Introduction to The Statute for Repatriation of Offshore Funds
Introduction to The Statute for Repatriation of Offshore Funds
In response to the changes of international situation (such as U.S.-China trade war, Economic Substance Act requirements and the wave of global anti-tax avoidance), the Taiwan Government has planned three tax incentives. Besides, Taiwanese enterprises may have the need to restructure their investment structure and the global operation formation so as to repatriate funds to Taiwan. Taiwan government is also encouraging Taiwanese enterprises to repatriate funds which have been placed overseas in the past to Taiwan for industrial upgrading or reinvestment.
The first item is to provide a taxation consulting service.
The Taiwan Executive Yuan approved the program “Bring back investments from overseas Taiwanese enterprises” on 17 December 2018.
The implementation period of the above program is 3 years (from 1 January 2019 to 31 December 2021). It is oriented to the needs of enterprises. It provides a customized single-window service to integrate land acquisition, water and electricity usage, manpower, taxation and capital issues, etc. and assist Taiwanese enterprises to return and invest in Taiwan. Then it can also promote the local industries development and complete the shape of the supply chain of upstream, middle and downstream industries. In order to strengthen the Taiwan industrial development in the future and boost the economic momentum.
The second item is issued an interpretation letter of conformity determination for overseas funds by individual.
The Taiwan Ministry of Finance issued an interpretation letter on 31 January 2019, the Ref. No. is 10704681060_reviewing the principles of recognition, calculation and repayment of basic tax amount and the attached documents for the repatriation of overseas fund by individual.
The third item is to discuss and study an extra tax incentive for individuals and profit-seeking enterprises.
The Taiwan Executive Yuan approved the implementation of the “Statute for Repatriation, Management, Utilization and Taxation of Offshore Funds” (referred to as the “Statute of Repatriation of offshore funds”). The main purpose is to guide individuals to repatriate overseas funds and guide the profit-seeking enterprises to repatriate overseas re-investment income. This regulation can assist to promote overall economic development in Taiwan in line with the international anti-money laundering regulations.
We made a further introduction for the second item interpretation letter and the third item the Statute of Repatriation of offshore funds, details shown in the table as below:
| Interpretation Letter | The Statute of Repatriation of offshore funds | |
| Applicable to: | Overseas funds of a Taiwanese individual (resident) | 1. Overseas funds of a Taiwanese individual (resident)
2. The profit-seeking enterprises of its headquarters in Taiwan |
| Applicable Tax Rate: | Need to clarify the component of the “overseas funds”
(Note1) |
Do not need to clarify the component of the “overseas funds”, the tax rate on the repatriation funds depends on the time of repatriation,
1. 8% (Repatriation period from 15 August 2019 to 14 August 2020) 2. 10% (Repatriation period from 15 August 2020 to 14 August 2021) Individual Repatriate funds within 2 years and use it according to the regulations of management (Note 2), applicable to the special tax rate (Note 3)
Profit-seeking enterprise: investment income from the overseas subsidiary company which have control capability and significant influence, the investment income was allocated and repatriated within 2 years (Note 4), use the fund according to the regulations of management (Note 2), applicable to the special tax rate (Note 3). |
| Any restriction on the use of repatriation funds | The use of repatriation funds is not restricted after paying taxes. | After the repatriation funds was approved to return Taiwan, the use of fund is restricted (Note 2); If the company does not make any investment of the fund, the funds in the account cannot be used within 5 years. After 5 years, one-third of the fund can be used for separated 3 years. |
Note 1:
“Offshore funds” are not equivalent to “Overseas Income”. Only “Overseas Income” is taxable.
3 ways to repatriate overseas funds without taxation:
（1）Funds that are not overseas income;
（2）Funds belong to overseas income, but have been paid the Income Basic Tax;
（3）Funds belong to overseas income, have not been paid the Income Basic Tax but surpassed the collecting period.
Even if the funds repatriated from overseas contained the nature of overseas income, but as long as the following three conditions are met, the funds repatriated is not taxable:
（1）Individual is not a tax resident of Taiwan in the year of obtaining the overseas income;
（2）Individual is a tax resident of Taiwan in the year of obtaining the overseas income, but have declared the overseas income in the Individual Income Tax;
（3）Individual is a tax resident of Taiwan in the year of obtaining the overseas income and did not declare the overseas income in the Individual Income Tax. However, according to the recognition of the overseas income have surpassed the collecting period.
After clarifying your funds by the above manner, and then calculating in accordance with the TWD 6.7 million tax allowance and tax rate of 20% in the Income Basic Tax Act, comparing the result from the above with the Income Tax of the current year, then you will find out whether you need to pay back the Individual Income Tax of the current year.
Note 2:
Deposit the fund into foreign exchange deposit account, according to the regulation of management, can be divided into:
- Substantial Investment (70%): Direct investment in the factory (Direct investment can be extended for 2 more years if it cannot be done within 2 years) or invest in important and strategic industries through venture capital or private equity funds (Indirect investment needs more than 4 years). If the Taiwan Ministry of Economic Affairs (MOEA) issued the certificate of completion of investment, you can apply for refund of half of tax refund (which means tax refund for 4% or 5%).
- Financial Investment (25%): Make financial investment through trust account or discretionary account.
- Free to use (5%): Without any restriction.
The repatriation fund cannot be used for the purchase of the following items during each of these control periods:
- Real estate (except for direct investors build or purchase estate for self-production or business use which was approved by the MOEA).
- Real Estate Beneficiary Securities (REITs和REATs).
If the use of funds violates the above provisions, or do not remit back the remaining balance to the account after the use of the purpose, there is a tax until 20% which was issued by the Taiwan National Taxation Bureau. (which means pay back the tax for 10% or 12%).
Note 3:
The repatriate funds in the first year (15 August 2019 to 14 August 2020), the tax rate is 8%; the repatriate funds in the second year (15 August 2020 to 14 August 2021), the tax rate is 10%. The bank will withhold the tax when the funds are deposited into the foreign exchange deposit account. If it is a substantial investment, you can apply for half of tax refund (which means tax refund for 4% or 5%).
Note 4:
For the overseas funds of the profit-seeking enterprises, if the investment income is not derived from the overseas subsidiary company which have control capability and significant influence, which the headquarters of the profit-seeking enterprises located in Taiwan” (for example, other types of income or investment income), the funds repatriated cannot be applied to “The Statute of Repatriation of offshore funds”.
The implementation of “The Statute for Repatriation of Offshore Funds” is only available for two years and it requires application and approval in advance. Since the repatriation of funds involves cross-border taxation, we recommend that to entrust a professional accounting firm to conduct an assessment as soon as possible to avoid any delays.