Investing in Taiwan (2023): Gov Incentives & Economic Zones

Last Updated: October 31, 2023

Taiwan’s Investment Incentives: Opportunities in 2023

Taiwan’s main document for industrial incentives, the Statute for Industrial Innovation (SII), was first issued in 2010. As the primary policy for industrial progression, the SII was due to lapse at the end of 2019. However, amendments made by the legislature extended significant tax incentives outlined in the SII for another ten years until the conclusion of 2029. Along with this extension, the amendments broadened the sectors eligible for preferential treatment under the SII, incorporating investments in fifth-generation (5G) telecommunications technologies.

In 2017, further amendments to the SII were approved, targeting an enhancement of incentives for research and development, as well as start-ups. These amendments provided a structure where a Taiwanese individual or enterprise can deduct up to 200% of research-and-development expenditures from taxable income sourced from licensing intellectual property rights abroad. Additionally, the amendments allow an investor who invests a minimum of NT$1m in a high-risk start-up, and holds the investment for at least two years, to deduct up to 50% of the investment from their gross income for tax purposes. The amendments also granted a “pass-through entity” status to venture-capital firms that invest a minimum of NT$300m.

According to the Council for Economic Planning and Development, the top economic planning agency, the SII represents a strategic shift from focusing on capital-intensive production to technology-intensive production, underlining the emphasis on research and innovation. Furthermore, the SII signifies an increased interest in developing new brands and designs.

Reflecting a growing recognition of the value of intellectual property, the SII encourages efforts to enhance the benefits that companies can expect in return for investing manpower and other resources in innovation. As an example, the SII urges relevant government agencies to implement information systems that will assist companies in protecting their intellectual property rights. Moreover, it stimulates government agencies to improve their support to companies seeking to market their innovative products abroad, such as facilitating their participation in international expositions.

The SII also strives to improve the conditions for companies aiming to upgrade their technological proficiency by expanding their activities overseas. To illustrate, enterprises investing less than NT$1.5bn in overseas markets only need to report to the relevant government agency after the investment has taken place. The SII further encourages small and medium-sized enterprises (SMEs) to employ personnel with innovative abilities, with the government providing a monthly subsidy for these employees.

To support the SII, lawmakers passed a revised Income Tax Act in 2010, retroactively reducing the business income tax to 17% from 20% as of 2010. Companies across all industries can deduct 15-30% of research-and-development expenditures from their income tax. Various agencies, like the Department of Health and the Ministry of Education, oversee the implementation of the SII program in their respective sectors.

For first-time investors seeking incentives under the SII, applications must be made to the Investment Commission of the Ministry of Economic Affairs (MOEA), with approval typically taking two weeks. Although approval confirms that the investment qualifies for incentives, companies must still secure final clearance and official approval from the appropriate ministry before commencing operations.

Finally, since early 2020, Taiwan’s government has introduced stimulus measures to protect businesses from the negative economic impacts of the coronavirus (covid-19) pandemic. A support package of NT$1.05trn includes various measures to stabilize employment, wage subsidies across affected manufacturing and services sectors, and incentives for private banks to lend to struggling businesses. These measures remained in place until the end of July 2022, illustrating Taiwan’s ongoing commitment to bolstering its economic landscape amid challenging global conditions.

Incentives by Sector

Taiwan’s high-tech companies have the option of setting up operations in the science or software industrial parks, which provide specific incentives to resident businesses. In 2017, the legislature passed the Financial Technology Innovation Experimentation Act. This legislation enables financial technology (“fintech”) businesses to experiment with new products in a relatively free environment, enjoying exemptions from various legal restrictions for up to 18 months. This period can be extended to 36 months with approval from the Financial Supervisory Commission. The act establishes a “regulatory sandbox” designed to foster innovations in areas such as peer-to-peer lending, financial identification technology, and big data analytics.

Patents, trademarks, and know-how royalties to overseas licensers face a 20% tax withheld at the source. However, an exemption from this withholding requirement is in place if trademarks and patents are licensed to a Taiwan entity under an approved agreement for technical co-operation. This exemption also applies to transfers of technical know-how for exclusive use by high-tech industries or important technical industries.

Since 1999, the Ministry of Economic Affairs (MOEA) has been offering subsidies to foreign computer companies that assist Taiwanese computer-makers in establishing computerised operating systems. To qualify, the foreign companies must also be significant purchasers of computers and peripherals from Taiwanese suppliers. Each foreign company aiding a Taiwanese company in setting up an operating system can receive up to NT$50m in subsidies.

In 1999, the Ministry of Finance announced new rules allowing for the wider use of bonded manufacturing warehouses. Bonded factories in science-based industrial parks and export-processing zones can now store their products in ordinary or specialized bonded manufacturing warehouses anywhere in Taiwan.

To boost local investment in high-tech industries, the Executive Yuan (the cabinet) provides a multi-billion-dollar fund for medium- and long-term concessional credit facilities. The funds are intended for investment in various sectors including information, machinery, electronics, and textiles industries; for the purchase of pollution-control equipment; for the acquisition of automated machinery and other factory-automation equipment; and for government-encouraged investment projects.

The Central Bank of Taiwan provides special loans via the commercial banking system at preferential interest rates to finance imports of machinery and equipment for major industries. Also, the 1994 Statute for Encouragement of Private Participation in Transport-Infrastructure Projects provides incentives to private-sector companies to participate in financing, constructing, and operating transport-infrastructure projects.

In 2019, the government introduced a three-year Action Plan for Welcoming Overseas Taiwanese Businesses to Return to Invest in Taiwan. The scheme extends to companies operating in a range of strategic sectors, including consumer technology, biomedicine, defense, and green energy. The plan offers preferential treatment including facilitated access to financing and utilities.

Supply-chain disruption caused by the outbreak of the coronavirus (covid-19) pandemic has prompted further calls for manufacturing self-reliance. In response, the government launched the Pilot Industries Research, Development and Upgrade Program in mid-2020. This program will provide NT$10bn in subsidies over seven years to attract international technology companies to invest in research-and-development (R&D) activity in Taiwan.

In 2020, the government introduced a program to support young entrepreneurs aged 20– 45 years looking to establish an independent business in Taiwan. As of end-July 2022, NT$60bn had been allocated for the program, which aims to lend up to NT$1m per project at an annual interest rate of 1.42% during the first five years of the loan, with the government providing a 100% guarantee of the loan amount. Finally, amendments passed by the legislature in 2019 extended key aspects of the Statute for Industrial Innovation, Taiwan’s main document for industrial incentives. Preferential treatment, which allows companies to offset R&D expenses against income tax, will continue until the end of 2029.

Incentives by Regions

Companies investing a minimum of NT$25m and increasing employment by at least 50 persons in underdeveloped regions are eligible for significant tax benefits. They can either opt for a tax credit equal to 20% of the new investment or choose to be exempted from corporate income tax for the specific year the investment is approved. This incentive applies to several counties including Chiayi, Ilan, Kinmen, Lienchiang, Miaoli, Nantou, Penghu, Pingtung, Taitung, and Yunlin.

As of July 2022, the Department of Investment Services reported that Taiwan hosts a diverse mix of business and industrial zones. These include 237 industrial parks, ten export-processing zones, three science parks, three agricultural biotechnology parks, four environmental science and technology parks, and seven free-trade zones. Taiwan also offers advantageous terms for companies looking to establish themselves within these zones. For instance, land within industrial estates can be purchased in instalments spread over five to seven years, and companies can borrow 70–90% of the land price from government banks under very reasonable terms.

Taiwan is also actively encouraging the development of specialized industrial parks, which cover a total area of 4,005 hectares. Special incentives, such as reduced leases, are available for specific locations, including Changhua Coastal Industrial Park, Hualien Hoping Industrial Park, Tainan Technology Park, and Yunlin Technology Industrial Park. Interested investors are advised to direct their enquiries about these zones to the Industrial Development Bureau of the MOEA.

Hsinchu Sicence Park

The Hsinchu Science Park, located south of Taipei, stands as the first and most advanced of Taiwan’s industrial parks. Recognized for encouraging investments in the production of precision instruments, computers, machinery, and electronics, it provides enticing incentives. These include a five-year tax holiday, import-duty exemption, and a maximum of 20% corporate income tax. Companies can opt to start the tax holiday within two years of initiating product sales or service provision. When a science-based enterprise in Hsinchu embarks on a capital expansion project, it can enjoy a four-year exemption from profit-seeking-enterprise tax or apply for a special 15% investment-tax credit that can be deferred for up to four years.

Additionally, companies in the park can apply for grants to develop innovative technology or subsidies to design and manufacture crucial high-tech parts and products. Grants for individual projects can amount to as much as NT$5m or 50% of the project’s overall cost. Subsidies can cover up to 50% of development costs for approved parts and products. The park administration is responsible for issuing grants and processing applications.

A valuable advantage provided by the park is access to bonded warehouses that simplify customs clearance of exported goods. The park regulations guarantee enterprises operating there receive tax terms at least as favorable as those anywhere else in the country. For foreign companies interested in investing in Hsinchu, applications should be directed to the park administration.

By the end of June 2022, the park had approved 615 companies to set up operations, with 555 of them having already done so. These included 186 integrated-circuit manufacturers, 116 biotechnology firms, 91 opto-electronics companies, 58 computer and peripherals manufacturers, 53 precision-machinery producers, 43 telecommunications companies, and eight other industries. Notably, 75 of the enterprises already established in the park are foreign companies, with overseas Chinese owning 13.

In 2022, the combined sales of the park’s resident companies totaled NT$1.61trn, marking a low-rise increase from 2021. Major foreign or foreign-invested companies in Hsinchu Park include notable global names like Royal Philips Electronics from the Netherlands; Mitsubishi, Shin-Etsu, and OptoElectronics from Japan; Taisil Electronic Materials partially owned by the US’s MEMC Electronic Materials; DuPont, HP, and Motorola also from the US; Logitech from Switzerland; and Siemens from Germany.

The Southern Taiwan Science Park

The Southern Taiwan Science Park, another science-based park, comprises two distinct areas: the 1,038-hectare Tainan Science Park and the 570-hectare Kaohsiung Science Park. The exemptions offered to companies operating in these parks are identical to those granted at Hsinchu Park. As of the end of July 2022, a total of 265 companies had received approval to set up operations within the park. These include 86 biotech firms, 65 precision machinery manufacturers, 45 opto-electronics companies, 38 semiconductor manufacturers, 12 telecoms companies, nine computer and peripherals manufacturers, and ten companies in other industries. According to the most recent statistics, the combined sales of the companies in the park reached NT$1.09 trillion in 2021, marking a significant increase of 29.2% from the previous year, 2020.

The Central Taiwan Science Park

The Central Taiwan Science Park, which is situated in Taichung and Yunlin, forms the third science-based industrial park and has been operational since 2003. By the close of 2021, which marks the most recent data available, the park housed 233 operating companies. This industrial park, spanning an area of 413 hectares, is particularly geared towards the advancement of nano-science applications. However, progress on its fourth expansion phase has been continually disrupted due to environmental considerations. Based on the latest statistics, the park recorded sales of NT$1.04 trillion in 2021, representing a rise of 10.6% compared to the figures from 2020.

Nankang Software Park

Opened in 1999, Nankang Software Park is a hub for computer software design and development. As of the end of 2019, which marks the latest available data, the park hosted 471 operational companies, a significant increase from 346 two years prior. Employing 22,606 workers, these companies generated sales of NT$960.4bn in 2019, up 47.8% from 2017. The roster of companies in the park includes prominent international firms like HP and IBM from the United States. Foreign companies benefit from rental discounts – 40% off for the first two years and 20% off for the subsequent two years.

The Ministry of Economic Affairs (MOEA) provides a substantial loan programme, valued at NT$6bn, for companies wishing to acquire factory buildings within the Nankang Software Industrial Park, with each loan covering up to 80% of the factory’s costs. In 2002, the Council for Economic Planning and Development approved MOEA’s proposal to establish a NT$460m national design centre in Nankang. Completed in 2004, the Taiwan Design Centre provides design, marketing, technology, and information consultancy services to local businesses. Furthermore, the park houses three industry-specific incubation centres: Nankang IC Design Incubator, Nankang Biotech Incubator, and Nankang Software Incubator.

Kaohsiung’s software industrial park

Kaohsiung Software Park (KSTP), a developed technology park located in the Kaohsiung Multi-functional Commerce & Trade Park, opened in 2008 and models after Nangang Software Park in Taipei, focusing primarily on ICT software and digital content. By 2015, the park housed 269 companies with a combined investment of NT$22.2bn and 4,500 employees. Prominent tenants include the likes of Foxconn and Brogent, contributing to the park’s position as a key promoter of southern Taiwan’s burgeoning software industry.

KSTP, established in 2000, covers a total area of 7.92 hectares, with 6.61 hectares allocated for rent, which as of now is fully occupied. The park is home to 253 approved investment companies, inclusive of 52 business liaison offices, primarily comprising of 232 Chinese companies, 12 foreign companies, and 9 joint ventures. Digital software, content, and R&D design industries account for 79.37% of the total investment, manifesting the park’s strategic focus. Despite plans for a third software park in central Taiwan’s Taichung city, as of July 2021, there had been no announcement regarding its inauguration. The projected park, which attracted 163 investment projects pledging NT$12.7bn in total investments, is expected to create 8,000 jobs upon full operation.

Export Processing & Economic Zones

Export incentives in Taiwan include duty drawbacks on imported inputs, loans to finance imports, expenses of assembly, manufacturing and sale of exports, and an instalment system for paying customs duties. Furthermore, payment of import duties and taxes on machinery and equipment by exporting industries can be deferred for five years, thereby enhancing the competitiveness of these industries in international markets.

Taiwan is currently home to ten export-processing zones (EPZs), six of which are in the Kaohsiung area (Chengkung Logistics Park, Kaohsiung EPZ, Kaohsiung Aircargo Park, Kaohsiung Software-based Technology Park, Linkuang EPZ and Nantez EPZ). The Taichung area hosts two EPZs (Chungkang EPZ and Taichung EPZ), while one each is located in Touliu city in Yunlin county (Touliu EPZ) and in the Pingtung area (Pingtung EPZ).

All production within these zones is primarily intended for export, although special permission can be obtained for selling products domestically. Furthermore, operations within the EPZs enjoy exemption from import duties and commodity taxes, thus fostering a conducive environment for export-oriented manufacturing.

In 2021, the EPZs collectively generated a revenue of NT$450bn, marking an increase of 12.6% from the previous year. As of end-May 2021, a total of 766 enterprises, employing over 80,000 people, had received approval to operate in the EPZs, according to the most recent data from the Ministry of Economic Affairs.

Taiwan’s first harbour-based EPZ, the Taichung Harbour Warehousing and Transshipment Centre (Chungkang EPZ), completed its development in two phases in 2002 and 2006. The centre, covering 177 hectares, is home to multinational companies and local manufacturers of high-tech goods. Manufacturers in the centre receive duty-free import of production equipment, raw materials, semi-finished products and fuel.

Since 2002, domestic companies have also been able to establish operations in Pingtung EPZ, in southern Taiwan. Constructed in three phases, with the last completed in 2007, this zone has also opened simple processing services to goods shipped directly from China since 2001 through the offshore transshipment zone in Kaohsiung Harbour.

Regulations for the zones stipulate a minimum investment capital of NT$20m for manufacturing, NT$5m for trading and NT$1m for services. They permit thirteen categories of industries including chemical products, consulting services, electric appliances, food, garments, information services, international trading, machinery, metal products, miscellaneous industrial products, precision machinery, vehicles and other high-tech, capital-intensive, high-quality or high value-added industries. Labor-intensive businesses are discouraged, and foreign banks may not operate in the zones.

As a facilitative measure, producers in the zone have been allowed to make tax-free sales of machinery and equipment used for at least five years since 1998. Moreover, in 2002, the Ministry of Transportation and Communications allowed companies to transport products made in mainland China to bonded factories in EPZs and science-based industrial parks via the Kaohsiung offshore shipping centre. This strategic move allows the goods to then be shipped to overseas destinations, including mainland China, thereby streamlining cross-strait trade and logistics.

Table of Contents
Connect With Authors
*Your message will be sent straight to the team/individual responsible for the article.