Lawmakers on Wednesday passed a bill allowing Taiwanese entrepreneurs to repatriate overseas assets and invest in the nation under preferential tax rates, part of the government’s campaign to encourage overseas funds to return to Taiwan amid trade tensions and some nations’ implementation of the Organisation for Economic Co-operation and Development’s Common Reporting Standard that aims to curb tax avoidance.
Under the bill, returning capital would enjoy a favorable tax rate of 8 percent in the first year and 10 percent in the second year after the new law takes effect — in the fourth quarter at the earliest — compared with the 20 percent levied on such funds now.
If the tangible investments materialize within a given time frame, Taiwanese entrepreneurs could request a 50 percent tax rebate, meaning that the tax rate would be 4 percent in the first year for the returning funds and 5 percent in the second year.
At least 70 percent of the repatriated funds must be placed in productive investments, while up to 25 percent could be financial investments and 5 percent could be used for other purposes.
The previous government slashed inheritance, business and income taxes to woo overseas funds, but the move just led to increased real-estate speculation and higher property prices, so the new law does not allow returning funds to be used to purchase real estate or securitized real-estate products. The bill also demands that the funds be deposited into special foreign currency accounts for five years.
As Taiwanese businesses with offshore operations are rebalancing their assets and investments within the present conditions of the global economy, the law is expected to attract between NT$800 billion and NT$900 billion (US$25.72 billion and US$28.93 billion), the Ministry of Finance estimates.
Meanwhile, the ministry’s three-year action plan to encourage Taiwanese businesses to relocate back home has led to a total of 84 applications being approved this year to date, with more than NT$434.6 billion in pledged investments. The anticipated fund inflows are expected to increase local investment, boost economic growth and create jobs.
The inflows represent a crucial opportunity for Taiwan to reverse its economic difficulties in decades — if the money is used for real investments and innovative industries to help transform the economy.
However, there is both opportunity and risk, as the massive capital repatriation from abroad might lead to appreciation pressure on the New Taiwan dollar and worsen the nation’s low-interest rate environment, posing a challenge to the central bank’s monetary policy and its effectiveness.
The central bank has reportedly asked the economics ministry and the Ministry of Finance to notify it when issuing license documents for the use of returning funds, a move that shows its determination to grasp the dynamics of fund flows, as the market has long been inundated with ample liquidity.
However, in addition to taxation and monetary policy challenges, a fundamental question is whether the new law could really attract fund remittances. In this regard, banks would certainly play a key role in designing new and tailor-made products to attract rich Taiwanese entrepreneurs to shift funds back home from their family offices (or private investment vehicles) in other countries.
Banks need to be able to provide a one-stop solution to managing the wealth of Taiwanese entrepreneurs, including investments, charitable giving, taxation and wealth transfer.
Yet it is feared that the usually conservative attitude of the Financial Supervisory Commission might constrain the research and development of new financial products, putting the chances of attracting such funds at risk.
The authorities should not worry about too much money — they should be concerned about how to make good use of the money.
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