Q1: What is the benefit of FTZs in terms of promoting domestic economic development?
Taiwan has steadily pursued policies of internationalization and trade liberalization over the past half century. These policies have helped the country overcome its general scarcity of natural resources and other limitations to promote economic growth and to develop unique competitive advantages. The rise of the global economic ecosystem and the increasingly “borderless” nature of international commerce have again led Taiwan to develop proactive policies to meet the new economic challenges, both domestic and international. Without innovative, well-targeted, and clear policies, regional cooperative agreements such as the ASEAN–China Free Trade Area (ACFTA), launched in 2010, would threaten the economic marginalization of Taiwan.
Furthermore, the outward flow of Taiwanese manufacturers to countries with lower costs of labor during the past two decades has profoundly affected our country's economic foundations. Thus, the government has prioritized the development and implementation of strategies to keep competitive domestic enterprises on home soil.
The global approach to logistics management is widely used today by multinational firms to streamline, integrate, and manage core business activities such as trade, value-added processing, R&D, and product & service logistics. In light of Taiwan's advantageous geographic location for regional and global commerce, the government has aggressively pursued the development and implementation of free trade zones with a strategic eye on turning these zones into lucrative centers of global and regional logistics. Firms are encouraged to open corporate offices in Taiwan's FTZs to coordinate domestic and international logistic flows, finances, and communications. Even when actual production is not done in the FTZ, firms may use logistics management to tightly integrate upstream and downstream links in their supply chains, gaining a strong advantage over their competition.
Q2: How do Taiwan's FTZs differ from FTZs in other countries?
Countries around the world operate their FTZs differently, based on differing objectives. Taiwan's FTZs have two important functions that set them apart from all others. These include: 1) open access to the FTZs for individuals engaged in the normal course of business and 2) extensive (deep) value-added processing of products is permitted within FTZs.
1) Open access: Businesses that use Taiwan as their global logistics center require easy access for their overseas branch staffs to and from the FTZ. Lengthy applications, waiting periods, and bureaucratic procedures would, understandably, cause a competitive disadvantage and be a concrete reason for choosing to site operations elsewhere. Thus, business visitors to Taiwan's FTZs who do not currently hold a valid visa or who are not from a permitted visa exemption / landing visa country may apply with the Ministry of Foreign Affairs for an “optional landing visa”, which is quickly processed in 3 working days.
2) Extensive value-added processing: This category of processing is generally not permitted in FTZs around the world due to issues of safety and taxation. Extensive value-added processing is uniquely available to Taiwan's FTZ enterprises as a way to create greater added value and to help these enterprises tap fully into Taiwan's strong domestic manufacturing base in order to raise the overall profitability of FTZ activities. This innovative niche advantage gives significantly greater operational and managerial freedom to enterprises that operate in Taiwan's FTZs.
Q3: In what ways do FTZs and “international logistics centers” compete and cooperate?
Generally speaking, international logistics center operations center on bonded warehousing, cargo transshipping, and distribution as well as certain degrees of container repacking and simple value-added processing. Because firms in the international-logistics sector focus on international product distribution activities, they are primarily located near to commercial sea and airports. In Taiwan, firms in this category have a minimum paid-in capital requirement of NT$150 million. However, as free trade zones set no minimum capital requirements, FTZs offer an effective avenue for small and medium enterprises to engage in international trade logistics.
1) How FTZs and logistics centers compete: Both entities engage in warehousing / storage and logistics activities.
Looking more closely, unlike logistic centers, FTZs permit product manufacturing, i.e., extensive (deep) value-added processing, thus offering the potential to further expand the value-added component of FTZ business activities. In contrast, international logistics centers limit their firms to repacking and simple value-added processing activities.
2) How FTZs and logistics centers may cooperate:
Partnerships between logistics centers and nearby FTZs can help logistics centers maximize the potential for profit and sales from their current worldwide distribution businesses and create mutually profitable business niches for both partners.
Q4: Please describe how FTZ enterprises outsource value-added production.
1) The integrated production-to-sale operations of FTZ enterprises tie together the tax-free “storefront” status of FTZs and the broad-spectrum, high-quality manufacturing capabilities of Taiwan’s domestic industries. FTZ enterprises may significantly enhance the cost and technological competitiveness of their products through taking advantage of domestic outsource-manufacturing opportunities.
2) Contract manufacturing (value-added) is subject to a case application process. August 28th, 2013 revisions to the Regulations Governing Customs Clearance for Goods in Free Trade Zones no longer make a distinction between simple and substantive value-added processing. All may be processed via administrative request, which is reviewed and approved by the FTZ authority on behalf of Taiwan’s customs authority. Application is made to the customs authority for permission for the entry and storage of goods following approval of the administrative request.
Q5: Please explain the process necessary to apply for tax-exempt status for the domestic or overseas sale of goods of foreign enterprises or branch offices that have been stored or (simple) value-added in FTZs?
1) According to the Regulations Governing the Exemption from Business Income Taxes of Foreign-owned Enterprises Engaged in Warehousing or Simple Value-added Processing in Domestic Free Trade Zones, foreign-registered companies (or their designated applicant) must apply in advance to the FTZ authority for a “Certificate of Authorization for Engaging in FTZ-based Warehousing / Simple Value-added Processing”.
2) The applicant shall submit to the local tax authority in a timely manner relevant tax-reporting documents for the current year as well as the abovementioned certificate, an accountant-certified tax incentive table, and required identification documents in order to formalize the abovementioned business-income-tax exemption.
Q6：What are the ways that companies may operate in free trade zones in Taiwan?
A: In general, there are three types of FTZ business operations:
1) Direct FTZ business operations with the approval of the FTZ authority via the leasing of land and storage facilities or through joint investment and construction of warehouses and / or production facilities.
2) Smaller-scale businesses may sublease warehouse-storage space and contract with current FTZ enterprises for labor and business services. After resolving business details such as the protection of trade and technology secrets, these businesses may apply to the FTZ authority for an operating license and then commence business activities.
3) Businesses that desire to take advantage of FTZ attributes but that have limited staffing / financial resources or trade volumes may choose to postpone making a major investment and, instead, authorize a current FTZ enterprise to handle their logistics and related affairs within the zone.
Q7：What procedures are required in order to bring our own equipment into the free trade zone? How does the zone treat this activity in terms of tariffs and taxation?
1) An F1 report must be submitted for equipment that is imported into the FTZ from overseas by an FTZ enterprise for its own use. An F4 report must be submitted for equipment that is brought into the FTZ from a domestic bonded zone. Equipment in both categories shall be recorded in the account book.
2) In accordance with Article 21, Paragraph 2 of the Act for the Establishment and Management of Free Trade Zones, an FTZ enterprise shall be exempt from the payment of customs duties, commodity taxes, business taxes, trade promotion service fees, and harbor service dues for machinery and equipment that are imported into the FTZ from overseas for its own use. However, for those import goods into domestic market(Taiwan), shall be taxed according to the Import Duty Regulation.
Q8：We are not an FTZ enterprise. How may we also take advantage of FTZ-related discount and incentive programs?
Non-FTZ enterprises that authorize an FTZ enterprise to handle their cargo within an FTZ enjoy the same tax incentives and benefits as FTZ enterprises.
Q9：What documentation should be submitted with our FTZ enterprise application?
A9: In accordance with Article 3 of the Regulations Governing the Operation and Management of Free Trade Zones Enterprises, the following documents must be submitted as part of an FTZ enterprise application:
1) Application form;
2) Business plan;
3) The operating procedures for goods control, the on-line operation of goods customs clearance, and accounting operations;
4) For new startups: The name of the company and the pre-inspected documents for incorporation and registration certificate of the business.
5) Lease contracts or relevant evidentiary documents regarding the facility or land;
6) The credentials of the investor:
If the investor is a national of Taiwan (the Republic of China (ROC)): A photocopy of the ROC Identification Card of the investor (if a natural person) or a photocopy of the Certificate of Incorporation (if a juristic person);
If the Investor is an overseas Chinese: An Overseas Chinese Identification Certificate;
If the Investor is a foreign national: A photocopy of the certificate of nationality or the passport issued by the investor's home country (if a natural person); A photocopy of the Certificate of Incorporation (if a juristic person); A certificate of recognition of the foreign company (if a foreign company with a branch office in Taiwan.
7) Operations with a contracted electricity capacity of 1,000W or higher shall submit an electricity usage plan; Operations that plan to use water volumes of 300m3/day shall submit a water usage plan.
8) Operations that require special permits / authorizations shall include related documentation with their application.
Q10：What are the differences between FTZs and bonded zones in terms of accessing and moving cargo?
Cargoes that are admitted and stored at FTZs are exempt from normal review, inspection, customs clearance, and escort procedures and are generally not affected by “border controls”. Bonded areas, as currently administered in science parks, export-processing zones, logistics centers, and bonded factories, are subject to border controls and must transport and transact goods in accordance with bond terms. FTZs currently offer relatively more attractive incentives and tax/tariff exemptions and permit a higher foreign-labor ratio, higher degree of business autonomy, and more flexible financial measures.
Q11：Is cargo from Mainland China admissible into Taiwan's FTZs?
A11: In accordance with Articles 15 and 16 of the Act for the Establishment and Management of Free Trade Zones, excepting banned items and goods that may endanger safety, the environment, or the international image of Taiwan and thus require special permitting permission from the relevant authority(ies), no specific legal or regulatory restrictions apply to the admission of cargoes from Mainland China. However, the movement of these cargoes from the FTZ into domestic tax zones shall be subject to all relevant regulations.
Q12：From the perspective of logistics service providers, what are the practical differences between Taiwan's FTZs and industrial parks?
1) Cargoes that are admitted and stored at FTZs are exempt from normal review, inspection, customs clearance, and escort procedures and are generally not affected by “border controls”. Bonded areas, as currently administered in science parks, export-processing zones, logistics centers, and bonded factories, are subject to border controls and must transport and transact goods in accordance with bond terms.
2) Different from bonded areas, FTZs provide a home to comprehensive industry clusters and have significantly simpler administrative procedures. For example, foreign-origin cargo and cargo to be shipped overseas or transferred to another FTZ require customs notification only, with an electronic confirmation from customs sufficient for release into our out of the FTZ. Furthermore, FTZs offer more attractive incentives and tax/tariff exemptions, permit a higher foreign-labor ratio, permit a higher degree of business autonomy, and provide more flexible financial measures.
Q13：How long is cargo permitted to remain in FTZs?
A13： Foreign-origin and other cargo that is stored in FTZ warehouses may remain in storage for an indefinite period of time.
Q14：What practical niche do Taiwan's FTZs serve for foreign (non-Taiwanese) enterprises?
1) To increase the attractiveness of Taiwan's FTZs to foreign enterprises, FTZs permit products that have been stored and simple value-added to be sold both domestically and internationally. This practically enhances the value of international trade activities and the comprehensiveness of FTZ functions.
2) In accordance with Article 19, Paragraph 2 of the Act for the Establishment and Management of Free Trade Zones, the Ministry of Transportation and Communications (MOTC) issued order #0990085018, entitled: Regulations Governing the Exemption from Business Income Taxes of Foreign-owned Enterprises Engaged in Warehousing or Simple Value-added Processing in Domestic Free Trade Zones. Applicable foreign-owned enterprises and their Taiwan-registered branch offices that engage either directly or indirectly in warehousing or simple value-added processing in Taiwan's FTZs and that sell their goods either domestically or overseas may, as of July 10th, 2009, apply for business-income-tax-exempt status for these sales. However, the portion of domestic sales that exceeds 10% of the value of total domestic and international sales for any given year shall be subject to normal business income tax levies.