Taiwan’s Free Economic Pilot Zones

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

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

3. Introduction (1/2) • Currently major economies are aggressively speeding up signing FTA in order to lower trade barriers and attract investments. • Taiwan has only completed signing of 7 FTAs so far, far less than its competitors did. • Taiwan has to respond actively and efficiently in order to avoid marginalization under the wave of economic liberalization.

4. Introduction (2/2) • Free Economic Pilot Zones (FEPZs) for furthering Taiwan’s economic liberalization • Why does Taiwan still need special zones? • FEPZs are different from the conventional “Export Processing Zones” or “Science Parks” • FEPZs focusing on economic deregulation and institutional innovation.

5. Ideas and Goals

6. Key Ideas • Liberalization: Deregulation, market opening • Internationalization: Institutional reform, international alignment • Forward looking: Industries with new business models

7. 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 economic island

8. Strategies

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

10. Facilitating Overseas Professionals Movement Short-term Long-term 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 review on business stay 3-year multiple-entry permits

11. Opening of Professional Services • Allowing firms of lawyers, accountants and architects to be operated in FEPZs under the organization form of corporation • Permitting foreign lawyers, accountants and architects or foreign firms to invest in or form partnerships in the FEPZs. Their business scope is restricted to FEPZ Businesses and overseas business • Professional licenses issued by the ROC government are still needed for foreign lawyers, accountants and architects when practicing in Taiwan

12. Tax Incentives For business • Tax exemption • overseas profits repatriated to Taiwan by overseas Taiwanese companies for real investment in FEPZs • agricultural and industrial raw materials • goods exported after storage and simple processing in FEPZs (but if sold to domestic market, only 10% exempted) For foreign professionals • Tax exemption • income earned overseas • half of first-3-year’s income

13. Target Activities

14. Target Activities (1/6) • Main: High-value-added service Industries • Subsidiary: Manufacturing industries thatcan promote service industries • Smart Logistics • International Health Care • Value-added Agricultural Processing • Financial Services: e.g. Wealth and Asset Management • Education Innovation • More service industries to come

15. Target Activities (2/6) • Smart Logistics • Promoting faster and freer goods flows and increasing the value-added of goods with top logistics services, enabled by innovative customs administration and information clouds • Introducing “shop onsite factory offsite” business model • Scope & level of processing will be expanded • Wider profits will be generated by linking with neighboring clusters

16. Target Activities (3/6) • International Health Care Services • Simplifying entry procedures for foreign and mainland Chinese visitors • Setting up international medical service centers to provide medical consultation and hospital liaison services • Establishing “International Healthcare Industrial Park” to promote industries such as medical care, biotechnology, pharmaceuticals, rehabilitative care, health enhancement etc.

17. Targeted Activities (4/6) • Value-Added Agriculture Processing • Fully utilizing Taiwan’s sophisticated agricultural technologies and talents to Innovate agricultural products • Increasing agriculture value-added by extending whole value chain from individual products • Marketing Taiwan’s innovative agricultural products under MIT brands worldwide Example: Ornamental Fish

18. Targeted Activities (4/6) • Example: Ornamental Fish • Annual global trade amount: US$6 billion • By including fish feed, aquarium box, LED light etc., market expanded to US$15 billion • Thanks to “inside territory, outside customs” mechanism of FEPZs, originally banned fishes now can be imported to FEPZs • The imported fishes, after cultivation, quarantine etc., will be exported worldwide with fishes and peripheral equipment originated from Taiwan

19. Targeted Activities (5/6) • Financial Services • Allowing financial institutions to develop wealth and asset management services under grading-based differentiated management • OBUs and OSUs acting as the main sales channels in providing various kinds of financial products and services to non-residents • Restrictions on scope and categories of trust investment and derivative products will be greatly relaxed

20. Targeted Activities (6/6) • Education Innovation • Encouraging cooperation between domestic and overseas universities to set up university branch schools or departments, independent academies, degree courses or professional programs • Relaxing rules and conditions for school establishment and operation, student enrollment, staff recruitment, etc. • Priority is given to degree courses and professional programs

21. Locations & Time Line

22. Double-track implementation mechanism • Location can be defined geographically • Differentiated administration based on grading • 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)

23. 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 Harbor Pingtung Agricultural Biotechnology Park Kaohsiung Port FTZ

24. Time Line FEPZ’s Framework approved on Apr. 29, 2013 Special Act reviewed by Legislative Yuan Amendment of 13 regulations to be completed by Dec. 2013 2013 2014 Action Plan approved on Aug. 16, 2013 Special Act submitted to Executive Yuan for approval in Oct. 2013 Special Act enacted PLANNING PHASE1 PHASE 2

25. 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

26. Potential Benefits • Private investment to increase by NT$21 billion in 2014 • Gross output to increase 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 • New business models • Preparing us for joining TPP and RCEP talks

27. Concluding Remarks • FEPZs to prepare us for further economic liberalization and internationalization. • FEPZs include but are not limited to 8 FEPZs; more FEPZs will be set up in the future. • We welcome new ideas and proposals that can be applied to FEPZs. • Taiwan should accelerate liberalization when facing competition from either Shanghai Pilot FTZ or other countries’ FTZs.

28. Contact Details • For enquiry or services, please contact InvestTaiwan Service 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