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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 foreign direct investment (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).

Sources: World Bank, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

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

January 2016
Democratic Progressive Party candidate Tsai Ing-wen won presidential election, and was set to take office in May 2016.

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

Sources: BBC Country Profile – Timeline

3. Major Economic Indicators

Graph: Taiwan real GDP and inflation
Graph: Taiwan real GDP and inflation
Graph: Taiwan GDP by sector (2018)
Graph: Taiwan GDP by sector (2018)
Graph: Taiwan unemployment rate
Graph: Taiwan unemployment rate
Graph: Taiwan current account balance
Graph: Taiwan current account balance

f = forecast
Sources: IMF, National Statistics, R.O.C. (Taiwan)
Date last reviewed: February 27, 2019

4. External Trade

4.1 Merchandise Trade

Graph: Taiwan merchandise trade
Graph: Taiwan merchandise trade

Source: CPT Single Window Taiwan
Date last reviewed: February 27, 2019

Graph: Taiwan major export commodities (2017)
Graph: Taiwan major export commodities (2017)
Graph: Taiwan major export markets (2017)
Graph: Taiwan major export markets (2017)
Graph: Taiwan major import commodities (2017)
Graph: Taiwan major import commodities (2017)
Graph: Taiwan major import markets (2017)
Graph: Taiwan major import markets (2017)

Sources: Trade Map, Fitch Solutions
Date last reviewed: November 11, 2018

4.2 Trade in Services

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

Sources: WTO, Fitch Solutions
Date last reviewed: November 11, 2018

5. Trade Policies

  • Taiwan joined the World Trade Organisation (WTO) on January 1, 2002 and is the world's 18th largest trading entity (according to the WTO). Taiwan also 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 an Economic Cooperation Framework Agreement (ECFA) with the mainland China on June 29, 2010. Taiwan also signed a 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.

  • Taiwan applied for the membership of the Asian Infrastructure Investment Bank in 2015.

  • The ECFA, a preferential trade agreement between mainland China and Taiwan, aims to reduce tariffs and commercial barriers between the two parties. The ECFA neither accords the same rights as a Free Trade Agreement (FTA), which would reduce manufacturing jobs and average salary, nor accelerates capital outflow and brain drain of management and technology expertise. The ECFA also allows the inflow of mainland China professionals to work in Taiwan with less red-tape.

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

  • Taiwan currently has active FTAs with seven nations: Panama, Republic of Guatemala, Republic of Nicaragua, Republic of El Salvador, Republic of Honduras, New Zealand 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 services, retail, cosmetics and medical devices in the form of lengthy, costly and non-transparent regulatory approval processes.

  • Schools and colleges in Taiwan have been instructed to favour local products and domestic labour in construction projects. The measure impacts 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 mainland China, South Korea and Brazil, and on certain footwear, textiles, chemicals and cement imports from mainland 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.

  • Taiwan uses the Customs Cooperation Council Nomenclature (CCCN) to classify goods and set duty rates. The customs duty is payable by the consignee or the holder of the bill of lading for imported goods, and is based on the dutiable value or the volume of goods imported.

  • 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%).

6. Trade Agreements

6.1 Multinational Trade Agreements

Active

  1. Taiwan-Panama Bilateral Trade Agreement: Taiwan signed an FTA with Panama in August 2003 and it entered into force in 2004. Exporters can benefit from the exemption of customs duties on 4,181 items of commodities exported to Panama, and Panama gives preferential treatment to marine transport companies from Taiwan in using its seaport facilities. Though the two nations cut official diplomatic ties in June 2017 after more than a century of diplomatic relations, the FTA is still active. Bilateral trade between Taiwan and Panama in the first two months of 2018 totalled USD25.6 million, with Taiwan exporting USD20.4 million in goods to Panama, while importing USD5.2 million worth of products from Panama.

  2. Taiwan-Guatemala Bilateral Trade Agreement: Taiwan signed an FTA with Republic of Guatemala in July 2005. Under the Guatemala-Taiwan FTA, Guatemala committed to extending free-tariff treatment to 447 export agricultural products from Taiwan. Taiwan grants tariff exemptions to 644 or 41% of listed Guatemalan export agricultural products and is seeking to gradually lower tariffs on the rest. Business persons from Taiwan are also allowed to invest in Guatemala and then extend their operations, or export their products, to the United States and other countries in Central America under the terms of the Central American FTA to which Guatemala is a member.

  3. Taiwan-Nicaragua Bilateral Trade Agreement: Taiwan signed an FTA with Nicaragua in June 2006. This agreement eliminates foreign trade barriers, and facilitates the cross-border movement of export products and services between Nicaragua and Taiwan.

  4. Taiwan-Honduras-El Salvador FTA: Taiwan signed an FTA with the Republic of El Salvador and Republic of Honduras in May 2007. The main exports from Taiwan to these states are agro-processed and industrial products. Through the Taiwan-Honduras-El Salvador FTA, 3,590 export products from Taiwan benefit from tariff-free entry into El Salvador. A total of 5,688 products from El Salvador benefit from the same treatment in the Taiwanese markets.

  5. Agreement between New Zealand and Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu on Economic Cooperation (ANZTEC): Taiwan signed an FTA with New Zealand in July 2013. ANZTEC is a comprehensive market liberalisation agreement. For trade in goods, Taiwan will liberalise 99.88% of its tariff lines (excluding rice), while New Zealand will liberalise 100%. The deal envisages removing all trade barriers between the two nations by 2025.

  6. Agreement between Singapore and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu on Economic Partnership (ASTEP): Taiwan also signed agreements with Singapore in November 2013. Under this agreement, Taiwan’s tariffs will be lowered in three phases, starting with removing import tax on 83% of Singaporean exports to Taiwan and ending with a virtual tax-free regime, while Singapore will eliminate duties on all imports from Taiwan. It was agreed that duties on other products will be removed over a period ranging from five to 15 years.

  7. Cross-Strait ECFA: In addition, Taiwan inked the ECFA with mainland China in June 2010. This agreement boosts market access and reduces tariffs and commercial barriers.

Under Negotiation

The Regional Comprehensive Economic Partnership (RCEP): Taiwan is also working on joining RCEP, which is a proposed 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, mainland 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

Sources: UNCTAD, Fitch Solutions
Date last reviewed: November 11, 2018

7.2 Foreign Direct Investment Policy

  1. Taiwan welcomes and actively courts 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 effort aims to use 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. In light of an increasingly uncertain external environment, it is likely that the strong investment growth observed in Q318 (reflecting an increase in machinery and equipment investment) will be transitory and growth will fade over the coming quarters as manufacturers pare back their production and capacity. That said, there will be some degree of support from the government's continued commitment to its Forward-Looking Infrastructure Development Programme. In its 2019 budget, the government will embark on the second phase (2019 to 2020) of the initiative, which will see overall spending more than double to TWD227.5 billion (approximately 1.2% of GDP) from TWD107.1 billion in phase one (September 2017 to end-2018).

  3. Taiwan and mainland China entered into the ECFA on June 29, 2010. According to the Early Harvest List of ECFA, both parties eliminated import tariffs on a number of products as of January 1, 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.

  4. Taiwan and mainland China signed the Cross-Straits Agreement on Trade in Services on June 21, 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.

  5. 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.

  6. Trading in corporate bonds and financial bonds issued by Taiwan companies is temporarily exempt from securities transaction tax assessment. As of January 1, 2016, luxury tax is no longer levied on sales of real estate properties. There are also no payroll taxes other than those for social security contributions.

  7. 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 country ranks among the best in the world in terms of its industrial cluster development.

  8. Taiwan currently has seven key free trade zones, based in Keelung, Kaohsiung, Taichung, Taipei, Anping, Taoyuan and Suao. The zones are designed to develop modern, 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.

  9. There are compulsory social security programs that require contributions from employers and employees based on monthly insured salary, which is capped at various amounts for labour insurance, health insurance, and pensions. Taiwan social security programs include the following:

    • the Labour Insurance Program
    • the National Health Insurance Program
    • the Labour Pension Program

  10. All sales of goods and services in Taiwan, as well as the importation of goods into Taiwan, are subject to business tax. There are two types of business tax systems: value-added tax (VAT) and gross business receipts tax (GBRT).

  11. Sellers and service providers are generally obligated to pay business tax for the sales of goods or services within Taiwan unless the law provides otherwise. For importation of goods, the business tax will be paid by the goods receivers or buyers via customs. For importation of services sold by foreign companies to Taiwanese buyers, business tax shall be paid by the service buyers. However, the service buyer (corporate entity) will not be required to pay business tax if it is exclusively engaged in taxable transactions subject to either 5% or 0% VAT.

  12. Despite the above, Taiwan has formally implemented a new VAT mechanism starting May 1, 2017 for cross-border sales of business-to-consumer (B2C) electronic services. Under the new mechanism, sales of cross-border electronic services by corporate sellers to individual buyers require the foreign companies to register for VAT purposes in Taiwan, file VAT returns, and pay VAT if their annual sales exceed the promulgated threshold of TWD480,000.

  13. 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. There are plans to introduce a single window system to boost the efficiency of Free Economic Pilot Zones (FEPZ) 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.

  14. A non-resident company whose head office is located outside of Taiwan must keep separate books for its branch in Taiwan. A head office or regional headquarters' general and administrative expenses may be allocated to the branch under certain conditions. Corporate income tax (CIT) is assessed only on the branch's profits. A Taiwan branch should complete an annual CIT return. A Taiwan branch of a foreign company may remit after-tax profits to its foreign head office without further tax due.

  15. A foreign motion picture's branch in Taiwan can deem 45% of its revenue from leasing of motion pictures as cost. However, if a foreign enterprise with no branch office in Taiwan leases motion pictures through agents, 50% of the revenues can be deemed as taxable income.

  16. A non-resident company that is engaged in international transportation, construction contracting, provision of technical services, or machinery and equipment leasing within Taiwan, and where the cost and expenses are proven to be difficult to calculate, may apply for advance approval from the National Tax Administration (NTA) to adopt the deemed-profit method to determine the taxable income as 10% or 15% of the gross revenues. This will effectively reduce the withholding tax (WHT) rate to 2% or 3% on gross revenues once the approval is obtained from the NTA.

  17. For non-resident enterprises providing cross-border electronic services to Taiwanese buyers (including individuals and profit-seeking enterprises and organisations), the non-resident company may apply to the NTA to adopt a deemed-profit method based on its business model and industry.

  18. Certain tax incentives are provided to investors if they are located in prescribed areas, such as science parks, economic processing zones, free trade zones, etc. Other tax credits are granted to qualifying companies that invest in specific businesses or industries promoted by the government, such as biotech.

  19. 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.

  20. A number of tax incentives are available under the Mergers and Acquisitions (M&A) Act to encourage M&A activities in Taiwan. Certain taxes, including business tax, deed tax, securities transaction tax, and stamp tax may be exempted or deferred in case of acquisitions, mergers, or corporate divisions (including spin-offs) that meet certain conditions. After the merger, spin-off, or acquisition, any tax concession previously enjoyed by the merged entities will continue to be applicable to the surviving or newly-created company. However, it is required to manufacture the same products or provide the same services that were originally approved for tax concessions by the merged entities in order to continue the concessions obtained previously.

  21. Taiwan has been gradually relaxing its restrictions on foreign 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.

  22. 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.

  23. The MOEA (Ministry of Economic Affairs) 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 TWD500 million (USD16.5 million) are generally granted within two working days. Approval of investments above TWD1 billion or in a restricted industry require 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. The National Security Bureau also takes part in every review meeting for foreign investment applications, regardless of the nature or size of the investment.

  24. Taiwan is experiencing slow progress on the privatisation of its state-owned enterprises, which presents structural challenges to its investment environment. Foreign businesses may invest in state-owned enterprises that are earmarked for privatisation and they are also allowed to participate in publicly financed research and development programmes.

  25. According to the Statute for the Establishment and Management of free trade zones, foreign companies or their branch offices in Taiwan that apply for establishment in the free trade zone or delegate companies already established in the free trade zone to store and/or perform simple processing in the free trade zone and sell goods to customers within and outside of Taiwan shall be exempted from CIT. However, in the event that the annual domestic sales exceed 10% of the total annual domestic and foreign sales, the portion in excess shall not be exempted from CIT.

Sources: WTO – Trade Policy Review, PwC, Fitch Solutions

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 SuaoKey benefits:

- Foreign investors are treated as nationals.

- Loosening of restrictions on the flow of people, goods, and capital through the simplification of customs system. Firms can have up to 40% of their labour as foreign workers. Customs clearance is exempted from inspection when shipped to or from the Zone.

- Development of industrial testing in logistics, medical care, agriculture and industry is encouraged.
R&D tax incentives- Under the Statute for Industrial Innovation (SII), R&D credits are available for 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 were incurred, including the 5% profit retention tax

- Effective from January 1, 2016 to December 31, 2019, amendments to the SII provide another alternative for companies to claim an R&D credit of 10% of qualifying R&D expenses against income tax payable within a period of three years, starting from the current year

- In addition, to facilitate the circulation and application of innovative R&D results, and to promote industrialisation of innovative technologies, where individuals/companies derive income from transfer or license of their self-developed intellectual property (IP), the amendments also allow the individuals/companies to either deduct qualifying R&D expenses of up to 200% (capped at corresponding income received) within the current year or claim R&D tax credits against income tax payable.


8. Taxation – 2018

NIL

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 TWD10 million, import and export volume of over USD1 million, or paid-in capital of TWD5 million 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.

Sources: Government websites, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody'sAa3 (Stable)08/11/2018
Standard & Poor'sAA- (Stable)21/04/2017
Fitch RatingsAA- (Stable)09/10/2018

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
39/18930/19056/190
Logistics Performance Index
25/160N/A27/160
Corruption Perception Index
31/17629/180N/A
IMD World Competitiveness14/6114/6317/63

Sources: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201620172018
Economic Risk Index Rank
6/202
Short-Term Economic Risk Score74.677.379.8
Long-Term Economic Risk Score73.475.177.8
Political Risk Index Rank43/202
Short-Term Political Risk Score77.979.676.9
Long-Term Political Risk Score73.276.375.1
Operational Risk Index Rank  18/201
Operational Risk Score72.774.573.3

Source: Fitch Solutions
Date last reviewed: November 11, 2018

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
Taiwan's key strengths stem from the territory's external position, underpinned by considerable trade openness and a competitive financial sector profile, with the former buttressed by the territory's accumulation of a sizeable foreign exchange reserve buffer. However, the economy slowed sharply in the third quarter of 2018, mainly on the back of a marked loss of momentum in the all-important external sector and a slowdown in private consumption growth, as consumer confidence receded against the backdrop of higher energy prices and rising global trade tensions. That said, though consumer demand may remain muted in Q318, it will nonetheless be supported by a tight labour market in the quarters ahead. In addition, higher public infrastructure spending will likely help buttress investment in Q4 and beyond.

OPERATIONAL RISK
Taiwan's attractive operating environment presents few risks to incoming businesses. Business activity will likely soften in 2019 and 2020 due to weaker export growth, while risks of a further escalation in global trade tensions in 2019 could further weaken Taiwan's flagship electronics sector. Taiwan is deeply integrated into the global supply chain, with its exports significantly dependent on the performance of the mainland China manufacturing sector. Exports that are headed to the mainland and Hong Kong account for 40.1% of total exports, the highest among the 14 major Asia Pacific economies that we track on a close basis. Furthermore, Taiwan's electronics exports (which account for around 33% of total exports) growth is already coming under pressure from the maturing of the global electronics cycle. Nevertheless, the economy ought to be supported by resilient private spending and a sharp uptick in public expenditures, especially following the recent approval of a TWD228 billion infrastructure package for 2019 and 2020, which in turn will support logistics enhancements over the long term. Despite a tightening labour market for skilled workers in particular, 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.

Source: Fitch Solutions
Data last reviewed:  November 11, 2018

10.5 Fitch Solutions Political and Economic Risk Indices

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

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: November 11, 2018

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Taiwan Score73.366.474.373.479.2
East and Southeast Asia Average55.256.555.754.054.4
East and Southeast Asia Position (Out of 18)33
35
3
Asia Average48.750.647.746.350.1
Asia Position (Out of 35)33
35
3
Global Average49.649.749.9
49.149.8
Global Position (Out of 201)1815
16
2726

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Taiwan vs global and regional averages
Graph: Taiwan vs global and regional averages
Country
Operational Risk
Labour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Singapore83.177.8
89.9
74.9
89.7
Hong Kong81.671.2
88.5
77.0
89.5
Taiwan73.366.4
74.3
73.4
79.2
South Korea70.963.5
67.5
79.6
73.1
Malaysia67.861.6
73.5
75.7
60.5
Macao62.864.2
66.9
52.0
68.0
Brunei61.462.8
57.2
55.0
70.6
Thailand58.956.7
65.2
68.4
45.2
Mainland China56.753.9
52.2
66.3
54.4
Vietnam53.752.6
55.5
55.6
51.3
Indonesia52.651.5
53.9
56.8
48.4
Mongolia51.357.8
52.4
40.9
54.1
Philippines43.151.3
47.3
42.4
31.3
Cambodia42.546.7
46.0
37.7
39.5
Laos38.344.2
38.0
34.2
36.7
North Korea33.149.6
20.3
31.5
30.8
Myanmar32.145.5
28.2
30.0
24.9
Timor-Leste30.140.5
26.6
21.0
32.5
Regional Averages55.256.555.754.054.4
Emerging Markets Averages46.848.047.545.7
46.0
Global Markets Averages49.649.749.9
49.1
49.8

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: November 11, 2018

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)

Note: Graph shows the main Hong Kong export to/import from Taiwan (by consignment)
Date last reviewed: November 11, 2018

Graph: Merchandise exports to Taiwan
Graph: Merchandise exports to Taiwan
Graph: Merchandise imports from Taiwan
Graph: Merchandise imports from Taiwan

Note: Graph shows Hong Kong exports to/imports from Taiwan (by consignment)
Exchange Rate HK$/US$, average
7.76 (2013)
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
Sources: Hong Kong Census and Statistics Department, Fitch Solutions
Date last reviewed: November 11, 2018


2017
Growth rate (%)
Number of Taiwanese residents visiting Hong Kong2,010,755-0.033

Sources: Hong Kong Tourism Board, Fitch Solutions


2017
Growth rate (%)
Number of Asia Pacific residents visiting Hong Kong54,482,5383.5
Number of East Asian residing in Hong Kong2,784,8701.5

Sources of visitor number: Hong Kong Tourism Board, Fitch Solutions
Sources of resident number: United Nations Population Division, Fitch Solutions
Date last reviewed: November 11, 2018

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

Sources: Hong Kong Census and Statistics Department, Fitch Solutions

11.3 Treaties and Agreements between Hong Kong and Taiwan

Taiwan and the mainland China entered into the ECFA on June 29, 2010, with the treaty officially coming into effect on September 12, 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 January 1, 2011 and were eliminated completely by January 1, 2013.

Taiwan and the mainland China 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.

Sources: Government websites, Fitch Solutions

11.4 Commercial and Economic Section in Hong Kong

Taiwan Interest Group - In Hong Kong General Chamber of Commerce
Address: Admiralty Headquarters, 22/F, United Centre, 95 Queensway, Admiralty, Hong Kong
Email: wendylo@chamber.org.hk
Tel: (852) 2823 1232

Sources: Hong Kong General Chamber of Commerce, Fitch Solutions

Taipei Economic and Cultural Office
Address: 40/F, Tower One, Lippo Centre, 89 Queensway, Admiralty, Hong Kong
Email: info@tecos.org.hk
Tel: (852) 2887 5011

Sources: Taipei Economic and Cultural Office, Fitch Solutions

11.5 Visa Requirements for Hong Kong Residents

Hong Kong residents are allowed a 30-day entry after applying for an Exit and Entry Permit in advance and online. Starting from July 1, 2017, generally, single-entry visas for Hong Kong residents and tourist visas for mainland China nationals residing in Hong Kong must be applied for online. Submission to the office will no longer be accepted. Visitors are required to upload a 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. Visitors must pay the fee online with a credit card and print the visa.

Source: Bureau of Consular Affairs, Ministry of Foreign Affairs, Republic of China (Taiwan)
Date last reviewed: November 11, 2018

Content provided by Picture: Fitch Solutions – BMI Research
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