Doing business in Taiwan

This publication is a joint project with

Executive summary 4

Foreword 6

Introduction - Doing business in Taiwan 8

Conducting Business in Taiwan 12

Taxation in Taiwan 14

Audit and Accountancy 29

Human Resources and Employment Law 31

Trade 36

Banking in Taiwan 38

HSBC in Taiwan 40

Country overview 42

Contacts 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.

Contents

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 individual’s 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 private-sector 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.

Executive summary

4

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 world’s 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.

Foreword

John Li President & CEO HSBC Bank (Taiwan) Limited

6

Taiwan is one of the world’s 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 technology-intensive 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 world’s 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, Taiwan’s manufacturing industries began to move

their production bases overseas. Initially, most relocated to countries in South East Asia, but after Taiwan’s government began to ease restrictions on economic ties with the People’s 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 government’s 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 Taiwan’s 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 world’s 18th largest trading entity, according to the World Trade Organisation (WTO). Bilateral economic relationships with other countries have benefited from Taiwan’s 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.

IntroductionDoing business in Taiwan

8

In January 2009, Taiwan officially joined the WTO’s 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 island’s 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

place for business investment. Its 2009 ranking in the World Bank’s ‘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:

Ministry 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 Taiwan’s FDA was formally inaugurated on 1 January 2010 and integrates four existing agencies under the cabinet- level Department of Health. The FDA’s 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.

10

Foreign investors that need to have a physical presence in Taiwan may choose between a company, branch, representative office or job-site office at the formation stage:

Company (subsidiary)

A company is an incorporated entity with a legal status separate and distinct from its owners that allows it to sue and be sued in its own name. Taiwan’s Company Law provides for four organisational forms:

• Unlimited company: A company organised by two or more shareholders who bear unlimited joint and several liability for the discharge of the company’s obligations;

• Unlimited company with limited liability shareholders: A company organised by one or more shareholders of limited liability. Shareholders with unlimited liability bear unlimited joint and several liabilities for the obligations of the company, while shareholders with limited liability may be held liable up to the amount of capital each has subscribed;

• Limited company: A company organised by one or more shareholders, with the liability of shareholders limited to the respective amounts of capital they have subscribed; and

• Company limited by shares: A company organised by two or more shareholders, or one governmental or corporate shareholder, with the liability of shareholders limited to the amount of share capital each has subscribed.

Except in certain restricted industries, foreign investors are generally allowed to set up companies in any of the above classes after obtaining approval from the Ministry of Economic Affairs’ Investment Commission, (MOEAIC). Any company that receives approval from the MOEAIC is called a Foreign Investment Approved (FIA) company.

Branch

A foreign company may open a branch office to do business in Taiwan after obtaining recognition from the Ministry of Economic Affairs (MOEA) and completing the procedures for branch office registration. To receive recognition, a foreign company must have its incorporation registered in its own country and conduct its business operations there. There is no minimum working capital requirement if the branch’s activities relate to international trade, but a foreign company’s head office must remit sufficient funds for the operation of the branch. It must also appoint a litigious and non-litigious representative and a branch manager, who may be the same person and may be either a Taiwan citizen or a foreign national.

Conducting business in Taiwan

Representative Office

The option of a representative office is available to foreign companies that do not intend to transact business in Taiwan, but intend to conduct limited acts of a legal nature relating to their business. If a foreign company needs its representative to reside in Taiwan most of the time, it can apply to the MOEA to establish a representative office. A representative acts as the company’s legal agent for such matters as obtaining quotations, concluding purchase contracts and procuring goods.

Job-site Office

A foreign enterprise intending to contract long-term construction work in Taiwan may find it preferable to set up a local job-site office. A job-site office need only apply for business registration, not corporate registration, and is allowed to make purchases and issue government uniform invoices (GUIs). However, it has the usual tax-withholding obligation and must pay business tax (i.e., value-added tax, or VAT) and income tax.

Forms of business

12

Taxable

Income

Tax

Rate

Up to NT$120,000

0%

NT$120,000 and over

17%

Taxation in TaiwanCorporation Tax

Scope and Rates

Taiwan’s 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 company’s 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

On 28 May 2010, Taiwan’s 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

Taxable Corporate Income

Non-deductible Items

Expenses and losses unrelated to the business operations of a company are not deductible. Unrealised expenses and losses may not be claimed as tax deductible items except in the case of allowances for inventory devaluation, provisions for employee pension reserves, employee retirement funds, labour pension reserves, allowances for doubtful accounts and provisions for foreign investment losses, as specified in the Income Tax Act and other related laws, or where specially approved by the MOF.

In order to qualify for tax deductibility, provisions and allowances must be recorded on the books based on relevant laws; that is, these provisions cannot be made off the books for tax purposes only.

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 securities and futures transactions are exempt from income tax, while losses therefrom are not tax deductible.

• Royalties paid to a foreign company for the use of its patents, trademarks or technical know-how in order to introduce new production technology or products, improve product quality, or reduce production costs, subject to special approval;

• Certain technical service fees received by foreign entities, subject to government approval; and

• Business income obtained within Taiwan by a foreign company engaged in international transportation, provided reciprocal treatment is granted to Taiwan transportation enterprises.

Deductions

In general, expenses or losses incurred in the normal course of business are tax deductible, except where these are not substantiated by adequate and acceptable documents.

Note however, that Taiwan resident companies and foreign companies with a PE in Taiwan are required to include any gains arising from securities and futures transactions in their alternative minimum tax calculation in accordance with the provisions of the Income Basic Tax Act.

Gains from land sales are subject to land value increment tax at rates ranging from 20% to 40%, while proceeds from securities and futures transactions are subject to securities transaction tax and futures transaction tax at rates of 0.1%-0.3% and 0.0000125%-0.6%, respectively.

Dividends

Taiwan operates an imputation tax system to avoid double taxation of dividends by allowing shareholders to claim credits for taxes paid on dividends received at the corporate and individual levels.

Treatment of Dividends

For Taiwan corporate shareholders, dividends received from local investee companies are not included in their taxable income. However, they must record any imputation tax credit distributed by other Taiwan companies along with the dividends in a shareholder-imputed credit account.

Taxable Income

The taxable income of a profit-seeking enterprise is net income, which is defined as gross annual income after the deduction of costs, expenses, losses and taxes. Except for certain exempt items, income from all sources is subject to corporate income tax. Article 8 of the Income Tax Act and related guidelines define the types of income that should be regarded as Taiwan-sourced.

To determine a company’s taxable income, its accounting income is adjusted by taking into account non-taxable income, non-deductible expenses and allowable provisions, and losses carried forward.

Non-Taxable Income

Corporate taxpayers in Taiwan are subject to a single assessment on all income received. Exceptions to this rule include the following income items, as detailed in the Income Tax Act and related laws:

• Proceeds from land sales;

• Income from securities and futures transactions;

• Dividends received by a Taiwan company from another local company;

Any dividends paid by such a corporate shareholder to its resident individual shareholders would, in turn, carry the underlying tax credit for corporate tax paid by its subsidiary.

For resident individual shareholders, dividend income is not subject to withholding tax. The gross dividend received is included in an individual’s taxable income, and the associated imputation tax credit (for the underlying corporate tax paid by the company distributing the dividend) can be used to offset their individual income tax liability. Any excess credit is refundable to individual shareholders.

For foreign shareholders, cash or share dividends distributed by a resident company in Taiwan are subject to 20% withholding tax if no tax treaty protection is available.

Undistributed Earnings

A 10% profit retention surtax may be imposed on any part of a resident company’s current year profit (after taxes and statutory reserves) that is not distributed as dividends in the following year. This rule also applies to the Taiwan subsidiaries of foreign companies.

The profit retention surtax paid by the company may be used by a resident individual shareholder to offset the shareholder’s tax liabilities once the company distributes dividends from the corresponding undistributed earnings in subsequent years. Please note that the credit for the profit retention surtax against the dividend withholding tax is not a dollar-to-dollar credit but calculated based on a prescribed formula.

Non-resident shareholders may credit the 10% surtax against the dividend withholding tax once the company distributes dividends from the corresponding retained earnings in subsequent years.

16

Type of Income

Resident Individuals (%)

Resident Enterprises (%)

Non-resident individuals and enterprises (%)

Dividends N/A N/A 20

Commissions 10 101 20

Rentals 10 101 20

Interest 10 10 15,202

Royalties 10 101 0,203

Technical service fees

10 N/A 3,204,5

Prizes/Awards6 10, 20 10 20

Professional Fees

10 N/A 20

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

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.

1. Commissions, rentals and royalties received by resident enterprises that issue unified invoices are exempt from withholding tax.

2. For non-resident enterprises, a 15% 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.

3. Royalties received by foreign enterprises that are specially approved in advance by the government are exempt from income tax.

4. A 3% withholding tax rule may be applicable if approved by the tax authority.

5. 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.

6. 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 non-resident individuals and enterprises. However, cash awards less than NT$2,000 from lottery tickets issued by the government are not subject to withholding tax.

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:

• 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 self- assessment 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

& 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;

18

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 Relief

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 company’s total Taiwan income tax liability. However, the credit is limited to the amount of Taiwan income tax derived from foreign source income.

Double Taxation Agreements

In addition to Taiwan’s 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 arm’s length terms. The ‘Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax on Non-Arm’s Length Transfer Pricing’ were issued in December 2004 and are in line with OECD transfer pricing guidelines.

• 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 self-assessment 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.

Country Dividends (%) Interest (%) Royalties (%)

Australia 10,151 10 12.5

Belgium 10 101 10

Denmark 10 101 10

Gambia 10 10 10

Hungary 10 10 10

Indonesia 10 10 10

Israel 10 7,102 10

Macedonia 10 10 10

Malaysia3 12.5 10 10

Netherlands 10 10 10

New Zealand 15 10 10

Paraguay 5 10 10

Senegal 10 15 12.5

Singapore4

NA 15

South Africa 5,155 10 10

Swaziland 10 10 10

Sweden 10 10 10

United Kingdom 10 10 10

Vietnam 15 10 15

Withholding Taxes Under Double Taxation Agreements

(as of 31 December 2010) Scope and Rates

Individual income tax is levied on the Taiwan-source income of both resident and non-resident individuals, unless exempt under the provisions of the Income Tax Act and other laws. Income received for services rendered in Taiwan is considered to be Taiwan-source income subject to tax regardless of whether such income is paid by a local or an offshore employer.

Starting from 1 January 2010, the alternative minimum tax, based on the Income Basic Tax Act, will apply to the overseas income of resident individuals, including qualifying expatriates.

An individual is considered resident in Taiwan for income tax purposes if:

• Domiciled or ordinarily residing in Taiwan; or

• Not domiciled but residing in Taiwan for 183 days or more in a taxable year.

Foreigners who reside in Taiwan for less than 183 days are considered non-residents, and in general, their Taiwan-source income is subject to withholding tax at source. For non-resident individuals staying in Taiwan for 90 days or less in a taxable year, there is no tax payable if their compensation is paid by an entity registered outside of Taiwan.

Personal Income Tax

1. 10% for shareholders that are companies (other than partnerships) with at least a 25% shareholding.

2. 7% of the gross amount of the interest arising in a territory and paid on any loan of whatever kind granted by a bank of the other territory.

3. 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. 5% for shareholders with at least a 10% shareholding.

22

Personal Income Tax Rates

(as of 1 January 2010)

Filing Obligations

Taiwan’s 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.

For resident individuals, a consolidated personal income tax return must be filed with respect to Taiwan-source income. Married couples must

Non-resident Resident

Length of stay Less than 183 days

183 days or more

Personal

exemption

No Yes

Deductions No Yes

Tax rates In general 15%- 20%, depending on income type

Progressive tax rates for 2010 tax year:

Net Taxable Income (NT$)

Tax Rate (%)

Progressive Difference (NT$)

0-500,000 5 0

500,001-1,130,000 12 35,000

1,130,001-2,260,000 20 125,400

2,260,001-4,230,000 30 351,400

4,230,001 or higher 40 774,400

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 spouse’s 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.

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.24

Deduction item Deduction amount Supporting documents

Single taxpayer NT$76,000 None.

Married, filing jointly NT$152,000 Copy of marriage certificate.

Standard deductions (as of 1 January 2010)

Deduction item Maximum deduction Supporting documents

Charitable donations Limited to donations to Taiwan-registered non-profit organisations and 20% of annual gross taxable income

Original receipts.

Life insurance premiums Limited to NT$24,000 for each person per year

Original receipts.

Medical and maternity expenses

No limit Original receipts issued by a qualified hospital or clinic.

Calamity losses No limit Certificate issued by local tax office.

Interest paid on loans for the purchase of an owner-occupied residence in Taiwan*

Limited to NT$300,000 for a tax filing unit

• Interest payment receipt.• Title deed.• Documents evidencing the residence

was owner-occupied in the tax year.

Rental expense for the lease of a self-use residence in Taiwan*

Limited to NT$120,000 for a tax filing unit

• Rental contract with the name of the taxpayer as lessee.

• Rental payment receipt issued by the landlord.

• Documents evidencing the residence was for self-use in the tax year.

Itemised deductions (as of 1 January 2010)

Exemption amount

Supporting documents

Taxpayer NT$82,000 None.

Spouse NT$82,000 Copy of marriage certificate.

Dependants not over 20 years of age

NT$82,000 Copy of birth certificate.

Dependants over 20 years of age and studying in an approved college or university

NT$82,000 1. Copy of birth certificate.2. Copy of tuition receipt and

valid student ID.

Dependants over 60 years of age

NT$82,000 1. Copy of the birth certificate of the taxpayer/spouse.

2. Document certifying the parent is supported by the taxpayer/spouse.

Dependants over 70 years of age

NT$123,000 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 parent’s living arrangements.

Dividends

For resident individuals, dividends received are not subject to withholding tax. The gross dividend received is included in an individual’s 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.

* 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.

26

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.

Accounting Books and Records Accounting Period

Businesses generally use the 1 January to 31 December calendar year as their accounting year, which is the same as the fiscal year for tax purposes. However, a company may, with permission, adopt a non-calendar year-end.

Bookkeeping Currency

Accounting books must be denominated in the local currency (New Taiwan dollar, NT$). If accounts are kept in a foreign currency due to business needs, such currency must be translated into the local currency in the company’s closing financial statements

Audit and Accountancy

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 company’s 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 Taiwan’s 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.

Deduction

item

Maximum

deduction

Supporting documents

Salaries and wages Limited to NT$104,000, or actual salary/wages received, per person, whichever is lower

None.

Property transaction losses

Limited to property transaction gains for the same year. Any residual balance may be carried forward for three years

• 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.

Savings and investment

Limited to NT$270,000 per tax filing unit

None.

Disability (mental or physical)

NT$104,000 per taxpayer, spouse and dependant, if handicapped

Copy of a psychiatrist’s diagnosis certificate or copy of Disability Identification.

Dependant child tuition

NT$25,000 per dependant child if studying in an approved college or university

Student certificate or tuition receipts issued by the dependant child’s college or university.

Special deductions (as of 1 January 2010)

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

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.

28

Audit requirements

Private companies are required to have their annual financial statements audited and certified by a Taiwan-licenced certified public accountant (CPA) if their paid-in capital is NT$30 million or more. Public companies and financial institutions must also have their financial statements audited and certified by a CPA, as well as meet other reporting requirements.

Public companies are required to have their annual financial statements audited and certified by a CPA within four months following the close of each fiscal year. They must also have their semi-annual financial statements audited and certified by a CPA within two months after the close of each fiscal half year. In addition, their first and third quarter financial reports must be reviewed by a CPA within one month after the end of the first and third fiscal quarters.

Taiwan’s Accounting Profession

The SFB is responsible for supervising public companies and the audit work of Taiwan-licenced CPAs, while the ARDF is responsible for formulating guidelines on accounting principles and

auditing standards. The major professional accounting bodies in Taiwan include the National Federation of Certified Public Accountants Associations, the Taipei City CPA Association, the Kaohsiung City CPA Association and the Taiwan Provincial CPA Association.

Auditor Independenceand Auditing Standards

The Ministry of Economic Affairs and the FSC have issued ‘Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants,’ which cover certain regulations on independence, reporting and disclosure requirements, suggested audit procedures, and other general requirements related to the review of internal control systems. Independent auditors must examine the financial statements in accordance with current auditing and certification rules, as well as the Statements of Auditing Standards issued by the ARDF. In general, auditing standards and procedures in Taiwan are similar to the International Standards on Auditing and US Statements on Auditing Standards.

IFRS Adoption in Taiwan

The FSC announced in May 2009 that Taiwan would fully adopt IFRS starting from 2013 in two phases:

Phase I: Listed companies and financial institutions supervised by the FSC, except for credit cooperatives, credit card companies, and insurance intermediaries, will be required to adopt IFRS starting in 2013, with 2012 IFRS comparative data. Early adoption in 2012 is optional for companies that have already issued securities overseas, or have registered an overseas securities issuancewith the FSC, or have a market capitalisation of more than NT$10 billion.

Phase 2: Unlisted public companies, credit cooperatives and credit card companies will have a two-year grace period and will not have to adopt IFRS reporting until 2015, with 2014 IFRS comparative data. Early adoption starting in 2013 is optional.

Reporting requirements for private companies, including branches and subsidiaries of foreign companies, have not yet been decided. Several options are under discussion by the FSC’s IFRS adoption taskforce, including current GAAP, IFRS for SMEs and voluntary IFRS reporting.

Worker protection policies in Taiwan, encompassing labour insurance, health insurance, pension and termination policies, are broadly similar to those found in many developed countries, if not quite as restrictive in some cases.

Labour-Related Health Insurance

Labour Insurance

The Labour Insurance Act basically requires that, for companies with five or more employees, all employees must be insured under the government-run labour insurance programme. Companies with fewer than five employees may also apply for labour insurance coverage.

There are two types of labour insurance:

1. Ordinary 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.

Human Resources and Employment Law

2. Occupational injury insurance, including work-related injury and sickness benefits, disability benefits and death benefits.

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

Taiwan’s 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.

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.

30

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 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.

2. Some mental or physical condition makes it impossible for the employee to undertake the work assigned.

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

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 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:

• 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 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.

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.

Labour Regulations

32

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 o’clock in the evening and six o’clock 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:

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

Years of Service Days Annual Leave

1-<3 7

3-<5 10

5-<10 14

Over 10 15-30*

*14 plus one day for each service year over 10 years of service; maximum of 30 days per year.

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.

36

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 spin-off 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

broader protection throughthe MOEA’s Taiwan Intellectual Property Office, which coordinates and administersTaiwan’s 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.

Trade

Banking in TaiwanOverbanked Environment

Type Features

Savings Account The initial starting point of your banking relationship. Payment and transfers – your most liquid assets.

Current Account Cheques for day-to-day payments (overdraft facility available depending on credit standing).

Time Deposits Safe return with higher interest rate. Wide range of currencies and tenors.

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 Taiwan’s 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.

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 fishermen’s 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 Taiwan’s population of 23 million. Therefore, it would not be an exaggeration to state that Taiwan’s 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:

Banking Authority

Taiwan’s 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

Taiwan’s 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.

Business and Banking

Taiwan’s 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.

38

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 HSBC’s 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.

HSBC’s 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 world’s 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.

• World’s 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.

HSBC in TaiwanOverview

Key Business Development

1984 Taipei Branch opened. Multinational Corporate Business introduced

1988 HSBC Securities Taiwan established

1989 Kaohsiung Branch opened. Credit Card Acquiring introduced

1991 Custody and Clearing introduced

1993 Local Corporate Business launched

1994 Taichung Branch opened

1995 Credit Card Issuing introduced

1996 Tainan Branch opened

1997 AssetVantage, Mortgages, and PowerVantage launched

1998 Panchiao Branch opened

1999 Taoyuan Branch opened. Insurance Brokerage launched

2000 Chienkuo Branch opened. Syndicated Loan Business introduced

2001 HSBC Asset Management (Taiwan) Limited establishedAssumed Republic National Bank of New York, later integrated with HSBC Republic. Tienmu Branch opened

2002 online@hsbc launched. HSBC Premier introduced

2003 Smart Mortgage introduced Nang Kang Central Processing Centre established

2004 Taipei Branch relocated

2005 Agreed with Global Payments Inc. to establish a joint venture Global Payments Asia Pacific. Limited Taiwan Branch

2006 Launched HSBC Direct, Taiwan’s first direct banking services

2007 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

2008 Completed the acquisition of the business and operations of The Chinese Bank. HSBC’s islandwide branch network has increased from 8 to 34.

2009 Obtained approval to set up a local subsidiary

2010 HSBC Bank (Taiwan) Limited established

– 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 long- term 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.

40

Country overview

Capital city

Area and population

Language

Currency

International dialling code

National Holidays (2011)

Business hours – general

Business hours – banking

Stock exchange

Political structure*

Taipei

Area (Taiwan and associated islands):36,191 square kilometres

Population:23.16 million (December 2010)

Official: Mandarin Chinese; Others: Taiwanese, Hakka, Austronesian languages, English

New Taiwan Dollar (NT$)

+886

Monday – Friday 9:00-18:00(Source: 2010, Tourism Bureau)

Monday – Friday 9:00-18:00(Source: 2010, Tourism Bureau)

Taiwan Stock Exchange

Multi-party democracy

January 1 Founding Day of the ROC

February 2 – 5 Chinese New Year

February 7 Chinese New Year Holiday

February 28 Peace Memorial Day

April 4 Children’s Day

April 5 Tomb Sweeping Day

June 6 Dragon Boat Festival

September 12 Mid-Autumn Festival

October 10 National Day(Source: 2010 Central Personnel Administration)

* Source: 2010, Government Information Office

42

Contacts

Richard Watanabe, Partner

General Line: +886 2 2729 6666Direct Line: +886 2 2729 6704

Email: richard.watanabe@tw.pwc.com

http://www.pwc.com/gx/en/worldwide-tax-summaries

44

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 firm’s professional judgment or bind another member firm or PwCIL in any way.