Foreign Investors Seeking Diversification Seek Out Taiwan

(中央社訊息服務20201008 17:25:44)As investors seek shelter from global volatility as a result of the 2020 U.S. Election and COVID-19 pandemic, institutional investors continue to tap into new diversification opportunities in worldwide equity markets. In July, the Taiwanese stock index hit an all-time high, quickly rebounding from a low in March with trading volumes climbing back to pre-pandemic levels. Sophisticated foreign institutional investors interested in participating in the Taiwanese stock market should inform themselves of the risks and rewards of their investment.

The Taiwanese financial markets quickly rebounded after initially dipping during the global pandemic. When compared with other countries, Taiwan countered the COVID-19 outbreak and resumed normal operations extremely quickly. According to official data released, Taiwan’s unemployment was at 4% in August, a minimal increase from 3.9% a year earlier, while the Organization for Economic Cooperation and Development (OECD) estimates that its member states will finish the year with an average unemployment rate of 9.4%.In addition to strong economic indicators, many investors consider other meaningful characteristics of the Taiwanese stock market. Specifically, the National Financial Stabilization Fund provides a significant boost to the stock market in times of turmoil and while the New Taiwanese Dollar (NTD) is not pegged to the US dollar, the fluctuation in exchange rates have been minimal over the last decade. For institutional investors looking to diversify their portfolios, the Taiwanese stock market is a resilient developed economy with endless potential.

As a leader in global institutional investment, the Norwegian Government Pension Fund (holding over $1 trillion USD of assets under management) has invested heavily in shares of leading Taiwanese companies, holding significant positions in TSMC, Hon Hai, Largan and Chunghwa Telecom, as well as many Taiwan-based financial institutions.

In accordance with Taiwan’s legislation, foreign institutional investors (“FINI”) must appoint a tax agent in Taiwan to ensure all taxes due from investments are settled properly. Foreign investors in Taiwan typically face a number of taxes, including a 21% tax levied on dividends and a 15% or 20% tax levied on interest income. Several significant factors to consider are as follows:

• Taxes in Taiwan must ordinarily be paid prior to repatriation of investment earnings. When investment capital is repatriated, no taxes are collected on capital invested. Under certain situations, foreign investors may not have their incomes withheld. An example of this is income resulting from securities lending. When conducting securities lending transactions, both parties (borrower and lender) are considered foreign entities with no permanent establishment in Taiwan. These parties are not subject to withholding requirements; however, they must also declare income and pay taxes through a valid tax agent.

• Foreign investors should take full advantage of special tax rates if there are double taxation agreements (DTAs). Taiwan has DTAs with 33 countries to date, each with different eligibility requirements and tax rates. Even if there is an existing DTA, a foreign institutional investor may or may not be eligible for a reduced tax rate on dividend and interest income as prescribed by the applicable DTA.

• Many foreign investors are investing through British Virgin Island (BVI) entities, which may expose them to significant regulatory risk. Foreign investors using offshore entities should consult with their advisors and accountants to determine the ramifications of investing through offshore entities and paper companies.

While traditionally, foreign institutional investors have worked with large international accounting firms, such as the Big Four, to comply with Taiwanese FINI taxation and regulations, ever stricter US independence requirements imposed by the US SEC may soon force institutional investors to seek out other service providers in Taiwan for these services. In accordance with the Sarbanes-Oxley Act (“SOX”), the US SEC has expressly prohibited accounting firms from performing a variety of services in conjunction with the performance of an audit. Thus, accounting firms that provide FINI tax agent services in Taiwan may soon have to withdraw from this part of their engagements with their current clients. While this may pose a temporary difficulty for foreign institutional investors invested in Taiwan, it is easily be cured by selecting a knowledgeable tax agent based in Taiwan for these services. Local providers of FINI tax agent services provide services at a significant discount to Big Four firms and are uniquely attuned to help foreign investors navigate the frequently changing Taiwanese regulatory landscape.

Curtis Kao, a Taiwanese CPA and Partner at KEDP CPAs (kedpcpa.com), encourages foreign institutional investors to seek alternatives to the Big Four when choosing a FINI tax agent. He shares that, “in addition to disregarding US SOX regulations, larger accounting firms employ strict and largely unnecessary policies that frequently delay earnings repatriations. While it is fairly convenient and inexpensive to invest in Taiwanese equity markets, larger accounting firms tend to make the process especially burdensome. Finding an experienced Taiwanese FINI tax agent is the key to regulatory success for any foreign investor.”

While Taiwan’s market presents an opportunity for foreign institutional investors to participate in a developed and growing economy in Asia, investors should consider the numerous quirks of investing in Taiwan and stay cautious of its unique tax code and regulatory requirements.

訊息來源：kedpcpa