The Executive Yuan approved the First Stage Development Plan (the “Plan”) of the Free Economic Pilot Zone (the “Pilot Zone”) on August 8, 2013. The Plan implements the Free Economic Pilot Zone Plan previously promulgated by Executive Yuan on March 27, 2013. The Plan will be carried out in two stages to significantly relax restrictions on the flow of people and goods. In the meantime, by measures of tax incentives, convenient land acquisition and establishment of single administrative window etc., the Executive Yuan expects to build a convenient business environment, effectively lower the operating costs of enterprises, and attract investment from high-value-added, high-end industries (industries such as smart logistics, international medical care and value-added agriculture).

According to the first stage of the Plan, prior to the enactment of the “The Special Act of Free Economic Pilot Zone” (the “Special Act”), the Executive Yuan will enact relevant administrative regulations by the end of September of 2013 for matters that do not require amendment of laws. The Plan will be implemented by integrating the free trade zones (Taipei Port, Keelung Port, Taichung Port, Suao Port, Kaohsiung Port, and Taoyuan Aerotropolis, and Anping Port which awaits ratification by Executive Yuan) and Pingtung Agricultural Biotechnology Park with neighboring industrial parks or science parks through the “store in the front, factory in the back” model (under which raw materials and parts are imported by an enterprise in the Pilot Zone, and processed and transported back to the Pilot Zone by an enterprise in the neighboring industrial parks or science parks for exportation). The Executive Yuan incorporates the part of implementation that requires amendment of laws into the second stage of the Plan, when the “Special Act” will be enacted. Below is the summary of the abovementioned Plan:

  1. Relaxing the restriction on the flow of people and goods

In the first stage of the Plan, the Executive Yuan will amend relevant administrative regulations to loosen the restrictions on entry/exit in the Pilot Zone to further liberalize the entry and exit of people. Amendments include loosening the employment rules for foreign white-collar professionals and residence or entry/exit rules for Mainland China white-collar professionals in the Pilot Zone (for example, a foreign professional will be exempt from the requirement of prior two-years work experience, and employers who want to hire foreign professionals will not be bound by the restriction on operating revenue). Furthermore, foreign businessmen of the Pilot Zone will be able to enter and stay in Taiwan visa-free. Taking the Plan as its basis, the Council of Labor Affairs issued an administrative regulation on July 31, 2013, stating that employment of foreigners by companies in the Pilot Zone is not subject to the restrictions on minimum paid-in capital and years of work experience of the employed foreigner, respectively required in Articles 36 and 5 of “The Reviewing Standards and Employment Qualifications for Foreigners Engaging in the Jobs Specified in Items 1 to 6, Paragraph 1, Article 46 of the Employment Service Act.”

The “Special Act” to be enacted in the second stage of the Plan will further loosen restrictions on the flow of goods. Agricultural and industrial raw materials and products for operational purposes imported into the Pilot Zone will be exempt from related taxes such as customs tariffs, business taxes and commodity taxes, etc. Moreover, products of Mainland China meeting certain requirements (for example, raw materials and parts that will be exported entirely after processing) of which importation is currently prohibited will be allowed to import into the Pilot Zone.

  1. Substantive tax incentives granted to investment

As for tax incentives, the “Special Act” to be enacted in the second stage of the Plan will grant the following tax incentives to investors with substantive presence (excluding stock investment and pure land investment) in the Pilot Zone: (1) Overseas dividends or profits introduced into the Pilot Zone for substantive investment will be exempted from tax; (2) royalties for advanced technology or patent brought into the Pilot Zone of which Taiwan is in shortage and dire need will also be exempt from tax; (3) companies in the Pilot Zone may credit 15% of their expenses on innovative R&D against the payable amount of profit-seeking-enterprise income tax in the upcoming 3 years; and (4) an international enterprise reaching the scale required by the competent authority which establishes its operation headquarters in the Pilot Zone and meets certain requirements will enjoy 10% profit-seeking-enterprise income tax incentive for 3 years upon their establishment over incomes of its affiliated companies invested by it with capitals actually brought into Taiwan.

  1. Convenient land acquisition and single administrative window

In order to facilitate the acquisition of land by an enterprise in the Pilot Zone, the Executive Yuan plans to amend the review process of land conversion. According to the first stage of Executive Yuan’s Plan, land conversion applications in the Pilot Zone will be reviewed by the Ministry of the Interior in one instance at one level to accelerate the review process. Subsequently, the “Special Act” in the second stage of the Plan will explicitly provide the period within which the review must be completed, and offer the mechanism of the joint review meeting when the project also involves other aspects of regulatory requirements (such as environmental impact assessment or soil / water conservation plan). The above measures are expected to simplify and accelerate the review process.

In addition, an administrative window will be established in the Pilot Zone to provide one-stop services. In the first stage of the Plan, personnel from administrative departments will be appointed and stationed to provide such services. After the “Special Act” is enacted in the second stage of the Plan, a special unit will be set up in the Pilot Zone to be responsible for providing one-stop services.