Free Trade Zones in Taiwan

Ministry of Transportation
and Communications, Taiwan, R.O.C.
2011

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Contents

I. The Planning of FTZs

II. The Special Features of the System
III. Introduction to Each FTZ
IV. Operating Models for FTZ Enterprises

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 The Planning of FTZs
 The meaning and status of FTZs
Tax Area, Bonded Zone
FTZs Business Multi-stage value-added
services
center operations zone
Simple-processing, storage,
& transshipment
operations zone
Ships or airplanes arriving
at seaports or airports
Flow of goods at import/export points
Flow of people at entry/exit points
 Special zones that are “inside national
territory but outside customs”: Creating
an excellent environment for transnational
business operations by lowering barriers
to the flow of goods, commerce and
people.
 The creation of special zones for
“logistics, transshipment, and value
adding”: Combining the functions of
seaports and airports with meeting all the
needs for supply-chain management, to
strengthen users’ competitive advantage.
 Special zones as trial points for
“comprehensive trade liberalization”:
Placing stress on autonomous enterprise
management, while expanding
liberalization across the plane through
point and line trial implementation.
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 The Special Features of the System
Free flow of goods
Practical organizational form

Functional side

Efficiency side
(Exempt from customs checking,
(Can set up in a zone as a branch, inspection, and escort; adoption of
office, operations department, etc.) reporting or monthly reporting system)

Diversified operational scope Convenient business entry

(Can carry out rearrangement,
(Convenient entry visa for business
processing, fabrication, etc.) FTZs people, with facilities provided for
exhibition and trade activities)

Relaxation of foreign-
worker hiring ratio
(Foreign workers Single-window administrative service
may constitute up to
40% of employees) (Each FTZ has a single
administrative service and
Cost side

Service side
Tax preferences management authority)
(Goods,machines and equipment for Special coordinating mechanism
operation and private use are exempted
from relevant taxes and fees. Goods (An FTZ Cross-Departmental
purchased domestically are free from Working Group is specially
business tax. Foreign for-profit charged with deliberating on
businesses storing and/or performing
simple processing are exempted from related policy and coordinating
business income tax.) inter-zonal affairs)
Source: Compiled by CEPD,MOTC. 4
 The Special Features of the System－
Efficiency Side
5. Can opt for monthly reporting,
 Logistics with inter-zonal customs reporting
Reporting of FTZ goods.

1. No customs clearance, Customs clearance Other FTZs

and no document checks under bonding
as a rule. Guard regulations

6. Can opt for monthly customs

reporting and clearance.
Reporting
Bonded zones
FTZ Enterprise Processing zones
2. Simple entrepot
consignment operations Science parks
handled under provisions 4. Can opt for
of Customs Act. FTZ Enterprise Reporting monthly reporting. Customs clearance under export/import
regulations
3. No limitation on 7. Can opt for monthly customs
storage time. FTZ reporting and clearance.

Tax areas

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 The Special Features of the System－
Cost Side (1/2)
 Cost side 1: Tax preferences
Other FTZs
1. Goods and equipment
imported are exempt from Exempt
related taxes and fees. from
payment Subject to bonded
of tax cargo regulations. Bonded zones
Exempt
from 3. Zero-rated business tax for domestic
payment procurement.
of tax FTZ 4. Zero-rated business tax for goods stored
enterprise in FTZ for export by sales from bonded area
to exporting company or from tax area to
bonded area .
FTZ Zero-rated
business 5. Zero-rated business tax for operator
enterprise outside FTZ transporting goods to zone
tax. under instructions of foreign customer and
2. Zero-rated business FTZ obtaining foreign exchange.
tax on sale of services Subject to import
within FTZ. cargo taxation.
6. Taxed on value on leaving FTZ minus
value added in the FTZ.
7. Shipped back to FTZ after processing Tax areas
outsourced outside zone.
8. Exempt from trade promotion service
charges unless shipped to tax area.
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 The Special Features of the System－
Cost Side (2/2)
Cost side 2: Tax preferences
 Preferential measures for business income tax:
Foreign for-profit businesses or their branch companies in Taiwan that apply for
establishment or delegate free-trade-zone enterprises to store and/or perform simple
processing in FTZs and sell the products in and out of Taiwan shall be exempted from
business income tax. In the event that the annual domestic sales exceed 10% of the total
of annual domestic and foreign sales, the exceeded portion shall not be exempted from
business income tax.

Commissioning to
store & simple
processing

10% of the total sales

Owner of exempted from tax
foreign goods

Domestic
FTZ enterprise Customer
Overseas
customer
100% of the total sales
exempted from tax
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The Special Features of the System －
Functional Side
5. Permitted imports from China may be
shipped to tax zones

1. May import and store

unopened goods from
China. 2. Allowing FTZ enterprises to Guard
conduct a diverse range of Tax areas / bonded zones
business, including trade,
logistics, transshipment, value-
adding, and technical services. Applying entity
FTZ
Enterprise
FTZ
FTZ FTZ FTZ
Enterprise Enterprise Enterprise
3.The entity applying for establishment
as an FTZ enterprise is a company or
4. May be labeled as “Assembled in the Taiwan branch of a foreign
Taiwan” after rearrangement that does company, while the operating entity
not amount to substantive transformation . can be an office or other operating unit.

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 The Special Features of the System－
Service Side (1/2)
convener：Political Deputy Minister
of MOTC 1.Policy review of FTZ
Vice-convener：Director of
Department of
FTZ Cross- development
Aviation and Ministries 2.Reviewing on the case of FTZ
Navigation
committee,MOTC application and establishment
Staff Members： vice-chiefs of 3.Coordination of cross-
bureau,department and office from
MOF and MOEA department affaires

Convener：Vice-Chief of
administration
Staff:harbor bureau(CAA)
Staff members: National Immigration
Agency, Customs, Harbor Police( air
FTZ Working
police),Fire Control, Local
Government and other relevant
ministries and commissions
1.Coordination of FTZ issues
2.reviewing on cases of FTZ
Group business application and
establishment
3.reviewing on the certificate letter
of owner of foreign goods

FTZ
FTZ enterprises
Administrative 1.Execution of FTZ affaires
Authorities 2.Single-window administration
services
FTZ enterprises
(CAA、HB)
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 The Special Features of the System－
Service Side (2/2)
After 6 months in operation, check
Application by business to whether operating in accordance with
operate in FTZ submitted documentation.

Eligibility
Undertaking of trading, warehousing,
logistics, container (cargo) terminal, Review by FTZ

Approval

Operation
Application management Qualified
entrepot, transshipment, freight forwarding, authority
customs reporting service, assembling,
rearrangement, packing, repair, processing,
manufacturing, inspection,
jointly
testing,exhibition, technical services, or with
FTZ storage businesses.
Documentation required
Customs and other
1. Application form. related agencies Handled and
2. Business plan (including financial plan).
assisted by
3. Goods control plan.
specially assigned
4. Explanation of customs reporting and
personnel
book keeping.
5. Investors’ identification documents.

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 Introduction to Each FTZ
FTZs and Industrial Zones Taipei Port FTZ Keelung Port FTZ
Taoyuan Air Cargo Park FTZ Nangang Software Park
Hsinchu Science Park
 Software
 Electronics and information  Knowledge-based industries
 Software
 Opto-electronics (photonics) Lize & Londe Industrial Park
Taichung Port FTZ Opto-electronics (solar energy)
Central Taiwan Science Park ChemicalEngineering, ironware
 Opto-electronics (photonics) machinery
 Precision machinery Computer peripherals
 Nano materials Suao Port FTZ
 Aviation and space industry
Southern Taiwan Science Park
Yunlin Science Park  Opto-electronics (photonics)
 Textiles  Machinery
 Opto-electronics (photonics)  Food
Kaohsiung  Biotechnology
 Petrochemicals  Environmental protection
 Steel
 Electronics

Kaohsiung Port FTZ Source: Compiled by CEPD,MOTC

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 Suitable Operating Models for FTZ

 Taiwan’s FTZ can develop variable operating models such as transit, exhibition,
international logistics distribution, testing/maintenance/repairing, Multi-countries
Value-added Consolidation, branding & research, etc.

Operating Models & Position of FTZ

Feasible Operating
Niche Aspect Models Key Position

Transit/Transshipm Transshipment
ent Services Center
Value-Added Transit Procurement Center
Commercial
Exhibition
International
Regional Logistics Distribution Center
Division Distribution
Testing/Maintenanc Testing Center
e/Repairing Services
Headquarter Multi-countries Value-
added Consolidation Value-Adding
Regional Service Center
Headquarter Branding/Research R&D Center

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 Developed Operating Models (1/6)

Multi-countries Value-added Consolidation－Out-contracted cars

Tax areas/
assembly bonded zones
Subcontractors
FTZ(Associated Companies) Assembled to
semi-product
Foreign Parts
Out-contracted processing
Overseas
Warehousing
Logistics Semi-products
Export Distribution Finished cars transported to
stored delegated business
delegated business for out-contracted
processing
Cars assembling
Benefits：
1.Related tax preferences（customs, operating tax, good tax）
2.Linking up with the supply chain of Taiwan’s vehicle industry, assisting subcontractors to expand
international market, establishing the cooperation model of parts production, uplifting the quality
and contingent value
3.Cutting down the cost to make whole industry more competitive and attract foreign headquarters
to place orders
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 Developed Operating Models (2/6)
Multi-countries Value-added Consolidation － Oil drilling platform
assembled & exported through out-contracted processing
FTZ
Foreign Parts entered & Factory in Tax area
stored at FTZ warehouse Out-contracted
processing

Warehousing Tax areas

Overseas
Kaohsiung Harbor Out-contracted
processing

Export Semi-products are sent back to Kaohsiung Harbor

for processing

Process & export

Benefits：Tax-free for high-price imported parts

leads to cost-down 14
 Developed Operating Models (3/6)

International Logistic Distribution－ Packaging &

distribution of cosmetics and health food
FTZ
Foreign Goods Bottles are sent to FTZ
for packaging

overseas Packaging, labeling

& exporting
Tax/Bonded
areas
Goods exported

Benefits：
1.Shorten clearing time(F1 & F5 are excluded from review & check/
shortest average distance to market
2.Tax preferences(Owners of foreign goods are exempted from business
income tax)
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 Developed Operating Models (4/6)
Testing/Maintenance/Repairing Services－Semiconductor after-sale services
& Asian maintenance center
Semiconductor equipment sold

Overseas
new & spare parts
headquarters entered & stored FTZ
high-price parts are simple maintenance
sent back for Spare parts
repairing & returned
Asian Maintenance /
Repairing center
Non-simple maintenance case:
Inventory management of spare parts
parts replaced by new ones ,then Domestic
returned to customer Tax/Bonded
Areas or
Foreign business
Benefits：
1.Leveraging FTZ’s tax preferences and high efficiency to make Taiwan able to rival with Singapore
& become a logistic center of Semiconductor parts/equipment in the Asian region。
2.Great advantage to the processing technology , production volume & outsourcing opportunity of
parts for Taiwan’s semiconductor industry
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 Developed Operating Models(5/6)

 International Logistics Distribution-Fuel Oil

Distribution
FTZ
Domestic
Fuel oil shipped to FTZ
Warehousing, Inventory
Foreign Management,Logistics Distribution

(Foreign Ship)
(Refueling Ship)
Niches：
1. Due to large amount of stored-transit fuel oil, relevant tax preferences can
alleviate pressure from cost of interest。
2. Without entering into tax area,〝reporting〞can be adopted to proceed fast
clearance, avoiding the import restriction of oil, thus the refueling and
store/transit/re-export can be done just in time.
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 Developed Operating Models(6/6)

 Testing/Maintenance/Repairing-Repairing of Electrical
Forklift
Tax/Bonded Area
FTZ Processing of reusable
battery

Products to be Battery/Parts
repaired
Foreign Customers 1.Maintenance & repairing
of Electrical Forklift,Electrical
motor(including replacing of
To customer battery module)
2.Assembly of battery
module
Foreign Parts

Non-usable battery

Foreign Parts Vendors

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Invest in Taiwan, operate
globally !

End
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