Taiwan’s Free Economic Pilot Zones

1. Taiwan’s Free Economic Pilot Zones National Development Council April 2014

2. Outline Introduction Ideas and Goals Strategies Target Activities Location and Time Line Concluding Remarks

3. Introduction (1/2) • Economic liberalization is being promoted all around the world • Major economies are stepping up FTA negotiations for bringing down trade barriers and enhancing trade and investment flows • Taiwan has completed only 7 FTAs, far behind its major competitors • To avoid being marginalized, Taiwan must • speed up the pace of liberalization and internationalization

4. Taiwan Being Isolated during Regional Economic Integration Accounting for 35.0% of Taiwan’s total trade Accounting for 56.6% of Taiwan’s total trade

5. Introduction (2/2) • Free Economic Pilot Zones (FEPZs) Plan to further Taiwan’sliberalization and globalization • Internally • To help ease doubts and fears of economic opening for entering FTA talks • Externally • To show Taiwan’s determination to advance further in liberalization toward regional economic integration • Focusing on deregulationand institutional innovation

6. Ideas and Goals

7. Key Ideas • Liberalization: Deregulation, market opening • Internationalization: Institutional reform, international alignment • Forward looking: Promoting innovativeindustrial activities and new business models

8. Ultimate Goal • FEPZs as “trial” and “pioneer” areas • To demonstrate the usefulness/benefits of economic liberalization and internationalization • From partial to general • From small-scale to large-scale • Ultimate goal: • Toward a free economy on the island

9. Strategies

10. Strategies • Facilitating the free movement of people, goods, and money • Providing Tax incentives and convenient land acquisition • Opening market to align with other economies • Promoting cross-border industrial cooperation • Building a high-quality business operating environment

11. Attracting Overseas Professionals Market entry Tax incentive Foreign professionals Foreign and Mainland Chinese professionals Landing visa Exempt from filing overseas income for tax Mainland Chinese professionals FEPZs Only half of income taxable for the first 3 years Exempt from documentationreview on business stay 3-year multiple-entry permits

12. Tax Incentives for Business • Exempt from business income tax: • Taiwan-based companies invest in FEPZs with dividends and earnings from their offshore operations • Foreign shippers export goods after storage and simple processing in FEPZs (but if sold to domestic market, only 10% exempted) • Exempt FEPZ Businesses from customs duty, commodity tax, business tax for imports of : • Agricultural & industrial raw materials • Machinery & equipment for own use

13. Market Opening for Professional Services • Allowing firms of lawyers, CPAs and architects to be operated in FEPZs as juristic persons • Permitting foreign lawyers, CPAs and architects or their firms to invest in or form partnerships in the FEPZs. Their business scope is restricted to Businesses in FEPZs and overseas • Professional licenses issued by the ROC government are still needed for foreign lawyers, CPAs and architects when practicing in Taiwan  

14. Double-track implementation mechanism • Location and boundary can be geographically defined • Multi-level processing can be conducted • Pilot models to be defined by competent authorities • Not feasible for implementation in physical areas • Differentiated administration based on grading • Focusing on deregulation and institutional reform Physical (shop onsite) Designated test-point mode • Any location outside the zone • Outsourced processing (factory offsite)

15. Single Window • Project managers will assist FEPZ businesses in administrative and regulatory matters. Business registration Land acquisition and use Comprehensive single window services Labor administration, safety and hygiene Construction Environment protection

16. Target Activities

17. Target Activities • Taiwan’s advantages: geographic location, industrial technologies • Integrating Taiwan’s advantages with potential industries and new business models • Smart Logistics • International Health Care • Value-added Agriculture • Financial Services: e.g. Wealth and Asset Management • Education Innovation • More industries will be included.

18. Smart Logistics • Promoting faster and freer goods flows and increasing the value-added of goods with top logistics services, enabled by electronic account book, innovative customs administration and cloud platform • Introducing “shops onsite, factories offsite” business model • Scope & level of processing expanded • Widerprofits generated by linking with neighboring clusters

19. “Shops onsite, factories offsite ” business model Sub-contractors More than processing, such business model actually spurs development of the whole value chain 70%components MIT Free Trade Zone Outside the Zone Import and store components Outsourced processing Overseas Logistics Co. Export finished cars Contractor Car assembly

20. International Health Care • Simplifying entry procedures for foreign visitors • Setting up international medical service centers in airports to provide medical consultingand hospital liaison services • Establishing “International Healthcare Industrial Park” to promote industries such as medical care (both aesthetic medicine and critical illness), biotechnology, pharmaceuticals, rehabilitative care, health enhancement etc.

21. Value-added Agriculture • Fully utilizing Taiwan’s sophisticated agricultural technologies and talents to Innovate agricultural products • Increasing agricultural value-added by extending individual agricultural products to whole value chain • Marketing Taiwan’s value-added agricultural products such as Taiwanese teas, orchids, animal vaccines, ornamental fishesetc. under MIT brands worldwide

22. Example A: Ornamental Fish • Global market size: US$6 billion annually • Market expanded to US$15 billion by including fish feed, aquarium boxes, LED lighting etc. • Under the FEPZs Plan, previously banned fishes now can be imported to FEPZs • The imported fishes, after cultivation, quarantine etc., will be exported worldwide together with Taiwan’s indigenous fishes and MIT peripheral equipment

23. Example B: Chocolate The most famous brand names seen in Europe The largest production bases located in America Raw materials grown locally, processed offshore, turned intobrand name products, and sold to the world. The most potential market considered in Asia Cacao beans grown in Africa • Other examples: Japan’s UCC Coffee, Lipton Black Tea etc. • Integrating foreign raw materialsand species with Taiwan’s technologies, and marketing finished products under MIT brands worldwide

24. Financial Services • Allowing financial institutions to develop wealth and asset management services under grade-based management • Offshore Banking Units (OBUs) and Offshore Security Units (OSUs) acting as the main sales channels in providing a diverse range of financial products and services to non-residents • Restrictions on scope and categories of financial products have been greatly relaxed, and negative-list approach has been adopted

25. Education Innovation • Encouraging cooperation between domestic and overseas prestigious universities to set up • Branch campuses • Branch departments • Independent academies • Degree courses and professional programs • Relaxing rules and conditions for school establishment and operation, student enrollment, faculty recruitment, etc. • Priority is given to degree courses and professional programs

26. Locations & Time Line

27. Physical Locations Taipei Port FTZ • Phase I • 7 FTZs & 1 agri-biotech park • Extending FTZs by “shop onsite, factory offsite” operation Keelung Port FTZ Taoyuan Airport FTZ Su’ao Port FTZ Taichung Port FTZ Anping Port FTZ Pingtung Agricultural Biotechnology Park Kaohsiung Port FTZ • More FEPZs will be set up in the future!

28. Time Line FEPZs Framework approved in April 2013 Special Act reviewed by Legislative Yuan 2013 2014 FEPZs Plan approved in Aug. 2013 Special Act submitted to Executive Yuan for approval in Oct. 2013 Special Act enacted PLANNING PHASE1 PHASE 2

29. Potential Benefits • Private investment to increase by NT$21 billion in 2014 • Gross output to expand by NT$30 billion in 2014 • Creating 13,000 new jobs in 2014 • FTZs to see trade value multiplying and surpassing NT$1 trillion in 2015 • Business revenue for Financial Services may increase by NT$28 to 42 billion annually • New business models to be invented

30. Concluding Remarks • The FEPZs Plan is to prepare Taiwan for further economic liberalization and internationalization. • The Plan will help • align Taiwan’s economy with the world in the shortest period of time • Taiwan gain admission to The Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP) • Being runways to a new take-off for Taiwan’s economy, the Plan will eventually turn Taiwan into a free economy island.

31. Contact Details • For enquiries or services, please contact InvesTaiwanService Center Address 8F, 1 Xiangyang Road, Taipei 10046, Taiwan Tel 886-2-2311-2070 e-mail service@invest.org.tw • For more information, please visit www.fepz.org.tw