Corporate Treasury & Cash Management in Taiwan
Corporate Treasury & Cash Management in Taiwan
Taiwan is the 20th largest economy in the world and the 15th largest trading entity. The market is one of the economic powerhouses in Asia, with China as its major trading partner.
Taiwan has high domestic purchasing power and its emphasis on technology has made it an extremely attractive destination for foreign direct investment (FDI).
The Taiwanese government has established several science parks with low rents and high tax incentives to attract investment. The existence of government grants, some of which are offered to foreign investors, has transformed Taiwan into a regional economic hub with a small-to-medium sized enterprise-friendly environment.
Corporate Treasury in Taiwan
Financial Market Development
- Taipei is ranked 40th in the world in the 2021 Global Financial Centres Index by Z/Yen Partners, two places higher than in 2020.
- It is ranked 15th in the World Bank’s 2020 Ease of Doing Business Index.
- Taiwan has an excellent business infrastructure, an educated workforce, and a sound legal environment.
Sophistication of Banking Systems
- Taiwan has 37 domestic commercial banks. Regulation has been amended to encourage consolidation, as well as to reduce the cost of mergers. In addition, more than 25 foreign banks also have branches in the market.
- Taiwan's bond market fluctuates between being the second and third largest in Asia, but its trading volumes are small. Both government and corporate bonds are available, as well as Formosa bonds, which are bonds issued in Taiwan but denominated in a currency other than the New Taiwan dollar (TWD).
- The government has increased the list of issuers that can sell Formosa bonds without prior approval to include all lenders listed on bourses belonging to the World Federation of Exchanges, although it has limited the amount insurers can invest in the bonds.
- The banking industry is regulated by the Banking Bureau, which is part of the Financial Supervisory Commission (FSC). Regulations are in line with international standards.
- Foreign-exchange transactions are administered by the Central Bank of the Republic of China (CBC).
- The corporate income tax rate is 20% for taxable income in excess of TWD120,000. The first TWD120,000 is exempt. A 5% profit retention tax is charged to resident companies on undistributed profits. Taiwan branches of foreign companies are exempt from this tax.
- Resident companies are taxed on worldwide income. Non-resident companies are taxed on income from Taiwan sources.
- The Taiwan branch of a foreign company may remit after-tax profits to its head office without paying further tax. Non-resident companies without a fixed place of business in Taiwan are subject to withholding tax on Taiwan-sourced income.
- The Value Added Tax (VAT) rate is 5% for general industries. Financial institutions, special vendors of beverages and food, and small-scale businesses are subject to gross business receipts tax (GBRT), and GBRT is between 0.1% and 25% depending on the type of company.
- There is a securities transaction tax (STT) of 0.3% on gross proceeds from the sale of domestic shares. Trading in corporate bonds and financial bonds issued by Taiwan companies is temporarily exempt from STT.
- Stamp taxes of between 0.1% and 0.4% are paid on a range of documents, including monetary receipts and contractual work agreements.
- Interest on loans that are used for business purposes is generally tax deductible in the year incurred, although excessive interest expenses from related party financing will not be tax deductible. Generally, if the debt-to-equity ratio exceeds 3:1, the excess portion will not be tax deductible unless contemporaneous transfer pricing documentation demonstrates the arm’s length nature of interest expenses.
- Dividends received from foreign subsidiaries are taxable. Credits are given for withholding tax paid offshore if a tax treaty signed by Taiwan permits.
- Tax credits of 10% or 15% are available on qualifying R&D expenses depending on certain conditions being met.
- Foreign companies performing certain activities in free-trade-zones are exempt from corporate income tax on certain income.
- A withholding tax of 10%, 15% or 20% is charged on interest received on commercial paper and certain other interest-bearing financial instruments, unless it is reduced by a tax treaty, with treaty rates ranging from 0% to 15%. Withholding tax on dividends is 21% if no treaty is in place and ranges from 5% to 15% where one is in place.
- Taiwan has tax treaties with more than 30 countries and territories.
Benefits for Local Treasury
- Taiwan has one of the lowest corporate income tax rates in Asia.
- Taiwan is one of the offshore renminbi clearing centres, given its proximity and large volumes of trade with China.
- Formosa bonds, bonds that are issued in Taiwan in a currency other than the New Taiwan dollar, can be issued by the Taiwanese branches of overseas companies.
- Domestic notional pooling is permitted, but cross-border notional pooling is not.
- Domestic and Cross-border cash concentration are permitted; but the sweeping amount is limited under The Company Act if it is based on an intercompany loan.
- Residents: Onshore companies may hold foreign exchange (freely convertible) and domestic currency accounts while offshore units are allowed to hold foreign currency accounts.
- Non-residents: May hold foreign exchange (freely convertible) accounts, but they are not permitted to have a TWD account, either demand or cheque account.
- Interest: Residents are subject to a refundable 10% withholding tax on TWD demand and time deposit accounts. Non-residents are subject to a non-refundable 20% withholding tax on domestic currency, demand and time deposit accounts.
Legal and Regulatory
- A company is resident if it is registered in Taiwan.
- In order to borrow from overseas, foreign-owned companies must gain approval from the Foreign Exchange Department of the central bank and the Investment Commission of the Ministry of Economic Affairs (MOEA).
- There are strict foreign exchange controls in Taiwan. A declaration statement must be submitted to the bank for all foreign exchange transactions involving TWD for amounts over TWD500,000, and accompanied with qualifying documentation for currency conversions involving TWD for amounts over USD1 million.
- There are no foreign-exchange controls in Taiwan on the conversion of currency for trade-related transactions, but some controls remain for the conversion of currency for non-trade-related transactions. Foreign-exchange transactions are administered by the CBC.
- To settle foreign exchange against TWD involving remittances for transactions conducted within the territory of Taiwan for goods or services located outside the territory, the following items are required: a declaration statement and relevant contracts/letter of approval.
(CBC Interbank Funds Transfer System)
|Taiwan’s Real-time Gross Settlement (RTGS) system|| |
(Financial Information Services Company)
|Multi-purpose electronic funds transfer system with several subsystems (see below):|| |
(Interbank Remittance System)
Credit Card and Shared ATM System
Bulk Payments System
(Financial Electronic Data Interchange)
Internet Banking System
Mobile Banking System
(Taiwan Clearing House)
|Paper-based and cheque clearing system|| |
(Automated Clearing House)
(Enhanced Automated Clearing House)
- Credit transfers can be done online and by phone.
- High-value and urgent interbank transfers are processed through CIFS within the same day.
- Low-value, non-urgent and high-volume credit transfers are processed through FISC (same day) and ACH systems (next day). These transactions include payroll, supplier and third-party payments.
- Some domestic Taiwan payments require traditional Chinese characters for some of the payment fields. This can create challenges for legacy enterprise resource planning (ERP) systems as well as for non-Chinese speaking staff.
- Recently, credit transfers have accounted for 88.1% and 9.4% of the value and number of all non-cash payments, respectively.
Direct Debits (auto debits)
- This mode of payment is used for low-value, regular payments such as utility bills.
- Direct debits are processed through FISC's Bulk Payment System (same day) or ACH (two working days).
- Direct debits accounted for 1.7% and 1.8% of the value and number of all non-cash payments in recent years, respectively.
- Credit, debit and stored-value cards are all in wide use in Taiwan, although mobile payments are increasing at a faster rate.
- Point-of-sale (POS) transactions are supported by the growing adoption of contactless payment facilities (accounting for 55% of all retail transactions), particularly on public transport and with large retailers.
- Visa, MasterCard and UnionPay are the main payment cards, with all cards being Europay, MasterCard and Visa (EMV)-compliant and are processed through FISC.
- Taiwan’s main prepaid, top-up payment card—the ubiquitous EasyCard—is now compatible with iPass and is used widely for transportation and retail shopping.
- The government is aiming to be a cashless society by 2025 and is providing the regulatory and technological environment as well as financial incentives to make this happen.
- There is a thriving e-commerce market in Taiwan with local and overseas online retailers. The most popular sites are Taobao/Tmall, Rakuten and Amazon.
- The TWD1.1 trillion e-commerce market is set to grow at a compound annual growth rate (CAGR) of 9.0% to a value of TWD1.5 trillion by 2024.
- Mobile payments have surged in Taiwan, driven by several factors: convenience, greater service availability, retail promotions, and the pandemic-related focus on contactless payments.
- Competition is fierce in the digital wallet ecosphere. LINE Pay is the current market leader, with Apple Pay and homegrown Jkopay not far behind.
- According to the Financial Regulatory Commission, the government has adopted a ‘neutral’ stance on cryptocurrency and continues to explore guidelines for the sector. Certain uses of cryptocurrency, such as trading, are not expressly illegal.
Cash, Cheques and Money Orders
- Cash has dropped in popularity, but still accounts for approximately one-third of low-value commercial and retail transactions.
- Cheques are a common form of cashless commercial payment, especially post-dated cheques, but usage is on the decline as credit transfers gain in popularity.
- Cheques are truncated before being processed through TCH.
- Paper cheques can take seven days to clear and foreign cheques up to 14 days, with final settlement being done through CIFS.
- Money orders are available in Taiwan through vendors such as Chunghwa Post, Western Union and MoneyGram. Money can be received or sent domestically or internationally, either online or in person.
Foreign Exchange (FX)
Taiwan is an offshore renminbi clearing centre. It has liberalised many of its foreign exchange controls, although some restrictions remain in place.
- The official currency of Taiwan is the new Taiwan dollar (TWD). It is convertible domestically, but foreign exchange controls are in place for offshore transactions.
- Taiwan monetary policy is set and managed by the Central Bank of the Republic of China (CBC), which also sets interest rates.
- The exchange rate of the TWD is determined by market forces of supply and demand, however, the CBC will intervene to maintain an orderly market during periods of excessive volatility.
- Total net foreign-exchange trading volumes amounted to USD663.3 billion in April 2021, with an average daily turnover of USD34.9 billion.
- Taiwan has the fourth highest level of foreign exchange reserves in the world.
- Resident companies can have onshore accounts denominated in TWD and a range of foreign currencies. Onshore foreign currency accounts are freely convertible and offshore units are allowed to hold foreign currency accounts.
- Non-resident companies may hold onshore foreign currency accounts, but they are not permitted to open a TWD cheque account.
- Resident companies can borrow in both TWD and foreign currencies. Non-resident companies must gain approval from the Foreign Exchange Department of the central bank and the Investment Commission of the Ministry of Economic Affairs (MOEA) to borrow from overseas.
- A number of products to help companies manage FX risk are available in Taiwan, including FX options, FX spot and FX forward, non-deliverable forward, and cross currency swap.
- There are no limitations on inward and outward remittances not involving exchange between New Taiwan dollars and foreign currency.
- Inward and outward remittances relating to foreign trade in goods, services, and direct investment and portfolio investments approved by the relevant authorities are also completely liberalised.
- Remittances involving exchange between TWD and foreign currency are subject to a USD50 million annual ceiling for companies, with prior CBC approval required for sums above this amount.
- A single remittance by a non-resident not exceeding USD100,000 may proceed directly through authorised banks. Amounts above this level require prior approval by the CBC.
- Foreign transactions involving TWD where the amount exceeds TWD500,000 must be reported. Foreign currency invoices are allowed but information on the exchange rate must be included.
Taiwan has an export-orientated economy. Its largest trading partners are China, the US, and Hong Kong, in terms of exports measured in US dollars.
- Taiwan joined the World Trade Organisation in 2002 under the name Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei).
- Taiwan and China signed the Economic Cooperation Framework Agreement (ECFA) in 2010, which has enabled Taiwan to export more than 500 products to China with virtually no tariffs.
- Taiwan has seven free trade zones, consisting of six seaports and one airport, which offer preferential tax rates compared with those outside of the free trade zones, such as the exemption from corporate income tax on the sale of goods if certain conditions are met, and exemptions from import and export regulations, customs requirements and other restrictions.
- Taiwan has a number of trade/business organisations, such as the Importers and Exporters Association of Taipei, which act as a bridge between the government and industry and offer market insights.
- Taiwan has anti-money laundering and combating the financing of terrorism laws in place. It also complies with United Nations sanctions against countries, such as North Korea.
- Import permits and licences are generally not required. However, a number of products are on the ‘negative list’, meaning restrictions apply and a permit or licence may be needed. Items on the negative list include those with national defence, social stability, cultural protection, and environmental and ecological implications.
- Taiwan charges customs duties according to the Harmonized Commodity Description and Coding System of the Customs Cooperation Council.
- A commodity tax of between 8% and 30% is also levied on the import of certain commodities, such as rubber tyres, cement, oil and gas, and vehicles.
- A number of different import financing solutions are available, with options including letters of credit, inward bill collections, accounts receivables and import factoring.
- Trade credit insurance is available from a number of international and local insurance companies.
- Export licences are not required for the majority of goods. Goods that may require an export licence include strategic high-tech items, and dual-use items and military goods.
- Goods supplied for export are zero-rated for VAT.
- There is a total ban on exports to North Korea, and separate lists of sensitive commodities for Iran, Iraq, Sudan and Syria. There are also restrictions on certain products being exported to China.
- Export credit and a range of export finance solutions are available in Taiwan, including letters of credit, export documentary collections, account receivables and export factoring.
For more information, login to Treasury Prism for contextual insights on market regulations that are relevant to your cash management structure.
Sources (Intro & Corporate Treasury)
World Economic Forum, IMF, UNCTAD, Financial Supervisory Commission, Central Bank of the Republic of China, PwC, KPMG, World Bank, CIA World Factbook, Trading Economies, the Government of the Republic of China, Statista
Sources (Banking & Payments)
Financial Supervisory Commission, Banking Bureau, Central Bank of the Republic of China (Taiwan), Taipei Times, Taiwan News, GlobalData, Kapronasia
Sources (Foreign Exchange)
Central Bank of the Republic of China, Bank for International Settlements, PwC, Trading Economics
Ministry of Economic Affairs, Taiwan International Ports Corporation, WTO, PwC