Corporate Treasury & Cash Management in Taiwan
Corporate Treasury & Cash Management in Taiwan
At a glance
About 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
Taiwan is one of the economic powerhouses in Asia, and we highlighted some of the key factors relevant to treasury and cash management in Taiwan below.
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.
Regulatory Bodies
- 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).
Tax
- 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.
Get in touch
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From overseas: +65 6222 2200
In Singapore: 1800 222 2200
Operating hours: 8.30am to 8.30pm, Mon - Fri (excluding PH)
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