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The Repatriation of Overseas Taiwanese Businesses

On the 3rd of July, the Legislative Yuan finalized readings of a bill on the repatriation, use and taxation of overseas funds. The bill incentivizes and rewards Taiwanese companies and investors to return and invest in Taiwan.

The Ministry of Finance[1] outlines the key provisions as follows:

Scope

  1. Individuals can repatriate funds from abroad (including from the People’s Republic of China)
  2. The investment income from profit-making enterprises that have been transferred and remitted from overseas (including the People’s Republic of China) with its control ability or significant influence.

Applicable Principles

  1. Companies and individuals can elect to be taxed under the provisions of this Bill. Those who choose to do so shall be exempted from the basic tax and income tax[2],the People's Relations Regulations of Taiwan and the Mainland and the Income Tax Law. This election is, however, irreversible.
  2. The implementation of the Bill shall comply with the Money Laundering Prevention Act, the Danger Prevention and Control Act and related laws and regulations. The Repatriation of Overseas Taiwanese Businesses

Application Procedures

To register, one must apply to the competent authority, who will then conduct preliminary examinations on the applicable requirements and contact the relevant bank for review[3]. Upon successful application, the applicant will then open a “Foreign Capital Foreign Exchange Deposit Account[PLT1]” and remit the tax incentive into the account.

Restrictions on capital use

1. Remittance funds shall not be used for the purchase of real estate and the beneficiary securities issued or delivered under the Real Estate Securitization Ordinance. Unless one gains approval from the Ministry of Economic Affairs to allow for the construction or purchase of buildings for self-production or business use.

2. The repatriation of overseas funds must be deposited in the “ Foreign Capital Foreign Exchange Deposit Account” and ought to be managed in the following ways:

  1. Substantial investment: Direct investment in the industry or investment in key policy industries through venture capital or private equity funds approved by the Ministry of Economic Affairs
  2. Free use: 5% limit
  3. Financial investment: 25% limit

Thus, funds for free use and a substantial investment, financial investment and any remaining funds not engaged in the investment shall be deposited into the “Foreign Capital Foreign Exchange Deposit Account” for 5 years.

Applicable tax rate

  1. General tax rate: The tax will be deducted from the receiving bank when the funds are remitted to the foreign exchange deposit account. The repatriation rate is 8% in the first year and 10% in the second year.
  2. Preferential tax rate: The actual investment is completed within the prescribed time limit, and the Ministry of Economic Affairs shall issue a certificate of completion of the issuance and may apply to the collection authority for a refund of 50% of the tax (i.e., the actual tax rate is 4% or 5%). c. The following cases are not managed according to the regulations, and the different tax shall be paid at the rate of 20%:
  1. In violation of the regulations, the funds shall be withdrawn from the special account of foreign exchange deposits, trust account or securities.
  2. In violation of the regulations, the funds are used for other purposes or as a basis for quality loans, guarantees or otherwise reduce their value.
  3. Violation of regulations for the purchase of Real Estate.

Additional Mechanisms

During the period of the actual investment, the individual or the profit-making enterprise shall report the investment to the economy yearly. For future reference, the receiving bank shall report the use of funds within the special account to the Ministry of Finance and the Financial Management Committee for reference yearly.

Implementation period: Following the implementation of these Regulations, the Executive Yuan must verify the date of implementation of the profit-making business and individual CFC system within a year. All funds remitted within 2 years of the implementation of these Regulations shall be subject to the provisions of these Regulations.

[1] https://www.mof.gov.tw/Detail/Index?nodeid=137&pid=85050

[2] As stipulated in the Basic Tax Regulations

[3] According to the relevant provisions on money laundering and anti-terrorism prevention

[PLT1] Also known as a foreign exchange deposit account