Continuing the trend with occasionally updating more than twice a month, in this post, I will be discussing Taiwan as an offshore banking jurisdiction.
It’s important to understand Taiwan’s complex international relations. Modern history of Taiwan is, put very succinctly, the leftovers of pre-communist China, which fled to Taiwan. While mainland China (this excluded Hong Kong and Macao) transformed into a communist state called The People’s Republic of China, it claimed the island of Taiwan as its own territory. Taiwan, meanwhile, calls itself the Republic of China.
Taiwan is most commonly seen as a sovereign state, but there is no clear international consensus. Nonetheless, the state enjoys good relationships with the international community. It is a politically stable and economically healthy state.
With a corporate tax rate of around 17%, Taiwan is a low to medium tax jurisdiction. In reality, however, Taiwan has never focused much on attracting foreign investors through incorporations, unlike Singapore and Hong Kong. It is far more bureaucratic and lacks the tax benefits Singapore and Hong Kong offer.
Instead, where Taiwan stands out, is banking; in particular, offshore banking.
Taiwan Offshore Banking Units
Offshore Banking Units (OBUs) were first set up in 1983, following relaxation of financial regulation, with the intent of integrating Taiwan’s bank with international banks and investors. The first OBU appeared in June 1984.
Over the years, OBUs developed into a major sector within the Taiwanese banking system.
OBUs are not permitted to denominate accounts in the domestic currency. However, any other currency is permitted. OBUs are exempt from reserve requirements, corporate tax, withholding tax on account holders, and stamp duties.
Initially, OBUs were not available to local companies. This lead Taiwanese companies to form legal entities elsewhere in order to trade in other currencies. The government noticed this and modified OBU regulation to allow even domestic companies. This was done in May 1992 and OBUs have been a massive success since.
Further easing of regulations were made in 2000 and 2001 to make OBUs even more attractive, by no longer requiring OBUs to trade with domestic financial institutions through third parties.
With the Taiwanese dollar being a largely unattractive currency, OBUs are a very important aspect of Taiwan’s banking sector and economy.
As of the December 2013 monthly statement on OBUs, there are 63 OBUs; 38 domestic banks and 25 foreign banks. In total, they hold assets of 160 billion USD.
By far most of the money originate from outside of or is being used outside of Taiwan.
OBUs are often used for CNY/RMB (renmibi) banking outside of China.
Taiwan Banking Secrecy
Banking secrecy has never been a focus on Taiwan and even though OBUs are relatively large, Taiwan has never attracted much attention. OECD has, for example, never made a peer review of Taiwan nor is one even scheduled at this point.
Taiwan has currently not signed any TIEA. It has however signed DTAs which contain clauses about Exchange of Information. These are so far untested and it is unlikely that they will be powerful until Banking Act 48, which provides quite strict banking secrecy, is changed. There has so far not been a move to modify Banking Act 48. Even though Taiwan is in talks with the US about FATCA, it remains to be seen whether Taiwan makes an exception just for FATCA and US persons or for all persons, for the purpose of exchange of information.
Banking with a Taiwanese OBU means banking in a tax free and very easy-going environment, with some degree of banking secrecy.
Opening a bank account with an OBU is relatively easy and can often be done remotely. However, a visit to beautiful and sprawling Taiwan is highly recommended.
However, it’s not easy to find an OBU that deals with you in English. Bank SinoPac, IBT, and HSBC are still among the very few to do so.
Some examples of OBUs include:
- Bank SinoPac
- Industrial Bank of Taiwan (IBT)
- First Bank
- Taishin Bank
- TC Bank
In reality, it’s safe to assume all banks in Taiwan have an OBU.