Tax incentives offered to lure HQs, R&D to Taiwan

Michelle Hsu,The China Post

Recognizing the inevitable trend for Taiwan companies to extend their operations and manufacturing lines abroad as part of a global marketing strategy, the government has recently completed a package of tax incentives to encourage enterprises with worldwide business networks to locate their headquarters offices or R&D centers in Taiwan.

While made public only in early June, the package is claimed to have already lured around 200 enterprises, including those both from Taiwan and abroad, to take advantage of the new incentives within the following three years, with total investments estimated at NT$200 billion. The companies are mostly industrial leaders from Taiwan including Formosa Plastics, Quanta, Acer, Hon Hai Precision, Giant, Cheng Hsin Rubber and Pou Chen group. Foreign companies include Microsoft, Sony, IBM and Toyota.

The government is offering very generous tax incentives to invite these companies to lay their roots in Taiwan. For a company with overseas subsidiaries generating an annual revenue of over NT$100 million, the government will waive the income tax for the operation of its headquarters or R&D center located in Taiwan. The tax exemption is also applied to the income remitted back to Taiwan from the company’s overseas ventures and the income the company generates through selling shareholdings of its overseas subsidiaries.

“The incentives aim not only to entice large enterprises to keep their roots in Taiwan, but also to encourage them to remit the income they generate abroad back to Taiwan,” said an official at the Ministry of Economic Affairs (MOEA), the major architect of the tax incentive package.

Official definition

The MOEA has special definitions for headquarters offices and R&D centers. A headquarters office should be in charge of the company’s global operational and marketing strategy and its Taiwan offices and manufacturing facilities should be engaged in the higher levels of research or production under the company’s global labor-division plan. Whereas, an R&D center should be involved in at least three of the following nine business areas — strategy formulation for the company’s global operations, intellectual rights protection, financial management, international procurement, global marketing, logistics management, human resource management, development of core technologies, product design and the manufacturing of high value-added products.

Additionally, a headquarters office or R&D center should meet another three basic requirements to be qualified for the income tax waiver. First, it should hire at least 100 staff workers of whom at least 50 percent are university graduates or above. Second, it must generate an annual net income of at least NT$1 billion. Third, its annual operational expenses should exceed NT$50 million.

The tax incentive package and related regulations are integrated into the existing industrial upgrading statute as a special chapter.

Under related regulations, Hong Kong, Macao and mainland China are defined as being in the same area. A company qualified to enjoy the tax incentives should have overseas subsidiaries scattered in at last two different countries or areas. In other words, the company should also extend its business network into the U.S. or Europe in addition to the mainland, which is now the most popular location for Taiwan’s overseas operations. Companies with ventures in the mainland should remit investment capital to the mainland through a third area in line with the government’s current policy of only allowing indirect mainland investments.

Substantial steps

Of the companies subscribing to the new plan, Hon Hai group has proposed setting up an R&D center in Taiwan with a budget of NT$30 billion. According to the chairman, Terry Kuo, Hon Hai will call over 1,000 engineers and researchers at the group’s overseas subsidiaries back to work with the R&D center office in Taiwan when it’s completed. The R&D center is expected to be located in Hon Hai’s hometown of Tucheng, a city in Taipei county.

Winstron Corporation, a computer manufacturing company which split from Acer a couple of years ago, also announced its plan to spend NT$10 billion on a new R&D center, with a staff of over 1,000, in Taiwan within three years.

Acer, which boasts that it is one of only a few Taiwan companies with world recognized brand names, is planning to found a Value Lab in Taoyuan, focusing on research projects in cooperation with well-known foreign universities and research institutions.

Quanta Computer, the world’s largest notebook manufacturer, is moving even quicker, with construction of its Taiwan research center beginning by the end of this year. The center will be located in Linkuo of Taoyuan county. To feed the new research center with at least 1,000 engineers, Quanta Computer has begun several talent-hunting campaigns and has recruited around 100 as of now.

Pou Chen group, the world’s largest sporting shoe manufacturer, is planning to locate both its headquarters office and R&D center in Taichung of central Taiwan. As an OEM manufacturer for the world’s leading brands of sporting shoes, Pou Chen is claimed to control one-sixth of the world market for sporting shoes. Its worldwide manufacturing facilities are staffed with around 215,000 workers. The budget for new buildings is around NT$3 billion.

Formosa Plastics is another non-IT group which had a positive response to the government’s policy. Its chairman Y.C. Wang said the group has been keeping all its R&D staff in Taiwan while most of the group’s production lines have been moved overseas to take advantage of abundant low-cost labor in foreign countries. Wang asserted that his group will keep its operational headquarters and R&D center in Taiwan while expanding its global operations network.

Giant, which already has an R&D center in Taiwan, recently also announced it had applied to the government to found a headquarters building in Taiwan. The company currently allocates 3 percent, or around NT$50 million, of its annual revenue to R&D. After the headquarters office is completed, the group will increase the R&D budget in a bid to sustain its competitive edge in the international bicycle market.

One of the foreign companies to apply to the MOEA for setting up an R&D center in Taiwan is Microsoft. Observing the competitive advantages Taiwan’s electronics industry enjoys, MOEA officials estimated that the island may lure around 70 foreign companies to establish R&D centers in Taiwan within four years. Other foreign companies expressing an interest in following suit are Toyota, which is planning an R&D center for developing car models suitable for Asian consumers, and IBM, which is proposing an R&D center to apply its IT strength to emerging biotech industries. The R&D center proposed by Sony will be focused on developing computer games. The Japanese company has planned a 3-ye