In the face of the U.S.-China trade war and the global anti-tax avoidance movement, Taiwan government enacted the Management, Utilization, and Taxation of Repatriated Offshore Funds Act (hereinafter the “Act”) to adapt to the current international situation, meet the needs of Taiwanese businesses in their global reach, promote related tax measures, and guide Taiwanese businesses in transferring back their offshore funds. The Act was implemented on August 15, 2019.

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I. Operation:

An individual or profit-seeking enterprise that opens an offshore funds segregated foreign exchange deposit account (hereinafter, "segregated foreign exchange deposit account") with an account-handling bank and repatriates offshore funds or investment income derived from an offshore invested enterprise by remitting the funds to that account, may apply to withdraw funds from the segregated foreign exchange deposit account and deposit them to a segregated trust account or segregated securities discretionary account and engage in financial investment. (Article 2 of the Regulations Governing the Financial Investment, Management, and Utilization of Repatriated Offshore Funds (hereinafter the “Regulations”)

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II. A short-term tax deduction system is implemented to waive regular income tax:

(I) The implementation term of the Act is two years. Different tax rates (8% or 10%) apply to different periods within the term, and regular income tax can be waived. However, if estate tax, gift tax, or other taxes are involved, such tax will still be collected. (Article 5 of the Act)

(II) When the funds have been invested, the owner of the funds may apply for a certificate of completion of investment from the Ministry of Economic Affairs and use such a certificate to apply for a fifty percent(50%) tax return of the aforesaid 8% or 10% of tax paid. (Articles 7 & 8 of the Act)

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III. Restrictions on the use and withdrawal of the funds:

(I) After the aforesaid tax is deducted, the funds could be used in investments (such as purchasing domestic securities, futures, insurance products, etc.). Up to 5% of the funds could be withdrawn and freely utilized, and up to 25% of the funds could be used in financial investments (deposited into a segregated trust account or a segregated securities discretionary investment account), but the funds cannot be used to purchase real estate or real estate beneficiary securities. (Articles 4 & 6 of the Act; Article 3 of the Regulations)

(II) If the funds are not used in investments or if there are left-over funds, one-third of the funds could be withdrawn every year upon the commencement of the sixth year. (Article 6 of the Act)

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In summary, within the two-year period of the implementation of the Act, one may choose to apply the tax rates of the Act to avoid regular income tax. And there is additional tax return if the funds are invested. This will help guide offshore funds into financial investments in Taiwan. Investors shall still be prudent about how this new law applies and be aware of any compliance risks. If you have any questions regarding this new law, or if you have any needs for related educational trainings, please do not hesitate to contact us.

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