Taiwan’s Economic and Industrial Development and Investment

Environment

Department of Investment Services (DOIS)

Berton B.C. Chiu, Director-general Sept. 17, 2007

2

Promotion of domestic and overseas investment and technological cooperation.

Encouraging and assisting Taiwanese-owned firms operating overseas to invest in Taiwan.

Providing assistance and guidance on foreign investment matters.

Researching and compiling investment opportunities.

Implementation and tracking of investment projects; resolving investment-related issues.

Profiling the investment environment; publishing investment-related laws and regulations.

Promoting the recruitment of overseas personnel in scientific and technological disciplines.

Promotion of bilateral and multilateral investment-related matters and relevant liaison.

Services and Functions of the Department of Investment Services

3

I Taiwan’s Economic SituationII Taiwan's Economic Development

PoliciesIII Status of Taiwan's Industries and

Future DevelopmentIV Taiwan's Investment Environment V Co-Prosperity Projects

Briefing Outline

4

Indicator 2004 2005 2006 2007

Economic growth rate (％ ) 6.15 4.07 4.68 4.58（ July）

Private investmentAmount (NT$1 trillion)(actual growth rate ％ )

1.83(33.1) 1.78(-1.3) 1.88(3.3)* 1.95(5.7)*

New private major investments (NT$100 million)(annual growth rate ％ )

9,252(25.55)

8,902.84(-3.77)

9,261.51(4.03)

8,816.15(41.98)

(Jan.~July)

Private consumptionAmount (NT$ trillion)(actual growth rate ％ )

6.72(4.46) 7.02(2.75) 7.17(1.45)* 7.47(3.0)*

Industrial production growth rate (％ ) 9.85 4.13 4.93 1.40(Jan.~Apr.)

Manufacturing output (％ )

10.55 4.00 4.98 1.62(Jan.~Apr.)

Total trade value (US$100m) 3,511.3 3,810.5 4,267.12,592.5

(Jan.~July)

Value of exports (growth rate ％ )

1,823.7(21.1)

1,984.3(8.8)2,240.0(12.9)

1,351.2(8.2)1-July

Value of imports (growth rate ％ )

1,687.6(31.8)

1,826.1(8.2)2,027.1(11.0)

1,241.3(16.7)1-July

Unemployment rate (％ ) 4.44 4.13 3.91 4.03(Jan.~July)

Note: *Estimate from the DGBAS (Directorate General of Budget, Accounting & Statistics) National Income Review Conference of Aug. 23, 2007. Source: Directorate General of Budget, Accounting & Statistics, Ministry of Finance, and Ministry of Economic Affairs.

1. The Domestic Economy

I Taiwan’s Economic Situation

5

Domestic demand

Private consumption:. Private consumption is expected to increase steadily and reach a projected

growth rate of 3.0% as the domestic labor situation progressively improves and the credit card debt problem gradually eases.

Private investment: The continued capacity expansion and technological upgrading of high-tech

industries, plus the planned expansion of aerospace firms, is expected to enable private investment to maintain a 1.68% growth rate.

New and added investment cases under the MOEA's oversight will amount to more than NT$1.007 trillion.

Foreign trade

Maintaining a stable situation: Although the global economic expansion has eased somewhat, worldwide

growth is still faster than the long-term average. This growth, plus continuing strong global demand for electronic products and the gradually formation of a regional division of labor, are anticipated to sustain Taiwan's export dynamism.

According to customs import/export trade statistics, the value of Taiwan's exported and imported goods were growing at annual rates of 8.9% and 17.4% respectively in July.

6

2. Factors Influencing Taiwan’s Economic Growth in the Next 10 Years

2.1 External factors

　 Economic globalization

　 Economic globalization

International outsourcing will continue to increase. Reconfigure international value chains.

　 Demographic changes

　 Demographic changes

Demographic aging will become more significant throughout the world.

Help Labor change to meet new demands in the new demographic structure.

Fast-developing ICT technology

Fast-developing ICT technology

Emerging ICT technologies will develop rapidly, fostering

interdisciplinary synergies; for instance, IT and biotech linkage is

fueling the development of biochips. Find the next engines of growth.

Inadequate energy and resources

Inadequate energy and resources

Taiwan’s energy and resources are inadequate; environmental protection restrictions are increasingly strict.

Ensure that small resource inputs generate the greatest possible added value.

7

2.2 Internal factors

Private investment

momentum

Private investment

momentum

Investment momentum is mainly focused on the semiconductor and LCD industries. It is expected that investment in these industries will peak after 2010, and new areas of investment must be identified to sustain future economic growth.

Balanced industrial

development

Balanced industrial

development

The rapid development of the information/electronics industry has polarized industrial development.

Unemployment and the growing gap between rich and poor are gradually

eroding social homogeneity.

Industrial upgrading

and transformation

Industrial upgrading

and transformation

Past industrial development emphasized cutting production costs and improving process technology; the future will see increased efforts to improve quality and thereby create greater industrial profit margins.

Development of

new industries

Development of

new industries R&D and innovation will spur the development of emerging industries.

8

2009 2015

Agriculture 1.5 1.2

Industrial structure Industry 24.1 22.7

(％ ) 20.8 20.0

Service industry 74.4 76.2

Agriculture 1.0 * 1.0*

Actual growth rate Industry 4.2 * 3.9*

(%) 4.9 * 4.3*

Service industry 5.5 * 5.5*

Note: *Growth rates for 2015 are averages from 2005 to 2015.

1. Economic Development Goals

Manufacturing

Manufacturing

II Taiwan's Economic Development Policies

9

2.1 Increasing Investment to Build up Growth Momentum

Providing land on preferential terms

Providing land on preferential terms

• Four years of rent-free and six years of half-rent on state-owned land.• Release of TaiSugar land for development.• Extended and expanded phase 2 of 006688 program.• Assistance for expanded investments utilizing adjacent non-urban land.• Assisting zoning changes in unregistered areas containing clusters of enterprises. • Strengthening industrial parks and infrastructure support for industry.

• Four years of rent-free and six years of half-rent on state-owned land.• Release of TaiSugar land for development.• Extended and expanded phase 2 of 006688 program.• Assistance for expanded investments utilizing adjacent non-urban land.• Assisting zoning changes in unregistered areas containing clusters of enterprises. • Strengthening industrial parks and infrastructure support for industry.

Insuring a plentiful labor supply

Insuring a plentiful labor supply

• Strengthening credit guarantees for SMEs.• Using the National Development Fund to participate in investment in conventional indust

ries.

• Strengthening credit guarantees for SMEs.• Using the National Development Fund to participate in investment in conventional indust

ries.Providing funding

assistance

Providing funding assistance

• Strengthening policy EIAs. • Improving EIA case review. • Strengthening policy EIAs. • Improving EIA case review.

Enhancing EIA review efficiency

Enhancing EIA review efficiency

• Central and local government work together to promote investment • Instituting single-window service• Inter-agency coordination in resolving issues related to investment

• Central and local government work together to promote investment • Instituting single-window service• Inter-agency coordination in resolving issues related to investment

Instituting corporate investment promotion

mechanisms

Instituting corporate investment promotion

mechanisms

• Improving the work environment so as to increase willingness to work.• Review of foreign labor policies and import of labor.• Establishing forums for dialog.

2. Economic Development Policies

10

2.2 Development of new major industries 2.2 Development of new major industries

Wireless broadband and related services, digital living, health care, and green industries

2.4 Focusing on industrial development in central and southern Taiwan

2.4 Focusing on industrial development in central and southern Taiwan

◎ Western Taiwan Precision Machinery Industry Corridor

◎ Southern Taiwan Innovative R&D Park

◎ Upgrading and transformation of conventional industry

◎ Southern Taiwan Optoelectronics Corridor

◎ Development of a green energy industry

◎ Giving the tourism landscape a new look

2.3 Assisting conventional industries to improve competitiveness

2.3 Assisting conventional industries to improve competitiveness

◎ Improving quality standards

◎ Promoting innovative R&D

◎ Strengthening creative design

◎ Promoting brands

◎ Assisting marketing efforts

◎ Encouragement of upgrading and transformation

11

2.6 Green energy for a Sustainable Taiwan

2.6 Green energy for a Sustainable Taiwan

2.5 Nurturing SMEs2.5 Nurturing SMEsHelping SMEs create new value; giving SMEs new energy:

◎ Participating in investment and providing credit

guarantees

◎ Boosting R&D capabilities

◎ Promoting marketing and business opportunities

◎ Developing distinctive local industries

◎ Strengthening innovative incubators

◎ Assisting upgrading and transformation

Promoting development of green industries

◎ Photovoltaic industry － Value of output projected to rise

from NT$21.2 billion in 2006 NT$60.8 billion in 2010.

◎ LED lighting industry － Value of output projected to ri

se from NT$1.5 billion in 2006 NT$13.0 billion in 2010.

◎ Biofuel development － The development of green domest

ic energy will promote the mutual development of energy,

agriculture, and green technology.

12

1. Emerging IndustriesFour major emerging industries will have output valued in excess of NT$1.28 trillion in 2009, and will have a projected output value of over NT$5 trillion by 2015, at which time they will have become mainstays of Taiwan's economy.

Source: Institute for Information Industry Research, Sept. 2006.

　　Year

Item Wireless broadband and related services

Digital living Health careGreen

industriesTotal

2009

US$100 m 40 200 100 60 400

NT$100 m 1,280 6,400 3,200 1,920 12,800

2015

US$100 m 360 830 180 200 1,570

NT$100 m 11,520 26,560 5,760 6,400 50,240

Projected output value of emerging industries

III Status of Industries and Future Development

13

Flat panel displays

The world’s leading panel R&D and manufacturing center. 2006 2009 Value NT$1.28 trillion NT$1.6 trillion5-6th generation plants 12 137.5th generation plants 1 38th generation plants 0 1

Machinery The world’s leading supplier of wet-proces

s and baking equipment for the flat panel display industry.

The world’s third most important producer of high-end machine tools and widely-used parts and components.

2006 2009 Value NT$0.84 trillion NT$1.1 trillionMachine tools 5th in the world 4th in the world

BiotechnologyTaiwan plays an important role in the i

nternational biotechnology R&D and commercialization process

A major medical equipment value-added operation and production center

2006 2009 Sales NT$176.0 billion NT$224.3 billion

Semiconductors

World’s lowest memory manufacturing costs.

World’s leading 45 nm process technology

2006 2009 Value NT$1.39 trillion NT$2 trillion12” wafer fabs 12 18

Auto electronics The world’s most important

auto electronics after-sales service provider.

An integral part of the international vehicle manufacture and grade-one supplier OEM supply chain system.

2006 2009 Value NT$56 billion NT$85 billion

Communications The world’s leading exporter of integ

rated wireless broadband solutions 2006 2009

Value NT$324.9 billion NT$550.0 billion

WiMAX becomes #1 in the world in equipment output value

2. Traditional Industries

Six major manufacturing industries projected to generate output worth NT$5.38 trillion in 2009.

2.1 Manufacturing

14

Taiwan has set development targets for the finance, logistics, medicine,

telecommunications, tourism, information, design, R&D, digital content,

popular culture, environmental protection and engineering, and

management consulting industries.

2.2 Services

Item 2006 2009 (targets)

Service industry GDP(NT$1 trillion)

8.5 10.3

Service industry employment (10,000 persons)

598.3 632.7

Service industry labor productivity (NT$10,000/person)

142.1 162.8

15

BERI Investment Risk:

No. 6 in the world(2007)

WEFGrowth Competitiveness:

No. 13 in the world

No. 4 in Asia (2006-2007)

EIUInnovation:

No. 6 in the world

No. 2 in Asia(2006)

Brown University World e-Government Evaluation:

No. 2 in the World(2006)

IMD Technology Competitiveness:

No. 6 in the world(2007)

1. Evaluation of Taiwan’s Investment Environment by Major Institutions

IV Taiwan’s Investment Environment

16

• The shortest flying time to 7 main cities of the Western Pacific: 2.55 hours

6:15

4:554:15 4:00

3:30 3:25 3:052:55

2.1 The Transportation Hub of Asia2.1 The Transportation Hub of Asia

• The shortest average sailing time to 5 major regional harbors: 53 hours

53

124

7864

110

68

Kaohsiung HK Manila Shanghai Tokyo Singapore

Sydney Singapore Tokyo Seoul Manila Shanghai HK Taipei

Chinese Taipei

2. Advantages of Taiwan’s Investment Environment

17

Economic Reconstruction

Consumer Goods

Industry

Rapid Growth of Light Industries

Capital & Technology Intensive Industries

High-Tech Industries

Industrial Restructuring

1960s 1970s 1980s 1990s1950s1940s

Industrial Development Industrial Development - - Past, Present and FuturePast, Present and Future

Knowledge Industries

2000s

2.2 Manufacturing Industries With Solid Technology Integration Capabilities2.2 Manufacturing Industries With Solid Technology Integration Capabilities

18

Taiwan Invest in Asia (June, 2007)Taiwan Invest in Asia (June, 2007)

Economy CaseAmount

(US$ Million)

Ranking in host country

Vietnam 1,637 8,728.09 3

Thailand 1,907 12,019.35 3

Malaysia 2,200 9,783.55 3

Cambodia 191 543.87 4

Indonesia 1,172 13,486.76 9

Philippines 883 1,370.40 7

Singapore 437 3,548.18 N.A.

Total 8,427 49,480.20 --

2.3 Rich Global Logistics and International Marketing Experience2.3 Rich Global Logistics and International Marketing Experience

﹡ Philippines and Singapore statistical data to the end of 2006

19

2.4 Abundant Capacity for Innovation and R&D Growth2.4 Abundant Capacity for Innovation and R&D Growth

The number of U.S. Patents Granted from 2001 to 2005, were ranked No. 4

3,693

4,667

5,371 5,431 5,298

5,938

5,118

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Case

1999 2000 2001 2002 2003 2004 2005

U.S. Patents Granted

20

2.5 A Global High-tech Industry Stronghold

◎ Taiwan is one of the world’s top three producers of many types of high-tech products.

Taiwan was the leading producer of the following products (10 items) in 2006:

Wafer fabs, IC packaging, IC testing, Mask ROMs, TN/STN LCD panels, large TFT-LCD panels (>10”),

electrolytic copper foil, DVD disks, ABS, electric mobility devices, and electric wheelchairs.

Taiwan was the second biggest producer of the following

products (11 items) in 2006.

Taiwan was the third biggest producer of the

following products (6 items) in 2006.

IC design, DRAM, OLED panels, WLAN, IC carrier

boards, TPE, SOHO routers, LEDs, fiberglass cloth,

motherboards (including system shipment), polyester fiber

Medium/small TFT-LCD panels, PCBs, PTAs,

Notebook PCs, PU synthetic leather, nylon

fiber

21

3.1 Overseas Chinese and Foreign National Investment Laws Statute for Investment by Overseas Chinese, Statute for Investment by Foreign

Nationals, Negative List for Investment by Overseas Chinese and Foreign Nationsals

Prohibitions: Prohibited investments

Enterprises having a negative impact on national security, public order, good morals, or public health.

Enterprises in which investment is prohibited by law.

Restrictions:

The permission or approval of the competent authority in charge of the type of enterprise in question must be obtained prior to investment in enterprises in which investment is restricted by law or orders authorized by law.

3. Overseas Chinese and Foreign National Investment Policies

22

3.2 Investment Safeguard Mechanisms Shareholding safeguard

An investor can hold 100% of an enterprise’s shares (apart from certain concession industries, such as telecommunications and media, etc.).

Expropriation safeguards When 45% of an enterprise’s shares are held by overseas Chinese or foreign

nationals, the government pledges not to expropriate or purchase the enterprise within a twenty-year period.

The government shall provide reasonable compensation when it is necessary to expropriate or purchase any enterprises owned by overseas Chinese or foreign nations.

Remittance safeguards: Outward remittance of the following types of funds is freely permitted:

Yield or profit on investment Approved investments allowed to be transferred, divested, or reduced. Capital gains

Compensation to citizens: Same rights and duties as possessed by enterprises in the same domestic industries

23

3.3 Benefits for Overseas Chinese Investors

When 20% of distributed dividends or surplus is withheld in accordance wi

th the payment amount or distributable amount, the filing requirements of

the Income Tax Act shall not apply.

When an investor’s total period of residence does not exceed 183 days, sala

ry income paid by the foreign profit seeking enterprise outside the territory

of Taiwan shall not be considered income from Taiwan sources.

3.4 Investment Residence Permits

After a foreign investment in Taiwan has been approved, when paid-in

equity investment in the enterprise in question has surpassed US$200,000,

one person may apply for a residence permit. An additional person may

apply for a residence permit for each extra investment of US$500,000, to

a maximum of four additional residence permits.

24

4.1 Tax Incentives

Incentives foremerging strategic

industries

• Either stockholder tax credits for investment or five years’ exemption from profit-seeking-enterprise income tax.

Investment tax credits

• Investments in the areas of automated equipment or technology, recycling, or pollution control equipment or technology are eligible for a credit against profit-seeking-enterprise income tax when the amount of investment is within the range of 5%-20%.

• 30% of spending on R&D and manpower training disbursements for general industries, and 35% of such spending in the case of biotechnology enterprises, are eligible for a credit against profit-seeking-enterprise income tax when such spending is 50% greater than the average for the two previous years.

Operatingheadquarters

incentives

• Royalties, investment profits, gains from disposal of assets, and income from provision of management services or R&D obtained from foreign affiliated environments is exempt from profit-seeking-enterprise income tax.

4. Investment Incentives

25

International logistics centers

‧Income from the establishment of logistics and distribution centers performing storage, simple processing, and delivery to the enterprise’s goods to domestic customers shall be exempt from profit-seeking-enterprise income tax.

Investment in resource-poor andunderdeveloped

areas

‧A credit against profit-seeking-enterprise income tax may be

obtained for 10% or 15% of the invested amount.

26

4.2 R&D Assistance and Subsidies (ownership of IPR shall be granted to the applicant)

New Leading Product Development

Program

Assistance may be granted for up to 40% of total project cost. The upper limit shall be 50%, however, when the enterprise seeks to market its brand on the international market.

http: //soc.itnet.org.tw

Traditional Industry Technology Development

Assistance Program

Assistance may be granted for up to 50% of total project cost. Assistance may not exceed NT$1.6 million during any one year, and may not exceed NT$3.2 million during any two years.

http://www.citd.moeaidb.gov.tw

Innovative Industrial Technology

Development Program

Assistance may be granted for up to 40% of total project cost. There is no upper limit on the amount.

http://innovation.tdp.org.tw

SME Innovative R&D Promotion Program (SBIR)

Assistance for early-stage research may be granted up to a maximum of NT$1 million. Assistance for R&D may be granted up to a maximum of NT$5 million during one year. Assistance may not exceed 50% of total project cost. http://www.sbir.org.tw

27

4.3 Government Participation in Investment

Scope of investment: Domestic SMEs or domestic SMEs’ investment projects in

Latin American ally nations.

Upper limit on investment: Share of public stock equity may not exceed 49%.

Scope of investment: Chiefly information, communications, aerospace, digital,

biotechnology, cultural creativity, and digital content industries.

Upper limit on investment: Share of public stock equity may not exceed 49%.

◎Development Funds:

◎ Investment in SMEs:

28

4.4 Land Acquisition

All county and city governments may, in accordance with industrial needs, provide idle or underutilized land in their area of jurisdiction for industrial use with full exemption from rent during the first four years and payment of half-rent during the subsequent six years.

All county and city governments may, in accordance with industrial needs, provide idle or underutilized land in their area of jurisdiction for industrial use with full exemption from rent during the first four years and payment of half-rent during the subsequent six years.

Four years rent-free and six years half-rent on state-owned landFour years rent-free and six years half-rent on state-owned land

Land belonging to the Taiwan Sugar Corp. may be provided for industrial use via leasing or establishment of superficies; the maximum guaranteed lease period shall be 50 years.

Land belonging to the Taiwan Sugar Corp. may be provided for industrial use via leasing or establishment of superficies; the maximum guaranteed lease period shall be 50 years.

Release of Taiwan Sugar LandRelease of Taiwan Sugar Land

Exemption from rent during first and second years; payment of 60% of rent during third and fourth years; payment of 80% of rent during fifth and sixth years; payment of full assessed amount of rent during seventh year.

Extended and expanded phase 2 of 006688 programExtended and expanded phase 2 of 006688 program

29

With the impending potential establishment of CAFTA and FTAA, the deployment of Taiwanese businesses in Latin America can not only give access to opportunities deriving from regional integration there, but can also help them to diversify investment risk.

Ⅴ Co-Prosperity Project

Technology Assistance Establishment of an industrial development consulting mechanism Establishment of a mechanism to encourage local spin-offs by members of technical teams

Investment Promotion Latin American Research Center Investment Service Teams Latin American Investment Project Office Taiwan Park

Assistance for companies investing abroad

Funding Establishment of a Joint Investment Fund Low-interest loans and integration of loan guarantees Strengthened investment subsidies

Solving of financing problems

Manpower Support Assisting allied countries to strengthen vocational training Provision of diplomatic alternative national service personnel

Provision of manpower support to companies

Helping allied countries to upgrade technology

Strategies Goal

Glo

bal

Dep

loym

ent

Con

soli

dat

ion

of

Dip

lom

atic

Rel

atio

ns

1. Introduce

30

2. Latin American Investment Project Office

Establishment of a Latin American Investment Project Office (LAIPO) by the MOEA.

Establishment of an Offshore Investment Window to promote investment and provide help for investment in Latin America.

Investment Assistance Services

Consultation

Special assistance

Follow-up analysis of investment projects

Investment Encouragement Activities

Organizing of investment missions

Holding of strategic alliance talks

Holding of seminars on marketing channels in target countries Investment Assistance Toll-free Service Hotline: 0800-660-789

31

• Assistance to foreign enterprises, overseas Chinese enterprises, and Taiwanese enterprises investing in Taiwan.

• Assistance to enterprises investing overseas. • Recruiting of foreign technological

personnel interested in working in Taiwan.

Department of Investment Services, MOEA8F, 71 Guancian Rd., Taipei, Taiwan

Tel: 02-2389-2111

Email : dois@moea.gov.tw

Website: http: //www.dois.moea.gov.tw

http: //twbusiness.nat.gov.tw

http://investintaiwan.nat.gov.tw

http://hirecruit.moea.gov.tw

DOIS provides the following services: