Mon, Apr 15, 2019 - Page 6 News List

EDITORIAL: Making repatriated funds happen

The Executive Yuan on Thursday approved a bill to address the repatriation, use and taxation of offshore funds. If the draft is passed by the Legislative Yuan in the next few weeks, it could become a law by the end of the quarter, which would give Taiwanese entrepreneurs a solid reason to repatriate overseas assets and invest in the nation.

Changes in the global economy due to trade tensions and some nations’ implementation of the Organisation for Economic Co-operation and Development’s Common Reporting Standard to curb tax avoidance prompted several lawmakers and government agencies last summer to propose legislation that would assist Taiwanese businesses to rebalance their overseas assets and investments.

The initial idea was to levy a low, one-time tax on overseas funds to encourage local investment, but there was concern over creating an unfair tax environment and permitting inflows before measures to curb speculation in real estate and other non-

producing markets were in place.

In late January, the Ministry of Finance provided guidance about the taxability of overseas funds repatriated by Taiwanese individuals and businesses, clarifying questions about the tax year and how to calculate taxable income.

Three types of overseas funds are exempted from income taxes when repatriated to Taiwan: funds not considered overseas income as defined by the ministry; overseas income that falls under income tax law; and overseas income that is not taxed under income tax law, but for which the statutory limitation has expired.

The bill approved on Thursday provides enough of an incentive — a preferential tax rate of 4 percent in the first year and 5 percent in the second year if the pledged investment materializes within a given time frame — to encourage Taiwanese individuals and for-profit enterprises to repatriate overseas funds.

However, to prevent repatriated funds from flowing into the real-estate market or financing criminal activity, the bill specifies that they must be deposited in special bank accounts that are supervised by the government.

Under the bill, at least 70 percent of the money would need to be in tangible investments, while up to 25 percent could be financial investments and 5 percent could be used for other purposes. None could be used for real-estate purchases.

Anticipated fund inflows are expected to increase local investment and boost economic growth while creating jobs. There is no consensus on how much capital the tax incentives might lure, but the inflows would certainly affect local capital markets.

As repatriated funds would need to be deposited in local bank accounts with up to 25 percent invested in equities, bonds, mutual funds or insurance products, the inflow would be a valuable opportunity for Taiwan’s financial industry and would motivate major financial institutions to develop innovative products.

The government could play matchmaker, linking repatriated funds with “five plus two” innovative industries to help transform the economy. It could help investors find promising emerging enterprises in need of start-up or expansion capital.

With regulations in place to comply with international accords against money laundering and the financing of terrorism, the government should focus on flexible regulations and effective use of repatriated funds.

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