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Free Trade Zones in Taiwan

Ministry of Transportationand Communications, Taiwan, R.O.C.

2011

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I. The Planning of FTZs

II. The Special Features of the System

III. Introduction to Each FTZ

IV. Operating Models for FTZ Enterprises

Contents

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The Planning of FTZs

The meaning and status of FTZs Special zones that are “inside national

territory but outside customs”: Creating an excellent environment for transnational business operations by lowering barriers to the flow of goods, commerce and people.

The creation of special zones for “logistics, transshipment, and value adding”: Combining the functions of seaports and airports with meeting all the needs for supply-chain management, to strengthen users’ competitive advantage.

Special zones as trial points for “comprehensive trade liberalization”: Placing stress on autonomous enterprise management, while expanding liberalization across the plane through point and line trial implementation.

Ships or airplanes arrivingat seaports or airports

Simple-processing, storage, & transshipment operations zone

Flow of goods at import/export points

Tax Area, Bonded Zone

Multi-stage value-addedoperations zone

Businessservices center

Flow of people at entry/exit points

FTZs

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Convenient business entry

(Convenient entry visa for business people, with facilities provided for exhibition and trade activities)

Practical organizational form(Can set up in a zone as a branch, office, operations department, etc.)

Tax preferences(Goods,machines and equipment for operation and private use are exempted from relevant taxes and fees. Goods purchased domestically are free from business tax. Foreign for-profit businesses storing and/or performing simple processing are exempted from business income tax.)

Relaxation of foreign-worker hiring ratio (Foreign workers

may constitute up to 40% of employees)

Diversified operational scope (Can carry out

rearrangement, processing, fabrication, etc.)

FTZs

The Special Features of the SystemFree flow of goods

(Exempt from customs checking, inspection, and escort; adoption of

reporting or monthly reporting system)

Single-window administrative service (Each FTZ has a single administrative

service and management authority)

Special coordinating mechanism(An FTZ Cross-Departmental Working Group is specially charged with deliberating on related policy and coordinating inter-zonal affairs)

Service side

Service side

Cost side

Cost side

Efficien

cy side

Efficien

cy side

Fu

nction

al F

un

ctional

side

side

Source: Compiled by CEPD,MOTC.

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The Special Features of the System －Efficiency Side

Other FTZs

Bonded zonesProcessing zones

Science parks

Tax areas

Reporting

Customs clearance under bonding regulations

Customs clearance under export/import regulations

Guard

Reporting

FTZ Enterprise

FTZ Enterprise Reporting

1. No customs clearance, and no document checks as a rule.

2. Simple entrepot consignment operations handled under provisions of Customs Act.

3. No limitation on storage time.

5. Can opt for monthly reporting, with inter-zonal customs reporting of FTZ goods.

6. Can opt for monthly customs reporting and clearance.

7. Can opt for monthly customs reporting and clearance.

4. Can opt for monthly reporting.

FTZ

Logistics

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Cost side 1: Tax preferences

Tax areas

Other FTZs

Bonded zones

FTZ enterprise

FTZ enterprise

Subject to bonded cargo regulations.

Zero-rated business tax.

Subject to export cargo regulations.

Subject to import cargo taxation.

Exempt from payment of tax

1. Goods and equipment imported are exempt from related taxes and fees.

6. Taxed on value on leaving FTZ minus value added in the FTZ. 7. Shipped back to FTZ after processing outsourced outside zone. 8. Exempt from trade promotion service charges unless shipped to tax area.

3. Zero-rated business tax for domestic procurement.

4. Zero-rated business tax for goods stored in FTZ for export by sales from bonded area to exporting company or from tax area to bonded area .

5. Zero-rated business tax for operator outside FTZ transporting goods to zone under instructions of foreign customer and obtaining foreign exchange.2. Zero-rated business

tax on sale of services within FTZ.

The Special Features of the System －Cost Side (1/2)

FTZ

Exempt from payment of tax

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Cost side 2: Tax preferences Preferential measures for business income tax:

Foreign for-profit businesses or their branch companies in Taiwan that apply for establishment or delegate free-trade-zone enterprises to store and/or perform simple processing in FTZs and sell the products in and out of Taiwan shall be exempted from business income tax. In the event that the annual domestic sales exceed 10% of the total of annual domestic and foreign sales, the exceeded portion shall not be exempted from business income tax.

Overseas customer

FTZ enterprise

Owner of foreign goods

100% of the total sales exempted from tax

Commissioning to store & simple

processing

The Special Features of the System －Cost Side (2/2)

Domestic Customer

10% of the total sales exempted from tax

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The Special Features of the System －Functional Side

Tax areas / bonded zonesGuard

FTZ Enterprise

FTZ Enterprise

1. May import and store unopened goods from China. 2. Allowing FTZ enterprises to

conduct a diverse range of business, including trade, logistics, transshipment, value-adding, and technical services.

FTZ Enterprise

FTZ Enterprise

3.The entity applying for establishment as an FTZ enterprise is a company or the Taiwan branch of a foreign company, while the operating entity can be an office or other operating unit.

FTZ

Applying entity

5. Permitted imports from China may be shipped to tax zones

4. May be labeled as “Assembled in Taiwan” after rearrangement that does not amount to substantive transformation.

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The Special Features of the System －Service Side (1/2)

1.Policy review of FTZ

development

2.Reviewing on the case of FTZ

application and establishment

3.Coordination of cross-

department affaires

convener ： Political Deputy Minister of MOTCVice-convener ： Director of Department of Aviation and NavigationStaff Members ： vice-chiefs of bureau,department and office from MOF and MOEA

1.Execution of FTZ affaires

2.Single-window administration

services

FTZ enterprises

FTZ enterprises

FTZ Cross-Ministries

committee,MOTC

FTZ Working Group

Convener ： Vice-Chief of administrationStaff:harbor bureau(CAA)Staff members: National Immigration Agency, Customs, Harbor Police( air police),Fire Control, Local Government and other relevant ministries and commissions

1.Coordination of FTZ issues

2.reviewing on cases of FTZ business application and establishment

3.reviewing on the certificate letter of owner of foreign goods

FTZ Administrative

Authorities(CAA 、 HB)

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The Special Features of the System －Service Side (2/2)

Application by business to operate in FTZ

Eligibility

Undertaking of trading, warehousing,

logistics, container (cargo) terminal,

entrepot, transshipment, freight forwarding,

customs reporting service, assembling,

rearrangement, packing, repair, processing,

manufacturing, inspection,

testing,exhibition, technical services, or

FTZ storage businesses.

Documentation required1. Application form.

2. Business plan (including financial plan).

3. Goods control plan.

4. Explanation of customs reporting and

book keeping. 5. Investors’ identification documents.

Application Qualified

Operatio

n

Approv

al

After 6 months in operation, check whether operating in accordance with submitted documentation.

Review by FTZ management authority

jointly with

Handled and assisted by

specially assigned personnel

Customs and other related agencies

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FTZs and Industrial Zones

Hsinchu Science Park Electronics and information Software Opto-electronics (photonics)

Kaohsiung Petrochemicals Steel Electronics

Yunlin Science Park Textiles Opto-electronics (photonics)

Nangang Software Park Software Knowledge-based industries

Southern Taiwan Science Park Opto-electronics (photonics) Machinery Food Biotechnology Environmental protection

Central Taiwan Science Park Opto-electronics (photonics) Precision machinery Nano materials Aviation and space industry

Keelung Port FTZTaipei Port FTZ

Taichung Port FTZ

Taoyuan Air Cargo Park FTZ

Kaohsiung Port FTZ Source: Compiled by CEPD,MOTC

Introduction to Each FTZ

Suao Port FTZ

Opto-electronics (solar energy)Chemical Engineering, ironware machineryComputer peripherals

Lize & Londe Industrial Park

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Suitable Operating Models for FTZ

Taiwan’s FTZ can develop variable operating models such as transit, exhibition, international logistics distribution, testing/maintenance/repairing, Multi-countries Value-added Consolidation, branding & research, etc.

Operating Models & Position of FTZOperating Models & Position of FTZ

Niche AspectFeasible Operating Models

Transit/Transshipment

Services

International Logistics

DistributionTesting/

Maintenance/Repairing Services

Multi-countries Value-added Consolidation

Branding/Research

Transshipment Center

Distribution Center

Testing Center

Value-Adding Service CenterR&D Center

Key Position

Value-Added TransitCommercial Exhibition

Procurement Center

Regional Division

HeadquarterRegional

Headquarter

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Benefits ：

1.Related tax preferences （ customs, operating tax, good tax ）

2.Linking up with the supply chain of Taiwan’s vehicle industry, assisting subcontractors to expand international market, establishing the cooperation model of parts production, uplifting the quality and contingent value

3.Cutting down the cost to make whole industry more competitive and attract foreign headquarters to place orders

Developed Operating Models (1/6)

Multi-countries Value-added Consolidation － Out-contracted cars assembly

Overseas

FTZ(Associated Companies)

Tax areas/bonded zones

Foreign Parts

delegated business

Finished cars storedExport

Cars assembling

Warehousing Logistics

Distribution

Assembled to semi-product

Subcontractors

Out-contracted processing

Semi-products transported to delegated business for out-contracted processing

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Multi-countries Value-added Consolidation － Oil drilling platform assembled & exported through out-contracted processing

Benefits ： Tax-free for high-price imported parts leads to cost-down

Developed Operating Models (2/6)

FTZForeign Parts entered & stored at FTZ warehouse Out-contracted

processing

Semi-products are sent back to Kaohsiung Harbor for processing

Process & export

Kaohsiung Harbor

Tax areas

Overseas

Warehousing

Export

Factory in Tax area

Out-contracted processing

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International Logistic Distribution － Packaging & distribution of cosmetics and health food

Benefits ：1.Shorten clearing time(F1 & F5 are excluded from review & check/

shortest average distance to market

2.Tax preferences(Owners of foreign goods are exempted from business income tax)

Developed Operating Models (3/6)

overseas

FTZ

Packaging, labeling & exporting

Foreign Goods

Tax/Bonded areas

Bottles are sent to FTZ for packaging

Goods exported

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Testing/Maintenance/Repairing Services － Semiconductor after-sale services & Asian maintenance center

Benefits ： 1.Leveraging FTZ’s tax preferences and high efficiency to make Taiwan able to rival with Singapore

& become a logistic center of Semiconductor parts/equipment in the Asian region 。 2.Great advantage to the processing technology , production volume & outsourcing opportunity of

parts for Taiwan’s semiconductor industry

Developed Operating Models (4/6)

FTZ

Asian Maintenance /Repairing centerInventory management of spare parts

Domestic Tax/BondedAreas or Foreign business

simple maintenanceSpare parts

new & spare parts entered & stored

Semiconductor equipment sold

Non-simple maintenance case: parts replaced by new ones ,then returned to customer

high-price parts are sent back for

repairing & returned

Overseas headquarters

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International Logistics Distribution-Fuel Oil Distribution

FTZ

Warehousing, Inventory Management,Logistics DistributionForeign

Domestic

(Refueling Ship)

Niches ：1. Due to large amount of stored-transit fuel oil, relevant tax preferences can

alleviate pressure from cost of interest 。 2. Without entering into tax area, 〝 reporting 〞 can be adopted to proceed fast

clearance, avoiding the import restriction of oil, thus the refueling and store/transit/re-export can be done just in time.

Fuel oil shipped to FTZ

(Foreign Ship)

Developed Operating Models(5/6)

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Developed Operating Models(6/6)

Testing/Maintenance/Repairing-Repairing of Electrical Forklift

Foreign Customers

FTZ

1.Maintenance & repairing of Electrical Forklift,Electrical motor(including replacing of battery module)2.Assembly of battery module

Tax/Bonded Area

Products to be repaired

To customer

Battery/Parts

Foreign Parts Vendors

Foreign Parts

Processing of reusable battery

Non-usable battery

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Invest in Taiwan, operate Invest in Taiwan, operate

globally !globally !

End