The Taiwanese economy is traditionally home to labour-intensive industries and is a high exporter, making it vulnerable to downturns in world demand. The market is now diversifying its trade markets toward a high technology and service-oriented economy as nearby markets such as China and Vietnam are accommodating labour-intensive industries with a cheaper workforce. As part of the country’s attempts at diversification, Taiwan offers tax incentives aimed at encouraging corporate investment and increasing research and development, however, businesses need to be clear about what’s being offered and  the tax breaks and other advantages aimed at assisting business. .

Incentives for investment

Taiwan is located at the heart of the Asia-Pacific region. In addition to its superior geographic location, well-established infrastructure, matured industry development and abundant high-quality human resources, the Taiwanese Government also offers incentives to make the country more investor-friendly, and aims to help enterprises grow with competitive advantages.

The incentives offered include "tax related incentives" and "non-tax related incentives." Most of the tax related incentives were introduced prior to 2010 under the Statute for Upgrading Industries (SUI), which was intended to supplement more tax concessions. This has since been replaced by the Statute for Industrial Innovation (SII), which offers tax incentives mostly in the form of R&D credit. For non-tax related incentives, many specific programs are in place to suit respective industry investors such as those of interest in industrial technology development, land lease incentives in industrial parks, low-interest loans, etc. all of which are intended to reduce businesses' operating costs.

Tax reforms are reducing rates for personal income tax, corporate income tax (now 17%), estate tax and gift tax. For example, a non-resident individual or non-resident enterprise, which gains a permit to invest in Taiwan and receives dividends or profits from a Taiwanese corporation or partnership, will benefit from reduced income tax payable. Therefore, Taiwan is increasingly becoming more attractive to international investors in the Asia-Pacific region.

Locations for business operations

Another highlight of the Taiwanese business landscape is that it provides a comfortable operating environment. In Taiwan, commercial office space rental rates are lower in comparison to nearby business hubs such as Hong Kong and Singapore. Take the top office building as an example. In 2013, the rental rate in Hong Kong was NT$23,200/ping (1 ping=3.3 square meters) while the rate of the former tallest building in the world, the Taipei 101, is NT$3,400 to NT$4,600/ping.

Effective measures have been taken to improve the administrative procedures for land acquisition and the establishment of software companies, logistics and production facilities for local and foreign businesses. As a result, many more new science parks, industrial parks and free trade zones have been planned and developed. Currently, there are 181 industrial parks, 10 export processing zones, three science parks, 7 free trade zones, agricultural biotechnology parks and environmental science and technology parks in Taiwan. These developments help provide location prospects for growing enterprises and also serve as potential investment opportunities.

Industrial development is the main force of Taiwan's economic expansion. Factories of all kinds have been established throughout Taiwan. Previously, factories tended to be located along the major highways but the Government has since planned and developed numerous industrial parks and export processing zones to make land more readily available in an economic and efficient way. This is part of the Government’s efforts to provide multi-purpose industrial parks to form industrial clusters and accelerate the integration of the industries.

As rapid industrial development continues, Taiwan has placed increasing emphasis on environmental protection and is also enlisting the help of businesses as an added incentive. The Environmental Protection Administration of Taiwan has implemented the environmental assessment measure to prevent environmental damage during land development. Business locations in Taiwan, including offices, industrial parks, export processing zones, science parks, free trade ports, agricultural biotechnology parks and environmental protection parks must all pass environmental assessments. It is therefore recommended that foreign businesses establish operations in these types of locations to save significant costs for compliance of environmental protection requirements. These parks and zones have existing infrastructure and enjoy convenient administrative support to assist technology businesses and service providers establish high-end facilities.

The Taiwanese Government has addressed the increasing competition for attracting business investment from its Asia-Pacific neighbours and therefore has established a stable environment for local and foreign businesses to flourish. Tax incentives have increased appeal, serving as one of the main vehicles for attracting specialist technology companies to take advantage of R&D credits and in turn, increase their R&D activity. The competitive prices for office space in Taipei are unmatched in the region. This coupled with Taiwan’s rapid industrial development parks and zones have made the country an attractive proposition for enterprise, despite the shift from a labour-intensive market to a more service-oriented and high technology economy. Businesses should seek sound legal advice to properly familiarise themselves with the endless and complicated tax incentives offered by the Government to ensure they maximise all available opportunities.

Shay & Partners is the Globalaw member in Taiwan.