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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.

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.

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.

 

  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.

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.

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.

  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.

Foreign-origin and other cargo that is stored in FTZ warehouses may remain in storage for an indefinite period of time.

 Processing outside bonded factoriesImport-Process-Export without tariff” in FTZs
Capital invested  NT$ 50 million No limit
Tax incentive (for commodities, private use machinery and equipment)

Customs duty, commodity tax and business tax

(No tax incentive for private use machinery and equipment)
Customs duty, commodity tax, business tax, alcohol and tobacco tax, tobacco health welfare surcharge, trade promotion service fee and harbor service fee
Storage period Two years No limit
Account checking Once a month Once every six to eight months on average
Management Adopt level-to-level management No level-to-level management
Customs clearance Customs clearance Rreport
Restricted commodities from China Subject to the approval of the Ministry of Economic Affairs Bureau of Foreign Trade Free access
Operation Mode Commissioned operation not allowed Commissioned operation allowed
Outsourcing
  • Exemption of tax bonding
  • No tax refund for raw materials outsourced
  • Business tax on outsourced service
  • Only work with (one) single outsourcing provider
  • Monthly consolidated declaration (yellow card) unavailable
  • 6+3 months of outsourcing period
  • Only semi-finished products processing allowed in principle
  • Exemption of tax bonding
  • Duty refund available for imported raw materials processed in the taxed area
  • No business tax on outsourced service
  • Allow to work with multiple outsourcing providers
  • Monthly consolidated declaration
  • 6+6 months of outsourcing period
  • Finished products processing permitted

Difference  / Indirect tax incentives

Export processing zone

Science park

Agricultural technology park

Bonded warehouse

Logistics center 
Bonded factoryFree trade zone
Import of raw materials
(taxes exempted)
Import duty

Commodity tax

Business tax

Import duty

Commodity tax

Business tax
Import duty, commodity tax, business tax, alcohol and tobacco tax, tobacco health welfare surcharge, trade promotion service fee and harbor service fee

Import of fuels, materials, semi-finished products, machines and equipment

(taxes exempted)

Import duty

Commodity tax

Business tax
  Import duty, commodity tax, business tax, trade promotion service fee and harbor service fee
Export of commodities/labors Zero business tax rate Zero business tax rate Zero business tax rate
Procurement of raw materials, fuel, materials, semi-finished products, machines and equipment from duty-levying area Zero business tax rate Zero business tax rate Zero business tax rate

No more business tax or trade promotion service fees shall be levied on goods that are shipped back in its “as is” condition to the taxed area for some reason, because they are duty (tax)-paid goods.

Currently, it doesn't apply to the profit-making enterprises from China due to the special relations and circumstances between China and Taiwan.

As FTZs are inside the national border but outside the customs territory, no license is required to ship goods into FTZs, except for goods stipulated in Article 15 of the Act for the Establishment and Management of Free Trade Zones, of which the entry or storage shall require a prior approval from the respective central authorities in charge of relevant end-enterprises concerned, products made in China shall neither enter into FTZs, nor be shipped into any taxed area if they fall into the scope prohibited by the Regulations Governing Permission of Trade between Taiwan Area and Mainland Area, but this doesn't apply to commodities that are allowed to be shipped into taxed areas after substantial transformation.

In order to respect the EU's anti-dumping measures on bicycles and solar energy products made in China, the aforementioned products shall be subject to the export permit of the Ministry of Economic Affairs (Bureau of Foreign Trade) before being exported overseas from FTZs.

To be exempted from penalties, the party concerned may file an application with the customs to correct the declaration form before the release of FTZ goods or within six months following the date of release before the customs decide the goods to be inspected or finds any unconformity.

  1. 1. The number of aborigine employees shall be 3% multiplied by the total number of employees covered in labor insurance on the first date of every month from the date when the enterprise formally settles in the FTZ (the result shall be rounded to an integral), that means, for every 34 employees or more, there should be one aborigine employee. Besides, starting from May 26, 2011, the aborigine employees employed by an FTZ enterprise outside the FTZ may be included in the calculation.
  2. 2. The FTZ enterprise that does not employ sufficient aborigine employees as stipulated shall pay the employment contribution in the amount of multiplying the shortfall of the employees with the monthly basic salary to the Employment Fund Specialized Account established by central aborigine competent authority on a regular basis.

In FTZ manufacturing enterprises, the number of foreign employees shall not be more than 40% of the total employees, but this provision doesn't apply to the service sector.

  1. FTZs are inside the national border but outside the customs territory. To ship foreign goods into FTZs, or export goods from FTZs to foreign countries, the FTZ enterprise concerned is only required to report to the customs and get the reply from the customs that relevant records have been filed.
  2. The circulation of goods between FTZs and any domestic bonded and taxed area shall be handled, upon the approval of the customs, in accordance with relevant input and output provisions.
  3. Goods traded within the FTZ without being shipped out may not subject to the approval or records from the customs, but shall be reported to the customs before delivery.
  4. 8. In order to facilitate declaration and immediate processing at any time, FTZ enterprises should submit declaration forms, application and reports related to the above goods online or via electronic data transfer.

In accordance with Tai Cai Guan Zi No. 1031000308 correspondence issued by the Customs Administration, Ministry of Finance, dated March 3, 2014, the FTZ enterprises (including FTZ warehouses) shall replace "physical separation" with "computer-based control of storing place" in any of the following circumstances:

  1. 1. Having set customs-approved warehouse facilities, and a complete process of computer control (including 24-hour 360 degree monitoring and 30-day data archiving) for goods storage, warehousing transfer, warehouse inbound and outbound.
  2. 2. Having a bar code or RFID tag on every outer carton or package of the imported and exported goods.
  3. 3. The bar code label shall indicate the name of the goods inside the package, material number, specification, model, quantity, nature of the goods warehouse (such as logistic center, FTZ enterprise, bonded warehouse, warehouse for transshipment or other import and export warehouse).
  4. 4. Providing bar code readers or RFID readers on site for information reading, and transferring the electronic information of storing places to the customs for remote audit.

 

  1. The application for reduction of warehouse ground area shall be subject to the approval of the management authority upon review and on-site survey by relevant organizations.
  2. FTZ enterprises and non-FTZ enterprises are required to replace physical separation with computer-based control of storing places, so they can use the warehouse space in a flexible way.
  1. For enterprises not shipping transit goods out of the controlled area, there is no requirement for inspection or escort.
  2. FTZ enterprises are not required to report and apply for inspection or escort for each transaction when moving, assembling or disassembling, conducting simple processing of, or reassembling goods within the FTZs.
  3. In case of import of goods by sea and reassembly of the transit goods, if the operator is a warehouse operator or carrier with AEO status, it shall apply to customs with jointly signed document in advance every year, directly conduct reassembly, and be exempted from filing an application for each case. After the reassembly is completed, application shall be submitted to correct the import manifest.

 

When customs declaration is made in the name of an FTZ enterprise, and the FTZ enterprise is the taxpayer (the consignee, or the owner of goods or the bill of lading), said goods fall into the scope of goods for operation as set forth in Article 21 of the Act for the Establishment and Management of Free Trade Zones, and shall be entitled to exemption of relevant taxes.

In accordance with the provision of Article 28 of the Act for the Establishment and Management of Free Trade Zones, business tax rate for the following goods and labor shall be zero:

  1. The goods and private use machinery or equipment sold by enterprise(s) in taxed area or bonded area to FTZ enterprises for operation.
  2. The goods stored in FTZ enterprise(s) for export by sales from bonded area enterprise(s) to exporting company.
  3. The goods stored in FTZ enterprise(s) for export by sales from taxed area enterprise(s) to bonded area enterprise(s).
  4. The labors for operation sold from enterprise(s) in taxed area or bonded area to FTZ enterprise(s).
  5. The goods or services to be sold by an FTZ enterprise or by a foreign enterprise, agency, entity or organization to another FTZ enterprise in the same free trade zones, or to the FTZ enterprise(s) in another free trade zone, or to foreign customers, or to the enterprises in another bonded area, or to an exporter for direct export or storage in a bonded warehouse or a logistics center for exporting, instead of shipping the same to any taxed area.

 

  1. 1. When applying for foreign profit-seeking enterprises income tax exemption as set forth in Paragraph 1, Article 29 of the Act for the Establishment and Management of Free Trade Zones, foreign profit-seeking enterprises shall submit the following documents to local tax collection authority to apply for exemption of business income tax:
    • A photocopy of the letter of certification for foreign profit-seeking enterprise conducting goods storage or simple processing operations in free trade zone from the local free trade zone authority in accordance with the Regulations Governing Profit-seeking Enterprise Business Income Tax Exemption for Foreign Countries, China, Hong Kong or Macau Profit-seeking Enterprises Conducting Goods Storage and/or Simple Processing Operations in Free Trade Zones.
    • The table of tax incentives of the year for directing or delegating an FTZ enterprise to operate reviewed by a income tax return certification CPA and related proof.
  2. 2. The aforementioned table of tax incentives reviewed by a CPA may serve as a proof of the validity and credibility of relevant documents, and save time and efforts spent in the follow-up check. Efforts have been made to effectively simplify the application procedures for taxpayers and reduce the operating cost of taxation.
  3. 3. For more information about the letter of certification on goods storage or simple processing operations, and the simplified document application as set forth in with the Regulations Governing Profit-seeking Enterprise Business Income Tax Exemption for Foreign Countries, China, Hong Kong or Macau Profit-seeking Enterprises Conducting Goods Storage and/or Simple Processing Operations in Free Trade Zones amended by the Ministry of Transportation and Communications in Jiao Hang Zi No. 10350126291 Decree on October 14, 2014, please go to the website of the Maritime and Port Bureau, MOTC, to load the relevant materials viahttps://www.motcmpb.gov.tw/downloadfilelist_83_63_1.htmll

 

Paragraph 2, Article 21 of the Act for the Establishment and Management of Free Trade Zones stipulates that "machineries and equipment to be transported overseas into a free trade zone by an FTZ enterprise for its own use shall be exempted from customs duty, commodity tax, business tax, trade promotion service fees, and harbor service fees, provided, however, that if the same are transported to a taxed area within five (5) years after their entry into the FTZ, supplemental assessment of relevant taxes and dues shall be imposed in accordance with the acts and regulations applicable to import of goods." This provision is based on the reason that no customs duty, commodity tax or business income tax shall be collected on machineries and equipment to be transported overseas for private use of an FTZ enterprise, as they are not shipped into the customs, but it's fair to pay relevant tax for these shipped into a taxed area within a short period of time (5 years) in accordance with the acts and regulations applicable to import of goods. As machineries and equipment are depreciated after being used for more than 5 years, they should be exempted from import tax, commodity tax and business income tax when being shipped to a taxed area.

In accordance with the provisions of the Act for the Establishment and Management of Free Trade Zones, international businessmen (excluding these from China) are allowed to enter into an FTZ by presenting their (visitor or resident) visa, being entitled to a visa waiver program, or applying for landing visa, in case of emergency, application for "optional landing visa" shall be filed with the competent authority via the FTZ management organization within 7 working days.

 

  1. 1. In order to improve the efficiency of administrative service, FTZs plans to adopt one-stop service provided by project managers and assist businesses in handling administrative matters. The Maritime and Port Bureau, MOTC, has set up a service center in each port free trade zone, where project managers from Taiwan International Ports Corporation Ltd. and the maritime affairs centers of the Maritime and Port Bureau, MOTC, will assist businesses in application for establishment, investment consultation and a series of administrative matters.
  2. 2. At present, in addition to the above administrative services, project managers from the maritime affairs centers of the Maritime and Port Bureau, MOTC, will, under the authorization of other administrative agencies, provide five types of services, such as "review and approval of commissioned processing", "issuance of certification on reduction of and exemption of taxes", "issuance of certificate of origin", "permission of employment of foreign workers in professional and technical positions" and "company registration and management business".
  3. 3. The Maritime and Port Bureau, MOTC will continue to conduct vocational training for project managers so that they can provide professional and high-efficient one-stop service and create a premium but convenient business environment.

 

  1. 1. It's required to submit the facility or land lease contract or relevant supporting documents to the management authority when applying for establishment of an FTZ enterprise in accordance with Article 3 of the Regulations Governing the Operation and Management of Free Trade Zones Enterprises, but there is no compulsory stipulation on rental of a warehouse in the FTZ.
  2. 2. In accordance with the stipulations of Articles 2, 5, 6 and 24 of the Regulations Governing Customs Clearance for Goods in Free Trade Zones, goods exported overseas by an FTZ enterprise, or goods shipped from an FTZ to a taxed area, bonded area, or goods from a taxed area or bonded area to an FTZ shall be stored in a warehouse in an FTZ, and go through relevant declaration (reporting) procedures. Said warehouse may be a FTZ warehouse owned by the FTZ enterprise or operated by any other FTZ enterprise.

 

In accordance with Jiao Hang Zi No. 1020039741 Correspondence issued by the Ministry of Transportation and Communications on November 25, 2013, prior to the release of FTZ goods or within six months following the date of release before customs decides the goods to be inspected or finds any unconformity or receives confidential report of smuggling, or gives a notice for post-clearance audit, the party concerned may be exempted from penalties after filing an application to correct said declaration form.