (NT$) +886 January 1 February 2 5 February 7 February 28 April 4 April 5 June 6 September 12 October 10 Founding Day of the ROC Chinese New Year Chinese New Year Holiday Peace Memorial Day Childrens Day Tomb Sweeping Day Dragon Boat Festival Mid-Autumn Festival National Day
Business hours general Business hours banking Stock exchange Political structure*
* Source: 2010, Government Information Office
9:00-18:00 9:00-18:00
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Contacts
Richard Watanabe, Partner General Line: +886 2 2729 6666 Direct Line: +886 2 2729 6704 Email: richard.watanabe@tw.pwc.com http://www.pwc.com/gx/en/ worldwide-tax-summaries
Website: www.hsbc.com.tw Phone: +886-2-8072-3993 Head Office: 14F, No. 333, Keelung Road, Sec. 1, Taipei City. Taiwan, R.O.C. 1st Edition: December 2010
Copyright Copyright 2010. All rights reserved. PwC and PricewaterhouseCoopers refer to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firms professional judgment or bind another member firm or PwCIL in any way.
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