Introductions of the Free Economic Pilot Zones in Taiwan

The first step of Free Economic Pilot Zones (FEPZs)of Taiwan has been put into performance since August 16, 2013. FEPZs are proposed for adapting the speedy growth of regionwide economic development in Asia, and also accelerate preparations for Taiwan’s participation in the Trans-Pacific Partnership (TPP), the Regional Comprehensive Economic Partnership (RCEP) and other international economic cooperation agreements.On December 19, 2013, the Council for Economic Planning and Development(CEPD) of the Executive Yuan further announced the revised version of FEPZs Project for enlarging the range of economic liberalization on the base of original framework.

Main Ideas of the FEPZs Project

The main ideas of Free Economic Pilot Zones are liberalization, globalization and innovation. Restrictions on the flows of goods, people, capital, information and knowledge will be greatly released, and market opening is carried out to prepare for joining TPP and RCEP.

The promotion strategies of FEPZs Project take in stages. In the first stage, the Project focuses on the amendment of administrative regulations. On the original framework of free trade zones, FEPZs were designed to integrate and network with neighboring industry zones. On December 26, 2013, the Executive Yuan approved the draft of special bill for FEPZs. Now the draft has been sent to Legislative Yuan for deliberating, and it is estimated that the bill will be passed by the first session of Legislative Yuan in June 2014.

The second stage of FEPZs Project will begin right after the proclamation of the special bill for FEPZs. Under the special bill, FEPZs can be set up as designated by the central government or under application by local governments. Private land can also be the subject to the establishment of FEPZs through co-development with the government.

According to the officers, positive effects arising from FEPZs such as the liberalization of industries and new types of economic activities may lead the innovation and upgrade of industries of Taiwan. Also, FEPZs take the role of test bed for opening certain industries in which the local businesses may be materially impacted under the globalization. The ultimate goal of FEPZs Project is to turn Taiwan into a free trade island.

Targets and Plans

The primary targets for development in FEPZs are high-value-added and high-end service industries. Manufacturing industries that can promote service industry development are the secondary targets.According to the CEPD’s plan, activities to be included in FEPZs are as follows:

(1) “Smart Logistics”

To promote faster and freer goods flows and increase the value-added of goods with top logistics services, enabled by innovative customs administration and information clouds. Innovative custom administration includes simplifying customs inspection mechanism for outsourced processing and inspection, testing & maintenance, and allowing freight forwarders to offer multi-nation consolidation services. Information clouds include installing common-use cloud platforms and integrate cloud-based e-services to provide businesses with the best logistics solutions.

(2) International Healthcare Services

To promote medical care, biotechnology, pharmaceuticals, rehabilitative care, health enhancement and other industries will be included into the “International Healthcare Industry Park” which will be a sub-section of FEPZs. Available measures include setting up international medical service counters in international airports, establishing “International Healthcare Industry Park” where international medical care institutions and biotech research institutions will be set up and releasing restrictions in the Medical Care Act, such as rules on board directors of medical institutions; percentage of directors with medical qualification and foreigners serve as chairman of the board.

(3) Financial Services

On November 19, 2013, Executive Yuan approved the proposal of integrating financial industries into FEPZs by Financial Supervisory Commission. This project includes expanding the range of financial commodities and services permitted to be provided by offshore banking units (OBUs) and domestic banking units (DBUs), widening the range of financial commodities and services permitted to be provided by offshore securities units (OSUs) and domestic securities units (DSUs), using domestic financial training institutions - such as Taiwan Academy of Banking and Finance (TABF), the Securities & Futures Institute (SFI) and Taiwan Insurance Institute (TII) to provide training to overseas personnel and cultivating domestic financial industry talents, and strengthening investment in financial commodities and service R&D.

(4) Education Innovation

To encourage cooperation between domestic and overseas universities and set up experimental universities (branch colleges and departments), academies and degrees (programs), it was proposed to release restrictions on college establishment and operation, student enrollment, staff recruitment, etc.

Advantages of FEDZs Project

From the draft of special bill of FEDZs passed by Excusive Yuan, favorable measures include:

(1) Connection to International Market:

a. Free Transportation of Professionals:

It was proposed to open the market for international professionals (CPAs,architects, lawyers) to enter into Taiwan and establish their businesses. Such international professionals include those from Hong Kong and Macau, but temporarily, not those from Mainland China.Before the regulations of special bill of FEPZs, Taiwan markets only open for foreign CPAs to set up jurist person organizations. In the special bill of FEPZs, it releases the restrictions and allows foreign architects and lawyers to set up jurist person organization or partnership in Taiwan.According to the international practice, the provision of services by foreign partnership and jurist person organization is limit to transnational affairs. Qualification verification will be required for foreign CPAs, architects and lawyers before their provision of professional services.

b. Releasing the Restrictions on Investment in Taiwan:

By releasing the investment restrictions, Taiwan targets to offer the foreign businesses in the FEPZs “WTO+benefits”. Upon the assurance of national security, Mainland Chinese enterprises will be treated as foreign enterprises and entitled to the WTO commitments of Taiwan. Also, in the FEPZs the investment approval procedures will be greatly simplified. Investments of or less than a certain amount (To Be Announced) will be subject to post-investment reporting only, but no review or approval requirements.

c. Releasing the Restrictions on Immigration:

Conditions and requirements for work permits of white-collar professionals will be loosen in the FEPZs. Waiver of visa for short-term business activities or visa on arrival will be granted to travelers for business purposes. Also, some restrictions on business activities or residence of people from Mainland China will be removed.

(2) Tax Benefits:

To attract international professionals, investments and logistics systems to the FEPZs, the special bill of FEDZs offers tax benefits of 3 categories:

a. Foreign goods owners (including those from Mainland China, Hong Kong and Macau) will be exempted from 100% of business income tax on their overseas sales, and 10% of business income tax on domestic sales, of goods stored or initially processed in the FEPZs. Such tax benefits will be effective for 40 years.

b. Foreign professionals will be exempted from reporting their incomes outside Taiwan. Also, for first 3 years, foreign professionals will be entitled to a 50% deduction of their personal income tax on the salaries received within the FEPZs.

c. The re-investment into the FEPZs with the dividends or profits of Taiwanese out-bound investments will be entitled to a waiver of business income tax for 3 years (in existing zones) or 5 years (in newly established zones). Such benefits may not apply to the re-investment into equities or real properties only.

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Liu & Partners Attorneys-at-Law

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