Taiwan

KEY COUNTRY FACTS
System of government:	parliamentary republic
Population:	23.4 million
Currency:	New Taiwan dollar (TWD)
FX regime:	independent float
GDP:	US$530bn (2014)
IGTA member:	no
FATF member:	observer
Other professional financial/banking associations:	Bankers Association of the Republic of China

Financial regulatory framework

Banking supervision

The Banking and Financial Examination Bureau of the Financial Supervisory Commission is responsible for the financial sector. This role was previously carried out by the Central Bank of the Republic of China (CBC), which retains some monitoring responsibilities.

Exchange controls

The official currency of Taiwan is the new Taiwanese dollar (TWD) whose value is determined by a managed floating exchange rate. Although trade-related foreign currency conversions are free from restrictions, Taiwan does retain some exchange controls for non-trade related transactions. Residual foreign exchange controls are administered by the Ministry of Finance, the Central Bank of the Republic of China and the Ministry of Economic Affairs (MOEA), which is responsible for trade policy. Limits apply to the remittance of foreign exchange, with all transactions above these limits subject to CBC approval. Resident individuals who have an Alien Resident Certificate may remit up to a total of US$5m per year. Resident companies may remit up to a total of US$50m per year (this figure excludes payments for imports and exports and staff wages and salaries). Foreign nationals may also exchange currency with a foreign currency equivalent of US$100,000 against the TWD (on a per transaction basis). Foreign companies may borrow from abroad with the permission of both the CBC’s Foreign Exchange Department and the MOEA’s Investment Commission. All foreign direct investment and resident outward investment must be authorised in advance by the MOEA’s Investment Commission.

Taxation framework

Corporate taxation

A flat corporate income tax rate of 17% is levied on the income of profit-seeking enterprises operating in Taiwan. A profit-seeking enterprise that has its head office in Taiwan is subject to corporate income tax on its worldwide income. A profit-seeking enterprise with its head office outside Taiwan (such as a branch of a foreign company) is subject to income tax only on its Taiwanese-sourced income.

Capital gains tax

Capital gains are treated as ordinary income and taxed at the standard corporate income tax rate. Capital gains from the sale of land and a domestic company’s securities are exempt from income tax. However, capital gains from the sale of securities issued by domestic companies may be subject to taxation under the alternative minimum tax (AMT) regime.

Taxation of interest

A maximum withholding tax rate of 10% is applicable to interest paid to resident companies; the final withholding tax rate, however, varies greatly due to certain tax rulings and other provisions within the Taiwanese tax system. A 15% withholding tax applies to interest paid to a non-resident on short-term bills, interest on securitised certificates, interest on corporate bonds, government bonds or financial debentures, as well as interest derived from repurchase transactions with the aforementioned securities or short-term bills. The rate in all other cases is 20%, unless the rate is reduced under a tax treaty.

Transfer pricing

Taiwan has transfer pricing rules requiring transactions between related parties to be conducted on arm’s length terms. The transfer pricing guidelines provide a specific definition of related parties, which includes direct and indirect control, as well as control over a board of directors.

Thin capitalisation

Thin capitalisation rules restrict the deduction of interest in excess of a prescribed debt-to-equity ratio. On 22 June 2011, the Ministry of Finance (MOF) issued guidance defining the scope of related parties, debt and equity, as well as the permissible debt-to-equity ratio of 3:1.

Indirect taxes

Business tax (BT) is imposed under two systems: the VAT system and the Non-VAT (special BT) system. BT applies to the sale of goods, the provision of services and imports. The VAT applies much like a European-style VAT, with an input tax credit or a refund available where BT paid on purchases exceeds the BT received. The basic rate of the BT is 5%. The following items are zero-rated: exports, export-related services, items sold by duty-free shops, goods sold to export-oriented entities within a tax-free export zone or science-based industrial parks and goods sold to a bonded factory or warehouse. Exempt status applies to healthcare services, land sales, and approved textbooks and academic writings, etc. Financial institutions, certain restaurants and small companies are subject to special BT on the basis of their gross business receipts at rates ranging from 0.1% to 25%. However, certain services of financial institutions are taxed at the 5% rate because the services are not the core business of the financial institution (core business services are taxed at 2%).

All tax information supplied by Deloitte Touche Tohmatsu and Deloitte Highlight 2014 (www.deloitte.com).

Banking service provision

Taiwan has 39 domestic banks and 23 credit cooperatives. Twenty-seven foreign banks have established a presence in Taiwan. The Taiwanese government has initiated a policy of liberalisation and reform of the banking sector. However, three of the four largest banks in Taiwan remain wholly or majority-owned by the state.

Clearing and payment systems

Clearing systems

CIFS – the CIFS system is Taiwan’s real-time gross settlement (RTGS) system. It processes large-value and urgent interbank payments denominated in TWD; all payments are settled in in real time with immediate finality. All direct participants must have settlement accounts with the CBC, which operates the system. At the end of 2013, there were 86 participants in CIFS including the 71 banks, eight finance companies and seven other institutions.
FISC – the Financial Information Service Company interbank electronic funds transfer (EFT) processes a range of electronic funds transfers, through a number of subsystems. It is operated by the Financial Information Services Company, a private company initially established by the Ministry of Finance. There are seven subsystems:

– The interbank remittance system (IRS) allows users to initiate electronic payments, which are made in real time. Companies and individuals are both able to have direct access to this system, although banks also make payments on their clients’ behalf. The system is open during banking hours.

– The credit card and shared ATM system processes all ATM withdrawals, fund transfers and credit card cash advances, with final settlement effected through CIFS.

– The bulk payment system allows companies to file tax returns and make tax payments, as well as distributing dividends. Access is via email batch transfer or through the submission of a magnetic tape.

– The financial XML system allows customers to initiate online bank transactions through their PCs.

– The financial EDI system allows companies to share financial information within their own organisations, as well as to initiate electronic credit transfers.

– The Internet Banking System for e-commerce transactions.

– The Mobile Banking System for mobile phone payments.

The Taiwan Clearing House – this is Taiwan’s paper-based clearing system. It processes all paper-based instruments, including cheques, promissory notes and bank drafts. The Taiwan Clearing House’s main centre is in Taipei. It is supported by an additional 15 clearing houses located around the country. Most instruments are truncated into electronic items and then processed through one of three processing centres (in Taipei, Taichung and Kaohsiung). These three centres have been translated into the three regional (north, middle and south) computerised clearing centres, which form the basis of the nationwide paper-based clearing network created by the Taiwan Clearing House. There are still three clearing houses (Hualien, Tai tung and Penghu) that process cheques manually.
ACH System – the Automated Clearing House is operated by the Taiwan Clearing House. It processes direct credits (salary, tax and supplier payments) and direct debits (pre-authorised regular payments). Debit payments usually take two days to clear, whereas credit payments take one day to clear with funds available the next working day.
USD Settlement System – Interbank USD remittances can be processed electronically between participant banks in Taiwan via a USD Settlement System, which was established in December 2010. The Mega International Commercial Bank, a Taiwanese domestic bank, operates the system and is the sole USD clearing and settlement bank in Taiwan. Interbank remittances are processed continuously and irrevocably on a same day basis via a Real Time Gross Settlement (RTGS) mechanism.

Payments

Credit transfers – the credit transfer is by far the most important cashless payment method in Taiwan, in terms of value. It is the dominant form of payment used by companies in Taiwan, whether to make supplier, tax or salary payments or for treasury operations. Most credit transfers are effected electronically and the popularity of electronic transfers continues to grow.
Direct debits – direct debits are commonly used for making regular payments, such as utility and mortgage payments.
Cheques – cheques are primarily used by companies. They are not a common payment method among individuals. Cheque use has been steadily declining as the popularity of credit transfers has increased. Cheques are valid for a year. The use of post-dated cheques is common. They are drawn with two dates – an issue date and a future date. The beneficiary can obtain financing by presenting a post-dated cheque together with some supporting evidence (such as the invoice). Cheques (and other paper-based instruments, such as promissory and bankers acceptances) can also be issued as electronic items (as eCheques). Most cheques are cleared for settlement on a next-day basis, although domestic cheques take up to seven days to clear, if the payer and the beneficiary are in different regions of the country. Foreign cheques can take up to 14 days to clear. Lockbox services are becoming more widely available and used.
Payment cards – at the end of 2014, 4.4 million active credit cards were in circulation in Taiwan, 8% more than at the end of the previous year. The number of cash cards is still declining. There were 491,732 cash cards in circulation at the end of 2014, 7.6% fewer than at the end of 2013.
Electronic money – the use of electronic money (e-money) schemes is low in Taiwan. The main pre-paid card schemes in operation are Easy Card and the TaiwanMoney Card for use on public transport, as well as Mondex and Icash cards. Electronic money is used for small value transactions, with the average amount stored on each card between TWD200 and TWD500. There were 58 million stored value pre-paid cards in circulation at the end of 2014, 63.2% more than at the end of 2013.
Cross-border – cross-border transactions are settled via correspondent bank networks. All the major banks have direct SWIFT connections. Supporting documentation is required in most instances. Some banks have access to European cross border payment systems, such as TARGET2 and STEP1, via their correspondent banks.

Cash and bank account management

Interest-bearing accounts

Interest is not paid on current account surpluses.

Account availability

Residents can open and maintain foreign currency accounts domestically and abroad. Residents can open and maintain tax-free, foreign currency accounts offshore. However, local branches of foreign banks are not permitted to open accounts on behalf of Taiwan residents. This means residents may only open foreign currency accounts abroad or with an offshore business unit if they are physically present. Non-residents are also able to open and maintain foreign currency accounts domestically. Non-residents can open demand deposit, savings and time deposit accounts denominated in domestic currency (TWD). Non-residents are not permitted to open domestic currency cheque accounts.

Money laundering

Taiwan has implemented anti-money laundering legislation (the Money Laundering Control Act 1997 as amended; the Regulations Regarding Article 7 of the Money Laundering Control Act [Cash Transactions] 2003 as amended; and other subsidiary legislation overseen by the Ministry of Justice and the Central Bank of the Republic of China). Further legislation has been drafted. Taiwan is a member of the Asia/Pacific Group on Money Laundering (APG). Taiwan has a financial intelligence unit (FIU), the Anti-Money Laundering Division (AMLD), which is a member of the Egmont Group. The AMLD operates within the Ministry of Justice.

Information supplied by BCL Burton Copeland (www.bcl.com). Data as at January 2015.

Cash concentration

Cash concentration is a liquidity management capability whereby account balances are physically transferred to/from a single account (known as a master, header or concentration account) for liquidity management purposes. Cash concentration can take these forms:

Zero balancing (ZBA) – sometimes referred to as sweeping, zero balancing is a cash concentration capability whereby the total of all account balances is physically transferred into a nominated account.
Target balancing – also known as sweeping, target balancing is a cash concentration capability similar to ZBA, whereby all account balances are physically transferred into a nominated account leaving a predetermined amount in the sub-accounts.
Threshold balancing – a cash concentration capability similar to ZBA, whereby the balances of the sub-accounts are physically transferred in their totality into a nominated account each time the sub-account balances reach a predetermined threshold.

Cash concentration is permitted in Taiwan and physical in-country cash concentration is available to residents and non-residents.

Notional pooling

Notional pooling is permitted between resident accounts, subject to prior Ministry of Finance approval. Only TWD-denominated cheque and savings accounts may be included in the same structure. Accounts held in the name of different legal entities may not participate in the same cash management structure. For non-residents, notional pooling is permitted between accounts in the name of the same legal entity.

Cross-border issues

Cross-border sweeping is not available in Taiwan.

Electronic and internet banking

Electronic banking services offered to companies by domestic banks are widely available, although the range of services tends to be narrower than those offered by foreign banks. There is no national electronic banking standard in Taiwan. Companies use proprietary electronic banking systems provided by their banks. Usage of electronic banking by companies is common. Internet banking is widespread both within companies and among retail consumers. Broadband internet access is common, with nearly 83% of Taiwanese companies having access. Consumers can make payments over the internet using payment cards and also via FISC’s FXML system. Consumers are increasingly using mobile phone payments.

Liquidity management

Short-term investments

Short-term investments include:

Treasury (government) bills/bonds – treasury bills (T-bills) are issued by the Taiwanese government, but are not as popular as other short-term investment instruments for companies. They are issued by the CBC via public auction, generally for maturities of between 63 and 364 days, with a minimum denomination of TWD 5m.
Repurchase agreements (repos) – repurchase agreements (repos) are mainly used as a short-term investment instrument by financial institutions.
Term deposits – time deposits are a fairly popular short-term investment instrument in Taiwan. Banks offer domestic currency accounts for terms from one month to more than a year. Banks offer foreign currency accounts for terms from overnight to one year. Foreign investors are not permitted to operate time deposit accounts in Taiwan.
Certificates of deposit (CDs) – negotiable certificates of deposit (CDs) are popular investment instruments in Taiwan. They are issued by local banks as well as the CBC, with maturities ranging from one month to a year. They are available usually for maturities under a year. CDs pay either a fixed or floating interest rate.
Commercial paper – commercial paper is the most popular form of short-term investment for companies. Taiwanese companies issue commercial paper in the form of short-term, unsecured promissory notes for terms of between one month and one year. Investment amounts range from TWD 100,000 to TWD 10m.

Information about the securities markets can be found on the website of the Securities and Futures Bureau (part of the FSC).

Corporate finance

The Taiwan Stock Exchange (TSEC) is the only centralised securities exchange in Taiwan. Listed securities on TSEC include stocks, entitlement certificates of convertible bonds, convertible bonds, government bonds, beneficiary certificates, call warrants, put warrants, ETF and Taiwan Depository Receipts (TDRs).