PwC’s “Doing business in Taiwan” (DBIT) guide is fully revised and updated every two years. The most recent edition was published in September 2015 and this post-publication update serves as a running addendum to the bi-annual guide. It follows the latter’s chapter-by-chapter format and highlights the latest related developments and regulatory changes. This document was last updated on 13 April 2016.
Chapter 1: Business environment
History and political system (p8-9)
- Taiwan held general elections on 16 January 2016 which saw the main opposition Democratic Progressive Party (DPP), led by Tsai Ing-wen, gaining control of both the presidency and the 113-seat Legislative Yuan (parliament) for the first time. This gives a DPP government great leeway to implement its policy agenda.
- President-elect Tsai, who will be sworn in on 20 May 2016, has pledged to diversify Taiwan’s economy as a top priority. This will include the targeted development of five innovative industries for the future, namely biotech and medical care, green technology, smart machinery, Internet of Things and national defence.
Macroeconomic profile (p9)
- In 2015, Taiwan’s economy ranked the 21st largest in the world (out of 191 countries) on a purchasing power basis, and the 22nd biggest in nominal terms, based on updated IMF data as of 12 Apr. 2016. Also, Taiwan’s foreign trade last year totalled US$522.5bn, ranking the 19th largest globally as per WTO statistics released on 7 Apr. 2016. A selection of key economic indicators for Taiwan is provided below for reference purposes:
Click here to view table.
Taiwan business environment rankings (p10)
- WEF Global Competitiveness Index released on 30 Sept. 2015, TW ranked 15 out of 140, down one place.
- World Bank Ease of Doing Business Index released on 28 Oct. 2015, TW ranked 11 out of 189, up eight spots.
- Legatum Prosperity Index released on 2 Nov. 2015, TW ranked 21 out of 142, up one place.
- TI Corruption Perceptions Index released on 27 Jan. 2016, TW ranked 30 out of 168, up five spots.
- Heritage Economic Freedom Index released on 1 Feb. 2016, TW ranked 14 out of 186, unchanged on year.
International trade (p13-14)
- Taiwan joined the expanded WTO Information Technology Agreement that was concluded on 16 Dec. 2015. Set to take effect from 1 July 2016, the deal eliminates tariffs on 201 additional IT products. The ITA is important for Taiwan’s economy, owing to the nature of the country’s export-oriented electronics industry.
- The US-led Trans-Pacific Partnership (TPP) was formally signed on 4 Feb. 2016 by 12 Pacific Rim nations, including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam. This multilateral free trade agreement covers 40% of the global economy and will create the world’s largest free trade bloc once it’s fully ratified. Joining the TPP is seen as a key priority for Taiwan.
Chapter 2: Setting up in Taiwan
Financial M&A (p26)
- The Financial Institutions Merger Act was amended on 9 Dec. 2015 to encourage M&A activity among financial institutions (banks, insurers, securities firms and others) by simplifying merger procedures and providing more tax incentives. Its coverage was also expanded to include financial holding companies.
- The Arbitration Law was amended on 2 Dec. 2015 to provide that a foreign arbitral award recognised by a Taiwan court is substantially binding and enforceable, and no longer subject to challenge on the merits.
Chapter 3: Labour and employment
Employee remuneration (p32)
- The Statute for Industrial Innovation was amended on 30 Dec. 2015 to help companies retain critical talent and to encourage employees to participate in company operations and share in the rewards. It provides for the deferred taxation of employee share-based compensation (including stock, treasury stock, stock options and restricted stock shares, etc.) for five years if the total value is equal to or less than NT$5 million.
- The Act for Development of Small and Medium Enterprises was amended on 6 Jan. 2016 to provide tax incentives for SMEs to hire additional employees and lift wages. If certain requirements are met, a SME may recognise tax deductible salary expenses of up to 130% of the salaries paid to domestic employees newly hired during the current year. The deduction increases to 150% if the new hires are under age 24.
Annual leave and public holidays (p32)
- To make way for the new 40-hour workweek, beginning from 1 Jan. 2016, the “Enforcement Rules of the Labour Standards Act” were amended on 9 Dec. 2015 to reduce the number of national public holidays per year from 19 to 12 days. This change will have little effect on those who already work five days a week.
Workplace privacy (p35)
- Taiwan’s Personal Information Protection Act (PIPA) was amended on 30 Dec. 2015 to ensure that all data pertaining to health and medical records will be classified as sensitive personal data, which cannot be collected, processed or used unless a specific exemption applies. Other important changes loosened some restrictions on the form of consent for the collection and use of non-sensitive personal data, with the written consent of the subject no longer necessary. The amendments took official effect on 15 March 2016.
Health insurance (p36)
- The National Health Insurance Administration (NHIA) announced on 20 Oct. 2015 that the set average number of dependents for calculating the NHI premium would be reduced from 0.62 to 0.61, effective from 1 Jan. 2016. Both the employer and government are required to pay a percentage of the premium payable for an insured employee based on the average number of dependents, regardless of the actual number.
- The NHIA further announced on 20 Nov. 2015 that it would adjust the premium rates for the NHI system on 1 Jan. 2016, which will stay in effect until 2019. The regular NHI premium rate, based on an employee’s monthly salary up to a set ceiling of NT$182,000, was reduced from 4.91% to 4.69%. At the same time, the supplementary NHI premium rate for other types of specified income was decreased from 2% to 1.91%.
Employment of foreign workers (p40)
- The government announced on 2 Dec. 2015 that it would ease restrictions on hiring foreign professionals in Taiwan, staring from January 2016. Current work permit rules require that foreign white-collar workers are paid a minimum monthly salary of NT$47,971 and have at least two years of prior work experience. Also, companies must meet certain minimum capital and revenue thresholds to be able to hire foreign nationals.
- While the existing work permit application procedure will remain in effect, the proposed changes include the introduction of a points-based scoring system (based on educational, language and professional criteria) to assess those seeking work permits, and the phasing out of the existing requirements for employers. Those who are paid above the previous salary threshold would be exempt from the scheme and granted permits.
- Due to opposition, the Ministry of Labour decided on 22 Jan. 2016 to "put on hold" the proposed changes until further deliberation. Labour groups had criticised the arbitrary use of an administrative order to make the policy adjustment, and also voiced doubts about lowering the thresholds for hiring foreign workers.
Chapter 4: Accounting and reporting
CSR reporting (p47)
- The Taiwan Stock Exchange (TWSE) on 19 Oct. 2015 extended its requirements for compulsory corporate social responsibility (CSR) reporting to listed companies with common stock equal to or greater than NT$5 billion and below NT$10 billion. Certain other listed companies began mandatory CSR reporting in 2015. The new amendments will come into force in 2017 and cover annual reports for the 2016 financial year.
- The TWSE also plans to launch a Taiwan Stewardship Code in 2016, which aims to encourage institutional investors to engage with their investee companies to improve governance standards. The draft Code was made public for comment in December 2015 and formally announced in March 2016. Institutional investors hold nearly 50% of the market value of Taiwan's stock market and trade about half of all shares traded every day, demonstrating their importance to the stability and development of the local equity market.
Chapter 5: Corporate taxation
Bilateral tax agreements (p55-56)
- Taiwan completed a new double taxation agreement (DTA) with Italy on 31 Dec. 2015 that took effect on 1 Jan. 2016. This brings to 29 the total number of DTAs which Taiwan has signed and brought into force.
- Taiwan has also signed DTAs with China (25 Aug. 2015), Japan (26 Nov. 2015) and Canada (15 Jan. 2016), but these are subject to respective ratification before taking effect, likely on 1 Jan. 2017. (Please refer to the Sept. and Dec. 2015 issues of PwC’s Taiwan Tax Update for details of the DTAs with China and Japan).
- Furthermore, Taiwan signed a double taxation agreement on aviation income with Macau on 10 Dec. 2015, which will be permanent and replaces the previous memorandum of understanding between the two sides.
Transfer pricing and other anti-avoidance rules (p58-60)
- On 5 Oct. 2015, the OECD published its final base erosion and profit sharing (BEPS) recommendations on reforming international tax rules. Although Taiwan is not a member of the OECD, the Ministry of Finance (MOF) is already considering how, and to what extent, it will implement the BEPS package of measures.
- Regarding BEPS Action Plan 13 (on transfer pricing documentation), the MOF has expressed its intention to revise domestic transfer pricing rules to require taxpayers to submit a “master file” containing standardised information in line with the OECD’s recommendations, as well as the mandatory “local file.” The MOF may also revise its safe harbour rules to take account of the OECD country-by-country reporting requirements.
- Re BEPS Action Plan 3 (on controlled foreign company rules), the MOF in early 2013 presented proposals to introduce CFC and place of effective management rules. The related amendments to the Income Tax Act are still under legislative consideration. If approved, the new rules would affect the existing international structures of Taiwan businesses, as well as foreign companies with permanent establishments in Taiwan.
Tax incentives (p62)
- The Statute for Industrial Innovation (SII) provides an income tax credit for innovation-related R&D expenses incurred by Taiwan-based enterprises at their Taiwan facilities. The SII was amended on 30 Dec. 2015 to extend the tax deduction terms for R&D investment, effective from 1 Jan. 2016. (Please refer to the Jan. 2016 issue of PwC’s Taiwan Tax Update for more information about the details of the changes).
- Qualifying companies can now either deduct up to 15% of their R&D investments from income tax payable in the current year, although unused credits may not be carried forward or back under this option, or deduct up to 10% of their R&D investments from their taxes in the current year and the following two years.
Chapter 6: Personal taxation
Gains from securities transactions (p69)
- The Income Tax Act was amended on 2 Dec. 2015 to repeal the capital gains tax (CGT) on individuals who sell shares of Taiwan companies. Capital gains derived from the sales of shares have been subject to CGT since 1 Jan. 2013, which led to a downturn in the stock market. This CGT primarily affected individual income taxpayers, because it applied regardless of whether the seller was a resident or a non-resident.
- Starting from 1 Jan. 2016, for resident and non-resident individuals, capital gains derived from securities trading are no longer subject to income tax. Likewise, losses from securities gains cannot be deducted from taxable income. However, for resident corporate investors, the alternative minimum tax regime on capital gains from securities remains in effect. In addition, the securities transaction tax is unchanged at 0.3%.
Chapter 7: Indirect and other taxes
Commodity tax (p76)
- The Commodity Tax Act was amended on 6 Jan. 2016 to grant tax credits for used vehicle trade-ins in an effort to stimulate the local automobile industry. Starting from 8 Jan. 2016, a NT$50,000 commodity tax deduction is now available to an individual or a business purchasing a new car within six months of selling or exporting a used vehicle. For owners of motorcycles up to 150cc, the tax reduction is NT$4,000.