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Taiwan: Market Profile

Picture: Taiwan factsheet
Picture: Taiwan factsheet

1. Overview

Taiwan is an important market in regional and global trade and investment. It is an export-dependent economy of 23 million people with a skilled workforce. As a relatively open and liberal economy, Taiwan benefits from substantial FDI as well as the management and technical expertise that accompany it. Taiwan is also a key link in global supply chains, a central hub for shipments and trans-shipments in East Asia, and a major centre for advanced research and development (R&D). Structural impediments in Taiwan’s investment environment include: market influence exerted by domestic and government-owned enterprises in the utilities, energy, postal, transportation, financial, and real estate sectors; foreign ownership limits in sectors deemed sensitive; and regulatory scrutiny over the participation of People’s Republic of China (PRC)-sourced capital.

Source: BMI

2. Major Economic/Political Events and Upcoming Elections

November 2015
Taiwan's President Ma Ying-jeou and China's President Xi Jinping hold historic talks in Singapore, the first such meeting since 1949.

January 2016
Democratic Progressive Party candidate Tsai Ing-wen wins presidential election, takes office in May.

June 2017
Panama switches diplomatic recognition from Taiwan to China, in a major coup for the latter. Sao Tome and Principe did the same in December 2016, leaving Taiwan to enjoy full diplomatic relations with only 20 other countries.

May 2018
The Dominican Republic switches diplomatic recognition from Taiwan to China, leaving Taiwan to enjoy full diplomatic relations with only 19 countries.

November 2018
Taiwan voters are to go to the polls to choose their mayors and councillors in the ‘nine-in-one’ local elections.

Sources: BBC country profile - Timeline, BMI Political Risk Analysis

3. Major Economic Indicators

Graph: Taiwan real GDP and inflation
Graph: Taiwan real GDP and inflation
Graph: Taiwan GDP by sector (2016)
Graph: Taiwan GDP by sector (2016)
Graph: Taiwan unemployment rate
Graph: Taiwan unemployment rate
Graph: Taiwan current account balance
Graph: Taiwan current account balance

Note: f = forecast
Sources: IMF, World Bank

4. External Trade

4.1 Merchandise Trade

Graph: Taiwan merchandise trade
Graph: Taiwan merchandise trade
Graph: Taiwan major export commodities (2016)
Graph: Taiwan major export commodities (2016)
Graph: Taiwan major export markets (2016)
Graph: Taiwan major export markets (2016)
Graph: Taiwan major import commodities (2016)
Graph: Taiwan major import commodities (2016)
Graph: Taiwan major import markets (2016)
Graph: Taiwan major import markets (2016)

Sources: Trademap, ITC

4.2 Trade in Services

Graph: Taiwan trade in services
Graph: Taiwan trade in services

5. Trade Policies

  • Taiwan joined the WTO on January 1, 2002. Taiwan became a member of the Asia Pacific Economic Cooperation (APEC) in November 1991, and joined the Central American Bank for Economic Integration in 1992. Taiwan is also a member of the Asian Development Bank (ADB), the Pacific Economic Cooperation Council (PECC), and the Pacific Basin Economic Council (PBEC). Taiwan is also an observer at the Organisation for Economic Co-operation and Development (OECD) under the name of "Chinese Taipei", and a member of International Chamber of Commerce as "Chinese Taipei".

  • Taiwan signed Economic Cooperation Framework Agreement with People's Republic of China on 29 June 2010. Taiwan also signed free trade pact with Singapore and New Zealand. Taiwan is seeking to join the Comprehensive and Progressive Trans-Pacific Partnership no later than 2020 if economic requirements are met.

  • The economy of Taiwan also applied for the membership in the Asian Infrastructure Investment Bank in 2015. Taiwan's top five trade partners in 2017 were China, the ASEAN, the United States, Japan and Hong Kong.

  • The Economic Cooperation Framework Agreement (ECFA), a preferential trade agreement between China and Taiwan, aims to reduce tariffs and commercial barriers between the two parts; however, it has been the cause of significant controversy in the past few years. The ECFA neither accords the same rights as a Free Trade Agreement, which will reduce manufacturing jobs and average salary, nor accelerates capital outflow and brain drain of management and technology expertise. The opponents of the ECFA also indicate concerns about allowing the influx of mainland Chinese professionals to work in Taiwan.

  • Taiwan is not a part of any regional customs union, but it is a member of the World Trade Organisation (WTO) under the name ‘Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei)’.

  • Taiwan currently has active FTAs with seven nations, including Paraguay, Dominican Republic and Singapore.

  • As a major exporter of industrial products and one of the world's top importers, Taiwan has not imposed a significant number of trade barriers, allowing foreign products to compete with local ones on the domestic market. However, certain barriers remain in industries such as services, retail, cosmetics and medical devices in the form of lengthy, costly and non-transparent regulatory approval processes.

  • Furthermore, schools and colleges in Taiwan have been instructed to favour local products and domestic labour in construction projects. The measure affects all foreign industries wishing to conduct business with the education sector in Taiwan.

  • There are also a number of anti-dumping duties on basic metal products from trading partners such as China, South Korea and Brazil and on certain footwear, textiles, chemicals and cement imports from China. Safeguard measures are also in place for certain meats, such as chicken. Nevertheless, Taiwan continues to make improvements to its tariff structure on raw materials and finished products.

  • The average tariff rate for imported goods was 1.9% in 2016, but remained higher for certain goods such as industrial products (4.2%) and agricultural goods (14.7%).

Source: WTO - Trade Policy Review

6. Trade Agreements

6.1 Multinational Trade Agreements

Active

  1. Taiwan signed a free trade agreement (FTA) with Panama in August 2003.

  2. Taiwan signed a free trade agreement (FTA) with Republic of Guatemala in July 2005.

  3. Taiwan signed a free trade agreement (FTA) with Nicaragua in June 2006.

  4. Taiwan signed a free trade agreement (FTA) with the Republic of El Salvador and Republic of Honduras in May 2007.

  5. Taiwan signed a FTA with New Zealand in July 2013. The deal envisages removing all trade barriers between the two economies by 2025.

  6. Taiwan signed the Agreement between Singapore and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu on Economic Partnership (ASTEP) in November 2013.

  7. In addition, Taiwan inked the Cross-Straits Economic Cooperation Framework Agreement (ECFA) with China in June 2010. This reduces tariffs and commercial barriers.

Under negotiation

Taiwan is also working on joining the Regional Comprehensive Economic Partnership (RCEP), which is a proposed free trade agreement (FTA) between the 10 member states of the Association of South East Asian Nations (ASEAN) (Brunei, Myanmar, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam) and the six states with which ASEAN has existing FTAs (Australia, China, India, Japan, South Korea, and New Zealand).

RCEP will cover trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement and other issues.

Source: WTO Regional Trade Agreements database

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Taiwan FDI stock
Graph: Taiwan FDI stock
Graph: Taiwan FDI flow
Graph: Taiwan FDI flow

7.2 Foreign Direct Investment Policy

  1. Taiwan welcomes and actively courts foreign direct investment (FDI) and partnerships with foreign firms. President Tsai Ing-wen, who was elected in January 2016 and assumed office in May that year, launched an initiative to promote economic growth by increasing domestic investment and FDI.

    The government’s effort aims to leverage Taiwan’s strengths in high-technology, manufacturing, and R&D with a focus on targeted sectors, including smart machinery, defence and aerospace, green energy, biotechnology and biopharmaceuticals, and the Internet of Things (IoT). Plans for expanded investment by the central authorities in physical and digital infrastructure across Taiwan complement this investment promotion strategy.

  2. Taiwan and the Chinese mainland entered into the ECFA on 29 June 2010. According to the Early Harvest List of ECFA, both parties have eliminated import tariffs on a number of products as of 1 January 2013. The mainland has also opened up 11 sectors to Taiwanese service providers, and Taiwan has reciprocated by opening nine, covering both financial and non-financial services, to mainland service providers.

  3. Taiwan and the Chinese mainland signed the Cross-Straits Agreement on Trade in Services on 21 June 2013, under which the mainland pledged to further open up 80 categories of services to Taiwanese service providers - e-commerce, securities brokerage, banking, insurance, culture and creativity, transportation, and technical certification and analysis. In return, Taiwan committed to further opening up 64 service sectors, including securities brokerage, banking, insurance, tourism, medical services, and technical certification and analysis, to mainland service providers. The two parties are currently going through the ratification procedures related to the agreement.

  4. Taiwan is open to foreign investment and has relatively few restrictions for investors. Indeed, there are a number of highly favourable trade and investment opportunities, including science-based industrial parks, export processing zones and free-trade zones. Manufacturing firms located in export-processing zones and science-based industrial parks are required to export all of their output in order to obtain tariff-free treatment of production inputs. However, these firms may sell their products in the domestic market upon payment of relevant import duties.

  5. Taiwan's many science and industrial parks, export processing zones and free trade zones aim to expand trade and investment opportunities by granting tax incentives, tariff exemptions, low-interest loans and other favourable terms. According to the World Economic Forum's Global Competitiveness report, the territory ranks among the best in the world in terms of its industrial cluster development.

  6. Taiwan currently has seven free trade zones, based in Keelung, Kaohsiung, Taichung, Taipei, Taoyuan, Anping and Suao. Foreign investors located in these areas are accorded national treatment. The zones are designed to develop forward-looking, high-end industrial activities through the loosening of restrictions on the flow of people, goods and capital. The first stage of development encompasses intelligent logistics, international medical care, value-added agriculture and industrial cooperation. It is hoped that the simplification of the customs system in the zones will encourage the development of industrial testing, verification, maintenance and other services. According to the Ministry of Economic Affairs (MOEA), goods commissioned for testing by foreign companies will be able to be shipped into one of the zones and then, after testing is completed, shipped back to the commissioning companies without the need for further reporting, allowing greater convenience for testing firms. In the future, there are plans to introduce a single window system to boost the efficiency of Free Economic Pilot Zones (FEPZ) administration and promote investment in the zones by integrating existing resources. This will help firms with the required procedures and greatly shorten the administrative process for building permits, company registration, environment protection, utilities and land, thereby making it easier to do business in the zones.

  7. Under Taiwan’s Regulations Governing the Approval of Investment or Technical Co-operation in Mainland China, business investment and technical co-operation undertaken in the mainland by Taiwanese companies is subject to the approval of Taiwan’s Investment Commission. Taiwan has also been gradually relaxing its restrictions on mainland investment, including such hi-tech projects as the production of semiconductors and wafer fabrication, as well as any investment under USD200,000. Since the beginning of 2010, it has also lifted technical restrictions on investing in the production of TFT-LCD panels on the mainland and allowed mergers and acquisitions or equity investment of TFT-LCD panel factories.

  8. For security and environmental protection reasons, Taiwan maintains a list of industries closed to foreign investment. These include public utilities, air and sea transportation, power distribution, natural gas, postal services, telecommunications and mass media. Investors in wireless and fixed-line telecommunications firms should be aware that they are subject to foreign ownership limits of 60%, which includes a direct foreign investment limit of 49%. There is also a 20% limit on FDI in cable television broadcast services, a 49.9% cap for satellite television services, piped distribution of natural gas and high-speed railways. These caps represent a significant deterrent to investors, reducing Taiwan's international competitiveness in these industries. On the contrary, industries open to foreign investment in Taiwan include small trucks, pesticide manufacturing, real estate development, brokerage and leasing.

  9. MOEA Investment Commission screens applications for investment, acquisition and mergers. Roughly 95% of projects that are not closed to investment obtain approval within three working days, while those with an investment value of less than TWD500mn (USD16.5mn) are generally granted within two working days. Approval of investments above TWD1bn or in a restricted industry requires three weeks, as these investments must be referred to the relevant supervisory ministries and require approval of the Investment Commission Chairman or Executive Secretary. Investments involving mergers and acquisitions are screened at the monthly meeting of an inter-ministerial commission. In an attempt to address increasing concerns over the potential risks of more opening to mainland Chinese investment, the National Security Bureau now takes part in every review meeting for foreign investment applications, regardless of the nature or size of the investment.

  10. Government-owned enterprises - Taiwan is experiencing stalled progress on the privatization of its government-owned enterprises, which presents structural challenges to its investment environment. Nevertheless, improvements are continuing to be made, and foreign businesses may invest in government-owned enterprises undergoing privatization and are allowed to participate in publicly financed research and development programmes.

Sources: WTO - Trade Policy Review, The International Trade Administration (ITA), U.S. Department of Commerce

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Taiwan currently has seven free trade zones, based in Keelung, Kaohsiung, Taichung, Taipei, Taoyuan, Anping and Suao- Key benefits: Foreign investors treated as nationals

- Loosening of restrictions on the flow of people, goods, and capital through the simplification of customs system

- Encourages the development of industrial testing in logistics, medical care, agriculture and industry

8. Taxation – 2017

  • Value Added Tax: 5%
  • Corporate Income Tax: 20%

Source: PwC Taxes at a Glance 2017

8.1 Business Taxes

Type of TaxTax Rate and Base
Corporate Income Tax20% on profits
Capital Gains Tax20%
Withholding Tax, Dividend21% paid to non-resident corporations and individuals; 0% paid to residents
Withholding Tax, Interest10% paid to resident corporations and individuals; 15-20% paid to non-resident corporations and individuals
Withholding Tax, Royalties10% paid to resident corporations and individuals; 20% paid to non-resident corporations and individuals
VAT5% on sales and services
Business Tax for Financial Industry0.1% - 25%
Land Value Increment Tax20% - 40%

9. Foreign Worker Requirements

9.1 Foreign Worker Restrictions

A more open migrant policy will be necessary in order to somewhat offset the shrinking domestic labour force and tightening labour market. At present, a number of restrictions on migrant workers remain in place, and while many are being relaxed, reform is only underway on a gradual basis. One of the key restrictions on migrant workers is the limit on their permitted stay in Taiwan, which currently stands at 12 years. This prevents the full integration of migrant workers into the labour force and does not allow them to replenish the territory's declining population on a long-term basis. In addition, foreign workers are required to renew their permits every three years, adding substantial costs and difficulties for low-wage migrants who must make a round-trip back to their home country.

9.2 Local Worker Requirements

There are also a number of restrictions placed on businesses seeking to hire migrant labour. The total workforce of a company may only comprise 40% of foreign workers, and manufacturing firms must hire five local workers for each foreign worker employed. In order to employ more highly skilled or management-level personnel, both the worker and the business must satisfy conditions set by the government. The expatriate must hold an advanced-level qualification such as a PhD or master's degree or a significant level of vocational experience in a relevant field. Businesses must meet one of a number of targets in order to employ such foreign workers, including sales volumes of over TWD10mn, import and export volume of over USD1mn, or paid-in capital of TWD5mn in a new company or foreign branch.

9.3 Work Permits

Employers who wish to import foreign workers are required to first apply for a work permit with the Council of Labour Affairs (applications must be submitted in Chinese). Reviewing the work permit application alone takes two weeks, and once approved the work permit is sent to the employer. Only then can the prospective employee apply for a visa. This can amount to a lengthy process, and together with the VISA processing fee of USD164, this represents a bureaucratic and financial burden on foreign businesses. Foreign workers planning on relocating to Taiwan for up to three years without re-application can apply for an Alien Resident Certificate (ARC), which permits multiple entry and re-entry. Spouses and dependents can apply for an accompanying ARC with appropriate proof of their relationship to the main applicant. These restrictive measures make it more difficult for business to fill positions in which there is a skills mismatch with the local workforce, or which require specific expertise or managerial experience.

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody'sAa3 (Stable)17/11/2016
Standard & Poor'sAA- (Stable)21/04/2017
FitchAA- (Stable)11/10/2017

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
10/18911/19015/190
Ease of Paying Taxes Index
39/18940/19056/190
Logistics Performance Index
25/160N/AN/A
Corruption Perception Index
31/17629/180N/A
IMD World Competitiveness14/6114/63N/A

Sources: World Bank, IMD, Transparency International

10.3 BMI Risk Indices


World ranking
201620172018
Economic Risk Index Rank
6/202
Short-Term Economic Risk Score74.677.376.9
Long-Term Economic Risk Score73.475.175.1
Political Risk Index Rank43/202
Short-Term Political Risk Score77.979.680.6
Long-Term Political Risk Score73.276.377.8
Operational Risk Index Rank  13/201
Operational Risk Score72.774.574.8

Source: BMI Research

10.4 BMI Political and Economic Risk Indices

BMI Risk Summary - Q2 2018

POLITICAL RISK
Taiwan's short-term political risk score reflects the territory's relative social stability. The main drags on the score come from the 'policy-making' sub-categories, which is weighed down due to the still relatively untested nature of the government that was elected for the first time in 2016. Meanwhile, Taiwan's long-term political risk score is weighed on by a low score in the 'scope of state' component, which in turn is a function of factors such as comparatively low government spending relative to GDP.

ECONOMIC RISK
Taiwan's key strengths stem from the territory’s external position that is underpinned by considerable trade openness and its competitive financial sector profile, with the former buttressed by the territory's accumulation of a sizeable foreign exchange reserve buffer. Nevertheless due to a number of structural shortcomings such as a fairly high dependence on exports from a single sector (electronics), while central strengths stem from structurally low inflation and very robust external accounts. Should we see a re-emergence of a crisis in the Eurozone, a slower than expected US recovery or a downward spiral in China's economy, we can expect Taiwan to head into a sharp recession.

OPERATIONAL RISK
Taiwan's attractive operating environment presents few risks to incoming businesses. Among the limited concerns to investors are the cooling cross-Strait relations amid DPP rule, which raises political uncertainties in the medium term. This dynamic also contributes to the most pertinent security risk to businesses, which is the threat of cyber-attacks. In addition, high labour costs and a heavily government-owned banking system reduce Taiwan's international competitiveness and drive up operational costs. Nevertheless, the territory performs well in a number of other areas, most notably its highly developed logistics network and open economy, with relatively low tax rates and minimal red tape. These factors largely outweigh the risks posed to business activity.

Graph: Taiwan short term political risk index
Graph: Taiwan short term political risk index
Graph: Taiwan long term political risk index
Graph: Taiwan long term political risk index
Graph: Taiwan short term economic risk index
Graph: Taiwan short term economic risk index
Graph: Taiwan long term economic risk index
Graph: Taiwan long term economic risk index

Note: Higher score = Lower risk
Sources: BMI Economic, Political Risk Indices, BMI Country Risk summaries

10.5 BMI Operational Risk Index


Operational RiskLabour Market RiskLogistics RiskTrade and Investment RiskCrime and Security Risk
Taiwan Score74.866.477.974.380.7
East and Southeast Asia Average55.456.554.455.754.7
East and Southeast Asia Position (Out of 18)33
233
Asia Average48.950.647.147.750.0
Asia Position (Out of 35)33
233
Global Average49.849.849.350.049.9
Global Position (Out of 201)1315
16
1624

Note: 100 = Lowest risk, 0 = Highest risk
Source: BMI Operational Risk Index

Graph: Taiwan vs global and regional averages
Graph: Taiwan vs global and regional averages
Country/TerritoryOperational Risk Index
Labour Market Risk IndexLogistics Risk IndexTrade and Investment Risk IndexCrime and Security Risk Index
Brunei Darussalam60.262.853.057.267.7
Cambodia42.646.737.946.040.0
China56.653.965.852.254.3
Hong Kong81.271.275.988.589.0
Indonesia52.751.557.653.947.8
Laos39.244.236.038.038.3
Macau62.264.250.566.967.3
Malaysia68.361.675.473.562.5
Mongolia51.557.841.952.453.7
Myanmar32.145.529.528.225.4
North Korea32.749.629.620.331.2
Philippines44.151.344.647.333.4
Singapore82.977.874.789.989.3
South Korea70.363.578.167.572.0
Taiwan74.866.477.974.380.7
Thailand59.156.768.265.246.2
Timor-Leste32.240.528.026.633.8
Vietnam53.752.654.555.552.1
Regional Averages55.456.554.455.754.7
Emerging Markets Averages46.848.045.847.546.1
Global Markets Averages49.849.849.350.049.9

Note: Higher score = Lower risk
Source: BMI Operational Risk Index

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Taiwan

Graph: Major export commodities to Taiwan (2017)
Graph: Major export commodities to Taiwan (2017)
Graph: Major import commodities from Taiwan (2017)
Graph: Major import commodities from Taiwan (2017)
Graph: Merchandise exports to Taiwan
Graph: Merchandise exports to Taiwan
Graph: Merchandise imports from Taiwan
Graph: Merchandise imports from Taiwan

Source: Trade map/UNCTAD


2017
Growth rate (%)
Number of Taiwanese residents visiting Hong Kong2,010,755-0.03

Source: Hong Kong Tourism Board

11.2 Commercial Presence in Hong Kong


2017
Growth rate y-o-y (%)
Number of Taiwanese companies in Hong Kong381-1.55
- Regional headquarters19-24
- Regional offices109-5.2
- Local offices2537.1

Source: Hong Kong Census & Statistics Department

11.3 Treaties and Agreements between Taiwan and the Chinese mainland

Taiwan and the Chinese mainland entered into the Economic Co-operation Framework Agreement (ECFA) on 29 June 2010, with the treaty officially coming into effect on 12 September 2010. The ECFA included an Early Harvest List for trade in goods across the Strait. The mainland promised to reduce / exempt import tariffs on 539 Taiwan-origin products (according to 2009 tariff codes), including petrochemicals, machinery, textiles, transportation vehicles and parts, and agricultural produce. Reciprocally, Taiwan undertook to reduce / exempt import tariffs on 267 mainland products (according to 2009 tariff codes), including petrochemicals, machinery, textiles, transportation vehicles and parts. The related import tariffs have been lowered since 1 January 2011 and were eliminated completely by 1 January 2013.

Taiwan and the Chinese mainland also signed the Cross-Straits Agreement on Avoidance of Double Taxation and Enhancement of Tax Co-operation in August 2015, which provides Taiwan and mainland enterprises with preferential tax reductions or exemption measures and a mechanism for dispute resolution in order to resolve the problem of double taxation for people and enterprises on both sides. The tax exemptions cover such areas as business profits, sea and air transportation and investment. The two sides are in the process of ratifying the relevant procedures of the agreement.

11.4 Commercial and Economic Section in Hong Kong

Taipei Economic and Cultural Office (Hong Kong)
Address: 40/F., Tower One Lippo Centre, 89 Queensway, Hong Kong
Website: www.teco-hk.org
Email: service@teco.org.hk
Tel: (852) 2525 8642

11.5 Visa Requirements for Hong Kong Residents

Starting from 1 July 2017, single-entry visa for Hong Kong residents and tourist visa for Mainland nationals residing in Hong Kong must be applied online. Submission to the office will no longer be accepted. Please upload the photo and required documents when filling in the online application form. Provided that the documents required are complete, it usually takes five working days to process the application. Please pay the fee online with credit card and print the visa.

Source: Visa on Demand

Content provided by Picture: BMI Research
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