Taiwan Medical Device Industry Analysis &

Investment Opportunities

Department of Investment Services,

Ministry of Economic Affairs

Table of Contents

I. Global Trends of the Medical Device Industry...............1

II. The Status Quo of Taiwan’s Medical Devices

Industry ...................................................................................5

(I) Supply & Demand of the Medical Devices Industry .................... 5 (II) Gap in Industry Supply Chain, Investment Niche and Prospective

Foreign Investors........................................................................ 6 (III) Major Suppliers in Taiwan ........................................................... 7

III. Optimal Choices for Foreign Investors ................... 11

IV. Successful Examples of Cross-national Strategic

Alliances and Foreign Investments in Taiwan....................13

(I) Foreign Investors in Taiwan ...................................................... 13 (II) SHL Healthcare and Medical, Taiwan ....................................... 16

V. Industry Investment Incentives................................18

VI. Industry-Academia Collaborations in Taiwan .......25

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I. Global Trends of the Medical Device Industry

The medical device industry is an industry that is closely linked to the

diagnosis, relief and prevention of human diseases and illnesses. Major

medical device products in this industry may vary depending upon the types

of illnesses and the progress of medical technology. However, economic

conditions have a very small impact on the demand for medical devices, and

the cost of medical devices only contributes to a small portion of the cost of

medical cares. Since medical devices are closely applied to human body, a

permit has to be obtained before the product may be distributed in the market.

In the United States and Europe, the laws require product related injuries

to be reported to the relevant government agency. Because many types of

medical devices exist, they generally involve various scientific and technical

fields, including plastics, industrial chemistry, textiles, machinery, electronics,

telecommunications, material science and biomedical technology.

Moreover, since medical devices generally result from the combined efforts

of different fields, and the medical device industry is technology-intensive

rather than labor-intensive, companies in this industry must invest more of

their revenue and efforts in R&D. In addition, since existing medical device

products are being replaced by new products with better performance,

pharmaceutical companies have to constantly pursue improvement in

technological innovation in order to achieve success.

The global medical device market is highly centralized. The market

share of the top 10 medical devices was up to 82.8% of the global market in

2003, and is expected to grow up to 83.6% in 2008. The United States

holds the largest market share of about 50.6%, with the compound annual

growth rate at about 7%, which is higher than 5.56% of the global market.

Since US citizens have much higher income and the medical system is also

better, the medical device market is therefore more developed.

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Another fast emerging market is Mainland China, with a compound

annual growth rate of 6.99%. People are now paying more attention to

healthcare as the country’s economy develops and its citizens acquire more

income. China has become a potential market for medical device due to the

continuous development of its hygiene industry, the increase in clinics, the

upgrade of products, and requirements from hospitals. Table 1 shows the

market value of the top 10 countries and the percentage of market shares with

respect to the global medical device market in 2003 and 2008 (forecast).

The monetary value of the global medical device market in 2003 was around

US$ 148.3 billion, and from 2003 to 2008, the global medical device market

was estimated to grow at about 5.56%. The various segments of this

industry are driven by various factors, most notably the aging population and

increasing rates of illness, especially found in industrial countries with

advanced medical technologies. Meanwhile, in newly emerging markets,

the demand for medical devices which have high quality and advanced

technologies with integration have also been increasing due to the rise of

income per capita.

The structure of the medical device industry varies across segments. For

instance, the cardiovascular device sector has gone through significant

consolidation, with the top five (5) companies taking up more than 80 % of

the global market. Meanwhile, the market for disposable surgical supplies is

highly fragmented, with the top five (5) companies representing less than one

third of the global market. The top 10 companies in the medical device

industry generate substantial revenues and therefore invest substantially in

research and development. In fact, those companies accounted for more

than 70.0 % of research and development expenditures in 2007, and invested

as much as 10-15 % of the revenues in research and development.

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Looking into the global markets for medical devices, the United States,

which has the highest income per capita and advanced medical technologies

and services, represents 50.6% of the global market. On the other hand,

Japan ranks second, with a market share of 11% . Finally, Germany ranks

third and represents 6.1% of the world market. Regarding the global

perspective, the market shares of the United States, Japan and Germany

represent over 70% of the total global medical device market. Table 2 shows

the growing trend of the global medical device market in various categories.

Table 1. Market values of the top 10 countries and the percentage of market shares with respect

to the global medical device market in 2003 and 2008 (forecast)

2003 2008f Country Market Percentage Market Percentage 2003-2008f

AAGR USA 75,120 50.6% 105,359 54.2% 7.00% Japan 16,258 11.0% 18,847 9.7% 3.00%

Germany 9,091 6.1% 10,540 5.4% 3.00% UK 4,052 2.7% 5,171 2.7% 3.98%

France 3,825 2.6% 4,434 2.3% 3.00% Italy 3,808 2.6% 4,415 2.3% 3.00%

Canada 3,204 2.2% 4,090 2.1% 5.00% Brazil 3,126 2.1% 3,989 2.1% 5.00% Spain 2,547 1.7% 3,250 1.7% 5.00% China 1,865 1.3% 2,615 1.3% 6.99%

Subtotal 122,896 82.8% 162,710 83.6% 5.77% Global market 148,378 100.0% 194,513 100.0% 5.56%

Source: Espicom Business Intelligence, IEK/ITRI (2007.12)

Table 2. Growth trends of the global medical device market in various categories

2003 2008 Categories Market Percentage Market Percentage

2003-2008 AAGR

Bandages & other medical supplies 11,539 7.8% 13,377 6.9% 3.2%

Contact lenses 3,999 2.7% 5,608 2.9% 8.0% Dental instruments &

appliances 3,100 2.1% 3,594 1.8% 3.2%

Electromedicals 14,711 9.9% 17,504 8.8% 3.2% Medical furniture 1,736 1.2% 2,012 1.0% 3.2%

Medical X-ray films 3,814 2.6% 4,868 2.5% 5.5% Ophthalmic instruments

and appliances 2,671 1.8% 3,746 1.9% 8.0%

Orthopaedic/Prosthetic goods 25,971 17.5% 36,426 18.7% 8.1%

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Other instruments and appliances 32,766 22.1% 41,818 21.5% 5.5%

Rubber surgical or laboratory sterilizers 3,748 2.5% 4,783 2.5% 5.5%

Syringes, needles & catheters 19,178 12.9% 26,898 13.8% 8.1%

Therapy apparatus 6,842 4.6% 9,597 4.9% 8.1% Wheelchairs 1,250 0.8% 1,595 0.8% 5.5%

X-ray apparatus 16,681 11.2% 23,397 12.0% 8.1% Unit:US$million

Source: Espicom Business Intelligence, IEK/ITRI (2007.12)

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II. The Status Quo of Taiwan’s Medical Devices Industry

(I) Supply & Demand of the Medical Devices Industry

In 2006, Taiwan's medical device industry had a total revenue of

US$2.14 billion, generated by 500 companies, with an average revenue of

US$4.2 million each. Taiwan has a workforce of about 16,350 involved in

medical devices. The current status of the medical device industry in

Taiwan is shown in Table 3. The medical device industry is a fast emerging

high tech industry, including diagnostic devices, disease treatment devices,

general medical assistance equipment, and patient aid products. According to

the statistical data, medical device has the highest growth rate in Taiwan’s

biotech industry, and its annual revenue has a great increase from US$ 2.2

million in 1992 to US$2.14 billion in 2006. Electronic clinical

thermometers, digital hemadynamometers, power wheelchairs and ventilators

reach 30% of the global market share with an export value of US$914 million,

import value of US $1.39 billion, and domestic demand value of US$2.65

billion.

Table 3. Current Status of the Medical Device Industry in Taiwan (2005/2006)

Industry Medical devices

Year 2005 2006

Revenue* 1.84 2.14

Company (Number) 484 500

Workforce (Number) 15,000 16,350

Export value* 0.84 0.90

Import value* 1.24 1.37

Domestic sales vs.export 54 : 46 58 : 42

Domestic market demand* 2.24 2.62

*Units: US$ billion

Source: Biotechnology and Pharmaceutical Industries Program Office, MOEA, 2007

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The Domestic Revenue, Domestic Demand, Import and Export Value of

Taiwan’s Device industry are shown in Table 4.

Table 4. 2005-2006 Taiwan Medical Device Production, Import and Export

Unit: % in Billion NTD

FY Domestic Revenue

(A)

Exports (B)

Imports (C)

Domestic Demand

(D)

Growth Rate of

Domestic Demand

Exports Percentage

(B/A)

Import Dependence

Ratio (G=C/D)

Self-sufficient Ratio (1-G)

2005 590 270 395 715 100.0% 45.8% 55.2% 44.8% 2006 697 293 447 851 119.0% 42.0% 52.5% 47.5%

Source：Pharmaceutical Industry Technology Development Center, 2007

(II) Gap in Industry Supply Chain, Investment Niche and Prospective Foreign Investors

At present, Taiwan has many advantages including a highly organized

industry network and an excellent production and development of the

medical device industry. Having a critical technology, successful marketing,

and product certification are among some of the industry’s challenges or

bottlenecks, while how to work together between globally renowned

companies and medical device manufacturers in developing countries, and

how to create effective strategies in the highly competitive market are some

of the important concerns and key issues for Taiwanese companies. In recent

years, there is an emerging trend for large medical device manufactories

doing OEMs to gradually give their non-core production activities to other

companies and instead focus more on the development of their technology

research and product design center. There is therefore OEM business

opportunities in the medical device industry. In the past, Taiwan has

accumulated rich experiences and resources in the high tech industry.

Accompanying those advantages, it is expected that Taiwan will be able to

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seize OEM opportunities from foreign medical device manufactories and

form an OEM business. The current state of OEM development strategies in

the medical device industry in Taiwan has found a prospect for the OEM

development of medical devices. Instead of competitively lowering the

production prices, medical device companies are advised to improve their

product quality instead. Consolidating the upper and lower stream of supply

chain and broadening the industrial scale to improve the overall

competitiveness. Since the regulations of a country will affect the company’s

managerial strategies, it is essential for Taiwanese medical device companies

to provide thorough services to seize or extend the cooperation opportunities

with foreign medical device companies. As a result, the more resources and

efforts spent on research and development, the more rewards are reaped. The

technological transfer and interaction between two companies lead to some

performance issues. Generally speaking, the problem usually begins when the

company releasing or transfering the technology is less willing even when the

recipient company has the ability to adopt quickly to the new technology.

Taiwan is a leader in the manufacturing of medical devices, producing

diagnostic test kits and equipment and mechanical products, such as portable

electrocardiograms, motorized vehicles for the elderly, and digital

thermometers, blood pressure and glucose monitors, and pulse oximeters.

With the healthcare industry shifting its focus from treatments and therapies

to disease prevention and wellness, Taiwan's medical device companies are

well-positioned to capture those new global market opportunities.

(III) Major Suppliers in Taiwan

(1) Medical Device Industry Supply Chain

Medical device is one of the fast emerging and major industries

promoted by the Taiwan govenment. Short-, mid-, and long-term plans

focusing on developing potential medical device products have been mapped

out. Short-term plans will focus on clinical trials/bio-equivalence, clinical

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animal experiments, biotech-related contract manufacturing, bioinformatics,

biochips, drug development. The mid- to long-term plans will focus on gene

diagnostics and gene therapy, stem cell technologies, and artificial tissues and

organs. It is hoped that the development of these key technologies and

products will support the successful expansion of the island's medical device

sectors and companies.

(2) Investment Niche

A. Advantages

The government has plans to bring together the R&D capabilities of the

government, academic and research institutes to establish biotech industry

clusters, promoting the industry by focusing all the essential elements in one

place. In the northern part of Taiwan, the Taipei area, specifically the

NangGang Biotech Plaza, has 2 incubation centers: the Biotech Incubation

Center, Small and Medium Enterprise Administration, MOEA and the

Incubation Center, Genomic Research Center, Academia Sinica. More than

50 biotech companies are located here, thereby making it a biotech cluster.

In addition, Hsinchu county is the home to Taiwan’s first science-based

industrial park, set up to help the development of high-tech industries. A new

Biomedical Science Park is underway and will be managed by the Hsinchu

Science Park Administration Office.

Taiwan has many strengths that give it an edge over its competitors in

Asia. Some of Taiwan’s advantages include: existing expertise in high

technology; strategic location at the crossroads of three leading Asian

economic regions – Northeast Asia, China, and Southeast Asia; strong legal

framework; highly educated workforce, particularly in IT and biology;

world-class research facilities; abundant capital and Asia's most vibrant

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venture capital industry; and knowledge and experience in IT and mold

industry.

The listed incentive industry among newly encouraged emerging

strategic industries. The government has enthusiastically developed a

conducive environment to continuously attract foreign investors. Taiwan has

sufficient local capability for upstream medical devices’ research and

development. Compared with other Asia Pacific nations, Taiwan has

high-standard capabilities in conducting Chinese and western clinical trials,

and is suitable for developing contract research organization (CRO) services.

Taiwan has ensured conformity with international standards by implementing

cGMP regulations; domestic pharmaceutical companies are experienced in

developing generic drugs. Ample biotechnology and pharmaceutical

professionals are based both locally and internationally.

Taiwan has a conducive environment for the development of small and

medium size enterprises. Also, the Taiwanese are recognized for their

capitalist nature and entrepreneuial spirit. Advanced IT and mold technology

supports the development of medical device.

B. Investment Opportunities

(a) Rising demand for better living standards in the Asia-Pacific; (b)

Growing economy and market for potential development; (c) Increasing

number of strategic alliances and technology transfer cases with

multinational biotech and pharmaceutical companies; (d) R&D and precision

processing sectors are ready to take advantage of the growing global trend

towards outsourcing in the biotech industry; (e) Right timing for endless

business opportunities in post human gene decoding; (f) High value-added,

long life cycle and value chain of biotech; many points of entry available,

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from R&D to marketing; (g) Flourishing biotech R&D service industries

(technical evaluation, R&D design, intellectual property services, and

start-up incubation services); (h) Many large-sized and high-quality medical

centers provide optimal conditions for undertaking clinical trials; (i) Clear

market segmentation from temperate zone products of advanced countries

with Taiwan's sub-tropical climate develops Asian sub-tropical agricultural

biotech; (j) With the world’s rapidly aging population, the growth in demand

for medical and health products is inevitable.

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III. Optimal Choices for Foreign Investors

(1) Complete development of advanced industries such as photovoltaic,

communication, electronics, and semiconductor etc., mature development

of traditional manufacturing industries such as plastics, material, and

machinery, etc.

(2) Advanced medical system and standards enable the industry to provide an

ideal test environment and good chimical results.

(3) Taiwan has endeavored to protect intellectual property rights and

established suitable legal system. The protection of intellectual property

rights ranks 4th in Asia.

(4) Taiwan has abundant circuit board design, IC chip design capability and

human resources, and safety regulations, verification and quality control

personnel to integrate upstream electronic parts and components, which is

beneficial for the development of medical electronic products.

(5) Globally recognized for reliable manufacturing, product quality, vertical

integration and complete supply chain, as well as industry cluster.

(6) Strategic geographical location enables Taiwan to serve as the ideal

gateway or springboard to other Asian markets.

(7) Taiwan’s multicultural society enables its people to communicate in

English and Japanese fluently.

(8) Taiwan’s dynamic small and medium enterprises can serve as ideal

partners due to their sufficient experience in international sales and

merketing as well as global operations and logistics.

(9) Taiwan’s venture capital sector is the largest in Asia, which can integrate

technology, manpower, market opportunity and capital to develop new

market and industries.

(10) Strong government support and promotion.

(11) Strong network with other industry professionals and experts, as well as

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close relations with various government agencies, academic institutions

and research centers.

(12) Advanced infrastructure, information and communication technology.

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IV. Successful Examples of Cross-national Strategic Alliances and Foreign Investments in Taiwan 

(I) Foreign Investors in Taiwan

In Taiwan, there is still a shortage of manufacturers to produce advanced

medical devices such as X-ray imaging, computed tomography (CT),

magnetic resonance imaging (MRI), ultrasound imaging, etc. which are

mostly supplied by foreign multinational corporations with subsidiaries that

provide marketing and after sales services (e.g. education and training,

technical services, maintenance) in Taiwan. In their early stages of

development, Knowles Electronics, Home Diagnostics, and Top Corporation

established production plants in Taiwan due to the country’s high tech

industries and skilled workforce. Recently, the government has successfully

attracted high-tech companies such as Inovise Medical, U-System, AcryMed,

and Scandinavian Health Ltd. to invest in Taiwan. Although Medtecs

International is successfully established abroad, it has returned to Taiwan to

set up on operation center.

A potential foreign company BD (Becton, Dickinson and Company) is a

leading global medical technology company that is focused on new product

research and development. BD established its subsidiary in Taiwan in 1987,

providing omnibus research and diagnostic tools for the medical industry. BD

has three main subsidiaries: BD Medical, BD Diagnostics, and BD Biosciences.

It serves healthcare institutions, life science researchers, clinical laboratories, the

industry, and the general public.

Baxter International Inc. was founded in 1930, and its Taiwan branch was

founded in 1981. Baxter manufactures and sells more than 120,000 medical

products, and provides products and services for home healthcare. After

developing the first hemodialysis machine in the 1950s, Baxter became one of

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the leading dialysis companies in the world. Baxter also introduced

continuous ambulatory peritoneal dialysis (CAPD) as a practical alternative

to hemodialysis in 1979. Over thousands of patients developed healthier life

through Baxter’s hemodialysis service.

Dada Behring is a global clinical diagnostic company that provides

clinical products, health system and health care services, as well as improves

patients’ quality of life. It provides chemical tests, immunity tests, blood tests,

and diagnosis of microbial and infectious diseases.

GE Health is GE’s medical group, which is comprised of GE Healthcare

Technology and GE Healthcare Bioscience. It has annual sales of US$14

billion. GE Health is a global leader in medical imaging and information

technologies, medical diagnostics, patient monitoring systems, disease

research, drug discovery and manufacturing.

ARC Pharmaceuticals Inc. is a Canadian bio-company that focuses on

the research & development of novel therapeutic devices and disease

prevention methods after surgery, such as surgical adhesions.

Cochlear, Ltd. was founded in 1982 as a major producer of nucleus

products and accessories which convert surrounding sounds into digital

signals to stimulate the hearing nerve within the cochlea. After many years of

development and improvement, Cochlear, Ltd. has become a world leader in

hearing solutions. Over thousands of Taiwanese patients regain their hearing

by using Cochlear’s products.

From the list of global top 10 medical device manufacturers in Table 3,

majority comes from the US, with the exception of 3 large European

companies, namely Siemens Medical Solutions and B. Braun from Germany,

and Philips Medical Systems from Holland.

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Most of the big medical device companies use M&As as a strategy to

expand their operation scale and market share. But there are different

strategies for the deployment of production lines. Some companies

aggressively merge with leading manufacturers in various fields to expand

their production lines for diversifying operations. On the contrary, some

companies reduce their product lines and seek for more efficient management

and sales.

The medical device industry ranks first among the top 10 high tech

business opportunities in the 21st century. While the contunous increase of

the Gross National Income (GNI) and the evident aging population, the

demand for medical devices is growing annually. According to the data

provided by the Department of Health, people aged 65 or older will

outnumber children under the age of 5. Among developing countries, the

population growth for people aged 65 and older is expected to rise up to

140 % by the year 2030. Those factors are placing an increasing burden on

the global healthcare sector. However, the healthcare industry has identified a

solution, that is, shifting its focus from post-disease therapy and treatment to

wellness and disease prevention. This change is spurring on the global

medical devices industry to further explore opportunities in this area.

Therefore, the global medical device market will continue to maintain

steady growth due to aging population; development of new products such as

drug-eluting stent and pace synchronization systems being launched; and

global economic growth with increasing purchasing power. Looking into the

global medical device market, the US, Japan and Europe represent over 70%

of the global markets, and their growth will ensure that the global medical

device market continues to grow.

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(II) SHL Healthcare and Medical, Taiwan

The SHL Group is a global leader in OEM/ODM solutions for advanced

drug delivery devices, home & institutional healthcare products, and medical

& industrial manufacturing. SHL Healthcare delivers OEM/ODM solutions

for complex hospital and home healthcare equipment with a focus on patient

comfort. The products are found in major hospitals and clinics throughout the

world. SHL Healthcare integrates the collaborative strength of the SHL group,

offering design and development of new products to suit the demanding

needs of global customers.

Following a period of significant investment in manufacturing and

testing equipment, personnel and logistical supply systems, SHL Healthcare

is now a recognized leader in the manufacture and supply of home healthcare

solutions. The company’s products include slings, alternating pressure

mattress systems, and beds. SHL Healthcare leverages the synergies of the

SHL Group by offering the design and development of devices tailored to the

demanding needs of global customers. Currently, SHL Healthcare is

represented in Taiwan, in addition to Australia, Denmark, the UK, the USA

and Germany. The international presence facilitates close support for local

projects, with accurate follow-up and status reviews. SHL also provides

significant cost benefits through increased production efficiencies and a

global logistics system. With experienced engineers, intelligent logistics and

a flexible support team, SHL Healthcare can deliver tailored solutions

according to the exact requirements of the market.

New Medical Tech Corp. (NMC) is a Taiwan medical device company.

NMC develops Digital X-ray Retrofit systems for general radiography (DR)

and digital mammography (DM) applications. NMC products feature

state-of-the-art flat panel detectors combined with unique acquisition and

post processing workstations to be integrated with existing traditional

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medical X-ray systems. In addition to the DR & DM products, NMC also

teams up with strategic partners in developing HIFU (High Intensity Focused

Ultrasound) systems for advanced image-guided therapy solutions.

Backed by extensive know-how of medical diagnostic equipment design,

image processing technologies, and optical electronics, NMC bridges the two

worlds of healthcare industry and strong IT industry between Taiwan and

Korea. By taking advantage of local world class industrial strengths in both

TFT & CMOS semiconductor foundry capabilities, NMC is positioned to

make a breakthrough in its technological innovation, improving cost barriers

and employing a fast time-to-market strategy. NMC visions to dominate in

the emerging digital X-ray conversion market by offering superior products

at reasonable costs.

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V. Industry Investment Incentives

1. Preferential Taxes

The ROC government enacted the Statute for Upgrading Industries in

1991 to develop a more favorable environment for foreign and overseas

Chinese investors in Taiwan, and to further attract foreign investments for the

purpose of upgrading the ROC’s industrial base. On January 1, 2000, the

statute was amended to extend preferential tax measures for another 10 years

until December 31, 2009. These measures are detailed in the chart below:

Incentive Measures Nature of Incentives

Accelerated depreciation of equipment and facilities

Equipment and facilities used exclusively for R&D, experimentation, and quality control purposes, and equipment, machinery, and facilities that are utilized for energy conservation or that use new and clean energy, are eligible for an accelerated depreciation period of two years. If there is any residual post-depreciation service life remaining following the accelerated depreciation period, depreciation may be continued for one or several years within the service life of the assets as specified in the Income Tax Law until the assets are fully depreciated.

Investment in automation equipment or technology

Investment in recycling and pollution control equipment or technology

Investment in equipment or technology for the use of new and clean energy, energy conservation, and industrial wastewater recycling Investment in equipment or technology for reducing greenhouse gas emissions and enhancing energy efficiency

Companies may deduct 5% to 20% of the amount of investment in these areas from their profit-seeking-enterprise income tax over a five-year period beginning with the year in which the investment is incurred.

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Incentive Measures Nature of Incentives Investment in the hardware, software and/or technology that can promote an enterprise’s digital information efficiency, such as the Internet and television functions, enterprise resource planning, communication and telecommunication products, electronics and/or audio visual equipment, and digital content production

Research and development

Personnel training

• Companies may deduct 35% of the amount of their investment in R&D or personnel training from their profit-seeking-enterprise income tax over a five-year period beginning with the year in which the investment is incurred.

• Companies may deduct 50% of the amount of their investment in R&D or personnel training that exceed the average annual amount of their investment in R&D or personnel training for the previous two years from their profit-seeking-enterprise income tax.

• The total amount deducted from tax due per year under the previous two items may not exceed 50% of the company's profit-seeking-enterprise income tax due for that year. The amount deducted during the final year, however, is not subject to this limitation.

Investment in resource-poor or lesser-developed rural areas

Companies that invest a specific amount or employ a specific additional number of persons in resource-poor or lesser-developed rural areas may deduct 20% of the invested amount from their profit-seeking-enterprise income tax over a five-year period beginning with the current year.

Investment in emerging, important, and strategic industries

The investor may choose one of the following: • Investment tax credits for shareholders:

A company or individual who subscribes to the registered stock issued by a company in an emerging, important, or strategic industry, and who holds the stock for at least three years, may claim a deduction from the profit-seeking-enterprise income tax or consolidated income tax due over a period of five years beginning with the current year:

A profit-seeking enterprise may deduct up to 20% of the cost of such stock from its profit-seeking-enterprise income tax for the current year. An individual may deduct up to 10% of the cost of such stock from the consolidated income tax for the current year, provided that the deductible amount within each year is not more than 50% of the consolidated income tax payable for that year; this limitation will not apply, however, to the amount deducted in the final year. The rate of tax reduction provided above will be reduced by 1 percentage point every two years beginning on Jan. 1, 2000.

• Five-year tax holiday for companies: A company investing in an important, emerging, or

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Incentive Measures Nature of Incentives strategic industry may, within two years from the date at which shareholders begin paying their stock price and with the approval of its shareholders’ meeting, select exemption from the profit-seeking-enterprise income tax and waive the right of shareholders to claim income tax deductions as set forth above. Once the selection is made, no change will be allowed. The following provisions must be met: A newly incorporated company that meets these conditions will be exempted from the profit-seeking-enterprise income tax for a period of five consecutive years from the date on which it begins to sell its products or render its services. A company that carries out an expansion project via a capital increase will be exempted from the profit-seeking-enterprise income tax on the increased income derived from the expansion for a period of five consecutive years from the date the newly added equipment begins to operate or the rendering of services begins. However, this provision is limited to the expanded construction of independent production or service units, or the expansion of primary production or service equipment, via capital increase. A company that is eligible for a tax exemption as described above may, within two years of the date on which it starts to sell its products or render its services, choose to defer the commencement of the tax-exemption period. The period of deferment may not be more than four years, and the date on which the exemption period begins following deferment must be the first day of a fiscal year. A company that carries out a capital increase using undistributed profits may apply the three items above.

Reinvestment

If for the purpose of adjusting its business operations, a company invests production or service equipment and the land on which such equipment is located in a another enterprise in which it holds at least a 40% share, the land value increment tax on the reinvested land may, with prior government approval, be deferred based on the ratio of shares held and upon receipt of a proper guarantee from the company.

Investment by foreigners and overseas Chinese

• When a non-resident individual or profit-seeking enterprise without a fixed place of business in the Republic of China receives a dividend distributed by a company or profit distributed by a partnership located in the Republic of China in which that individual or enterprise has invested under the Statute for Investment by Overseas Chinese or Statute for Investment by Foreign Nationals, 20% of the amount of payment will be withheld as stipulated in the Income Tax Law and the provisions of the Income Tax Law regarding tax filing will not apply.

• When a non-resident director, supervisor, or manager of a company in the ROC who has invested in that companies under the Statute for Investment by Overseas Chinese or Statute for Investment by Foreign Nationals and who has resided in the ROC for more than 183 days within a tax year for the purpose of operating or managing the invested company receives a dividend from the invested company,

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Incentive Measures Nature of Incentives 20% of the amount received will be withheld as stipulated in the Income Tax Law and the dividend income will not be included in the individual’s tax return for that year.

• Salaries paid abroad to directors, managers, or technicians who are sent to the ROC temporarily by foreign profit-seeking enterprises that invest in the ROC under the Statute for Investment by Overseas Chinese or the Statute for Investment by Foreign Nationals to carry out investment, plant construction, or market surveys, and who do not stay in the ROC more than 183 days within a tax year, are not treated as income derived in the ROC and are thus exempt from the income tax.

Establishment of international logistics and distribution centers

When foreign profit-seeking enterprises or branch companies which they have established within the Republic of China set up themselves, or commission domestic profit-seeking enterprises to set up logistics and distribution centers in Taiwan to engage in the warehousing and simple processing of goods from the said foreign profit-seeking enterprise which are then delivered to domestic customers, the income so derived is exempt from the profit-seeking-enterprise income tax.

Company mergers

Merged companies are exempt from profit-seeking-enterprise income taxes and securities transaction taxes resulting from their merger, and may apply the provisions for the deduction of losses. In addition, the land increment tax due on land that is owned by a company and is transferred along with the merger of that company may be charged to the account of the surviving enterprise.

Establishment of operation headquarters

For companies that establish operations headquarters in Taiwan that reach a certain scale and that have a major economic effect, the income that they derive from the provision of management services or research and development to the related companies which they acquire in Taiwan, as well as royalty income, profit from investment, and gain from the disposition of properties, are exempt from the profit-seeking-enterprise income tax; in addition, such companies may procure publicly owned land at preferential prices.

Science-based industries

• Effective Jan. 1, 2002, machinery and equipment that is imported for a company's own use and that is not yet manufactured domestically may, with the approval of the Ministry of Economic Affairs, be exempted from import tariffs and business taxes.

• Import tariffs and business taxes will be levied on imported machinery or equipment that, within five years of its importation, is sold or its use is changed so that it no longer meets the conditions for tax exemption or conforms to its original use. Machinery or equipment that is sold to companies that operate within science-based industrial parks, economic processing zones, or other science-based industrial companies is not subject to this limitation.

• Raw materials that are imported by bonded factories are exempt from import tariffs and business taxes. Import tariffs and business taxes will be levied on such raw materials, however, if they are shipped outside the bonded area.

22

In 2007, the Taiwan government announced the “Statute for the

Development of Biotechnology New Drug Industry” in order to break

through the barriers.

Incentive Measure Nature of Incentive

Investment in personnel training, research and development

• Companies may deduct 35% of the amount of their investment in R&D or personnel training from their profit-seeking-enterprise income tax over a five-year period beginning with the year in which the investment is incurred.

• Companies may deduct 50% of the amount of their investment in R&D or personnel training that exceed the average annual amount of their investment in R&D or personnel training for the previous two years from their profit-seeking-enterprise income tax.

Encouraging the investment of biotechnology new drug company

A profit-making business, through the original share subscription or subscription of shares issued by the said company, became a registered shareholder for more than three years, and the said biotechnology new drug company did not file for, based on the amount of the subscribed shares or the subscription of shares, the exemption of business income tax or the deduction entitled from shareholder’s investment according to other regulations, then this business is entitled to deduct each year’s business income tax payable for a period of five years starting from the year that the business income tax payable is incurred. The deductible amount is limited to 20% of the acquisition price of the shares. In the event that the aforementioned profit –making business is a venture capital business, its shareholders, in accordance with the original deductible amount of the said venture capital business specified in item 1, take the shareholding ratio of the venture capital business to calculate the deductible amount from the investment, and deduct each year’s business income tax payable for the period of five years starting from the fourth year after the venture capital business becomes a registered shareholder of the biotechnology new drug company.

Attracting high ranking professionals and technology providers to participate

High ranking professionals and technology investors of biotechnology new drug company as the technology shares are permitted not to be included in the personal taxable income or business taxable income of the year. Whereas, when the ownerships of such shares are transferred, gifted, or distributed as heritage, the total transfer prices, or the market value at the time of gifting or distributing as heritage shall be included in the income of the year when filing income tax report, the cost can be deducted. When the issuing company processes the title transfer of the aforementioned shares, it shall file to the district taxation authority within 30days starting from the next day after the title is transferred. In the event that technology investors, while calculating the aforementioned income, are not able to submit the certificate document of the acquisition cost, they can deduct 30% of the transfer price as the cost.

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Attracting talents and technology by stock warrant

After the resolution is reached by the consent of more than half of the board director attendees in a board meeting attended by more than two third of the board directors, and after the approval of the governing authority, the biotechnology new drug company may issue stock warrants to high ranking professionals or technology investors. The holders of the aforementioned stock warrants may subscribe specific number of shares according to agreed prices, the subscribed price is not constrained by Article 140 of the Company Law which stipulate that the price shall not be lower than the face value. The aforementioned regulation applies to the payable income tax of the acquired stocks. Article 267 of the Company Law is not applicable when biotechnology new drug company issues new shares according to Article 7

Encouraging researchers in public institutes to transfer technologies

In the case that the major technology provider of a newly established biotechnology new drug company is a researcher employed by a state-run research institute, then this researcher, subject to the consent of the employer, may have the ownership of more than ten percent of the total shares at the time the company is founded. The researcher may take the role of a founder, a board director, or a technology advising commissioner, he/she is not constrained by Article 13 of Public Servant Service Law.

Enhancing the collaboration between industrial, governmental, academic and research sectors

Researchers in the academic and research institutes, subject to the consent of the employer, may take the position of research and development advising commissioners or advisers.

2. R&D Subsidies:

Below are some government measures for boosting the development of

new products:

(1) Contents

In order to encourage new product development by manufacturers with

R&D potential, and to relieve some of the burdens of risk, the government

may provide a subsidy of up to 40% of the cost of development.

(2) Scope of Eligible Products

(a) Products of emerging key industries.

24

(b) Products employing key technologies that surpass current standards

of industrial technology in Taiwan.

(c) Products that have a strong connection with good market potential,

and which can stimulate the development of related industries.

3. Intellectual property rights revert to developing companies

4. Low-interest Loans

To accelerate the industrial development and economic growth of the

country, a special fund has been allocated by the Development Fund of the

Executive Yuan for cooperation with banks in providing various kinds of

special low-interest loans. These include preferential loans for small and

medium-sized enterprises (SMEs) to upgrade and purchase automation

equipment, and loans to private enterprises for purchasing pollution control

and pollution treatment equipment. In addition, the government has allocated

NT$100 billion from new postal deposit funds for the “Medium-and

Long-term Capital Loan Plan.” Private investors whose projects have a value

of NT$ 100 billion or more may apply for loans under this plan.

5. Government Participation in Investments

(1) Investors can ask the government to participate in their investment

projects to a maximum of 49% of the total capitalization. The following

government agencies represent the government in providing capital:

(a) The Sci-Tech Development Fund and other development funds

(b) Mega Bank

(c) Management Committee of the Executive Yuan Development Fund

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(2) Investment Focus

(a) In the past, the focus was on major productive industries included in the

government’s economic construction plans, such as petrochemicals and

semiconductors.

(b) In recent years, the focus has been on Ten (10) Emerging Industries,

including information, communications, aerospace, and biotechnology.

VI. Industry-Academia Collaborations in Taiwan

1. Biotechnology and Pharmaceutical Industries Program Office, MOEA

(The Executive Yuan's One-Stop-Service Office for the Biotechnology

Industry)

Responsible for promoting and implementing the government's

biotech-related plan and strategies; serves as the contact for international

communications for the industry; provides relevant information on

investment incentives, laws & regulations, provides consultation for business

startups.

Rm. A, 17F, 3 Yuan Qu St., Nangang District, Taipei, Taiwan

(http://www.biopharm.org.tw)

2. Council of Agriculture, Executive Yuan

Monitors matters or issues relating to local and national agricultural

affairs, forestry, fisheries, livestock herding, and other food-related

administrative affairs.

37 Nanhai Road, Taipei, Taiwan (http://www.coa.gov.tw)

26

3. Overseas Chinese Affairs Commission

Coordinates with overseas Chinese and facilitates them in all matters

relating to business and investment processing, advertising, and promotion;

assists overseas Chinese businesses; provides visa services, news

broadcasting, and overseas promotional materials.

16F, 5 Hsu-Chou St., Taipei, Taiwan (http://www.ocac.gov.tw/)

4. Department of Health (DOH), Executive Yuan

Taiwan's highest-level health administrative body, the DOH is

responsible for health administration affairs of the whole nation. The DOH is

also responsible for instructing, monitoring, and coordinating regional health

bodies.

11F, 100 Aikuo East Road, Taipei, Taiwan (http://www.doh.gov.tw)

5. Industrial Development Bureau, MOEA

Responsible for industrial development strategies and policies, the

execution of industrial upgrades, industrial development and management,

planning of related financial and tax measures, industrial pollution prevention,

industrial security guidance and factory management, and general industrial

administrative management.

41-3 Hsinyi Road, Sec. 3, Taipei, Taiwan (http://www.moeaidb.gov.tw)

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6. Intellectual Property Office, MOEA

Offers service in patent examination; trademark registration; copyright

protection; trade secrets protection; intellectual property rights and related

information; prevention of counterfeits.

3F, No. 185, Hsinhai Road, Sec. 2, Taipei City, Taiwan, R.O.C.

http://www.moeaipo.gov.tw

7. Board of Foreign Trade, MOEA

Provides economic and trade information; import-export services;

international and regional economic and trade promotion.

1 Hukou St., Taipei, Taiwan (http://www.trade.gov.tw)

8. Department Of Investment Services (DOIS)

Actively promotes Taiwan as an ideal investment destination to overseas

investors; provides guidance to local companies to invest in other countries,

and recruits skilled and expert personnel from overseas.

8F, 71 Kuanchien Road, Taipei, Taiwan

(http://www.idic.gov.tw/spring.html)

9. Department of Industrial Technology (DOIT), MOEA

Responsible for researching and planning industrial technology

development strategies, technology project budgets, combining related

institutes to promote and develop industrial technology in these categories;

pioneering technologies, key technologies, and adaptive use technologies,

DOIT's overall aim is to promote the development emerging high-tech

industries, and accelerate the upgrading of local industries.

6F, D-Building, 15 Foo-Chow St., Taipei, Taiwan

(http://doit.moea.gov.tw)

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10. Economic Processing Zone Administration, MOEA

Responsible for investments in the zone; engages in foreign trade & sales;

company registration; labor; construction & land administration affairs.

600 Cha-Chang Rd., Nantze, Kaoshiung City, Taiwan

(http://www.epza.gov.tw)

11. Department of Commerce, MOEA

Responsible for the drawing up of business policies & laws; business

planning, managing, guiding, monitoring, and orchestrating; researching

business contracts, business taxes, and business registration management &

monitoring.

15 Foo-Chow St., Taipei, Taiwan

(http://www.moea.gov.tw/~meco/doc/ndoc/default.htm)

12. Investment Commission, MOEA

Responsible for overseas investments, technological collaborations, and

examination of foreign investments.

8F, 7 Roosevelt Road, Sec. 1, Taipei, Taiwan (http://www.moeaic.gov.tw)

13. Hsinchu Science-based Industrial Park Administration

Responsible for investments; locating land/factories; granting research

developments; personnel training, etc.

2 Hsin-an Road, Hsinchu City, Taiwan

(http://www.sipa.gov.tw/index_apis.php)

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14. Taiwan External Trade Development Council (TAITRA)

Provides customized trade and investment services to domestic and

overseas enterprises.

5-7 Floors, International Trade Building, 333 Keelung Road, Sec. 1,

Taipei, Taiwan

(http://www.taiwantrade.com.tw/cgi-bin/bv60/TWTRADE/index_tc.jsp)

15. Overseas Chinese Enterprises Commission

Promoting joint ventures between overseas Chinese firms and local

companies.

11F, No. 63 Hangchou South Road, Sec. 1, Taipei, Taiwan

16. Taiwan Venture Capital Association

Conducts surveys to local and overseas venture capital industries;

lobbying on behalf of the industry; serves as a bridge between members and

high-tech companies, providing investment-related industrial information to

members; improving international collaboration between overseas and local

VC companies.

Rm. 301, 3F, 142 Minchuan East Road, Sec. 3, Taipei, Taiwan

(http://www.tvca.org.tw)

17. Taiwan Pharmaceutical Development Association

Improving the production technology R&D, business management, and

encouraging international exchanges to enhance the development of Taiwan's

pharmaceutical industry.

3F, 12-1 Tunhwa North Road, Alley 145, Taipei, Taiwan

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18. Taiwan Pharmaceutical Manufacturer's Association

Increasing the quality and stability of locally-produced pharmaceutical

products; working on R&D of new medicines; promoting and upgrading the

industry; strengthening overseas collaboration and attracting investments;

expansion of overseas markets; providing efficient communication between

the pharmaceutical industries of Taiwan and China; providing information

resources to the local industry; personnel training.

3F, 267 Tunhwa South Road, Sec. 2, Taipei, Taiwan

(http://www.tpma.org.tw)

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Appendix 1:

Related Laws and Regulations Regarding Taiwan's Biotechnology

Industry

I. Biotechnology and Pharmaceuticals

1. Statute of the Development of Biotechnology New Drug Industry (Enacted

on 2007/06/15) (http://lis.ly.gov.tw/npl/fast/02814/960614.htm)

2. Pharmaceutical Affairs Law (http://www.doh.gov.tw/EN/Webpage/ )

3. Nutritional Product Management Law

(http://www.doh.gov.tw/EN/Webpage/ )

4. Pharmaceutical Affairs Law: Details

(http://www.doh.gov.tw/EN/Webpage/ )

5. Statutes on Blood Derivatives (http://www.doh.gov.tw/EN/Webpage/ )

6. Rare Disease Prevention and Drug Law

(http://www.doh.gov.tw/EN/Webpage/ )

7. Guidelines for Good Clinical Practice

(http://www.doh.gov.tw/EN/Webpage/ )

8. Standards for Establishing Pharmaceutical Manufacturing Factories

(http://www.doh.gov.tw/EN/Webpage/ )

9. Ethical Guidelines of Placental Dry Cell Research

(http://www.doh.gov.tw/EN/Webpage/ )

10. GMP for Medical Devices (http://www.doh.gov.tw/EN/Webpage/ )

11. cGMP for Pharmaceutical Drugs (http://www.doh.gov.tw/EN/Webpage/ )

12. Good Manufacturing Practice for Pharmaceuticals

(http://www.doh.gov.tw/EN/Webpage/ )

II. Agriculture

1. Environmental Drug Management Law

(http://law.epa.gov.tw/en/laws/288564189.html )

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2. The Plant Variety and Plant Seed Act (http://eng.coa.gov.tw )

3. Regulations Governing Management Practices for Transgenic Plant Field

Tests (http://www.afa.gov.tw )

4. The Plant Variety and Plant Seed Law (http://eng.coa.gov.tw )

5. Enforcement Rules of Veterinary Drugs Control Act

(http://eng.coa.gov.tw )

6. Veterinary Drugs Control Act (http://eng.coa.gov.tw )

7. Regulation for the Field Trial of Transgenic Breeding Livestock (Fowl)

and the Bio-Safety Assessment (http://eng.coa.gov.tw )

8. Plant Health Inspection and Quarantine (http://eng.coa.gov.tw )

III. Intellectual Property Rights

1. Copyright Law (http://www.tipo.gov.tw/eng )

2. Guidelines for Ownership and Use of the Scientific Technological R&D

Results of the Government (http://www.nsc.gov.tw/ls/LS0000S.ASP )

3. Guidelines for Ownership and Use of Results from Research Subsidized or

Commissioned by the Ministry of Economic Affairs

(http://doit.moea.gov.tw/newenglish/00_whatsnew/whatsnew.asp )

4. The Foundation Law for Technological Development

(http://web.nsc.gov.tw )

5. The Plant Variety and Plant Seed Act (http://eng.coa.gov.tw )

6. Measures for Safekeeping of Microbiology-Related Patent Applications

(http://www.tipo.gov.tw/eng )

7. Trademark Law (http://www.tipo.gov.tw/eng )

8. Patent Law (http://www.tipo.gov.tw/eng )

9. Guidelines for Rights to R&D Results of the National Science Council

(http://web.nsc.gov.tw )

10. Trade Secrets Act (http://www.tipo.gov.tw/eng )

33

IV. Tax Benefits and Incentives

1. Agricultural Development Regulations

2. Tax Deduction Measures for Company R&D and Personnel Training

Expenditures

3. Incentive Measures for R&D and Manufacture of Drugs for Rare Diseases

4. Incentive Measures for Emergent Important Industries Belonging to

Agriculture

5. Statutes for Upgrading Industries

6. Scope of Venture Capital Business and Consulting Guidelines

7. IDB of MOEA Contracted Proposal for Points Regarding Industry

Technology and Production to be Developed Successfully and Having

Marketability to relax the listing requirement of local biotechnology

companies to apply for listing on the Taiwan Stock Exchange and the

OTC Exchange.

8. Regulations Governing Tax Incentives for Operations Headquarters and

Bylaws

9. Rules for Encouraging Pharmaceutical Technology Research and

Development

10. Guidelines for Considering Expenditures Incurred by Companies

Involved in R&D Commissioned by Local Biotech and Pharmaceutical

Companies as Investment.

11. Incentive Measures for Emergent Important Strategic Industries

Belonging to Manufacturing and Technology Service

34

References

[1]Taiwan Biotech and Pharmaceutical Industries, Asia Pacific Biotech, Vol.

11, No. 12, 2007.

[2]Spot on Taiwan, Advertisement Feature, Nature, 5 April (2007).

[3]Taiwan, A Key Link in the Bioscience Global Supply Chain, p.40,

BioSpectrum, Asia Edition, Vol. 1. Issue 1, March-April 2006.

[4]2007, Introduction to Biotechnology & Pharmaceutical Industries in

Taiwan, BPIPO, MOEA, Taiwan.