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In order to encourage foreign profit-seeking enterprises to store products, perform simple processing, and render value-added services in a free trade zone, and then sell the products to clients within and outside Taiwan, with a view to stimulating international trade and boosting the development of free trade zones, Paragraph 1, Article 29 of the Act for the Establishment and Management of Free Trade Zones ("Free Trade Zone Act") grants tax benefits to a foreign profit-seeking enterprise or its branch in the ROC that stores goods or performs simple processing in a free trade zone and sells products do-mestically and abroad.
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By Paragraph 2, Article 29 of the Free Trade Zone Act, on 25 March 2010 the Ministry of Transpor-tation and Communications promulgated a set of rules ("Rules") to specify the scope, qualifications, calculation method, application procedure, and other relevant issues concerning the tax incentive. We hereby explain the Rules as follows:
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Qualifications:
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1.
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The foreign profit-seeking enterprise shall be an organization legally registered abroad and has its corporate head office overseas.
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2.
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All the products of the foreign profit-seeking enterprise in the free trade zone are delivered to legal entities, not individuals.
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3.
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The goods are owned by a foreign profit-seeking enterprise that applies for either establishment or commission of an enterprise in the free trade zone to have the enterprise store goods or perform simple processing. At the same time, the foreign profit-seeking enterprise enters into a sales contract with domestic or foreign customers, or have brokers, agents, or any independent agents carry out its business domestically or overseas in accordance with the practice of their industry.
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Scope of Tax Exemption
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The income of a foreign profit-seeking enterprise from selling products to its domestic and foreign customers could be exempt from corporate income tax. But please note that sales of goods to do-mestic customers shall not exceed 10% of the enterprise's annual total sales, including domestic sales and overseas sales. The sales exceeding the 10% limit will not be exempt from income tax.
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Application Deadline and Procedure
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A foreign profit-seeking enterprise shall apply to the competent authorities for a certificate indicating that it stores goods and performs simple processing in a free trade zone (the "Certificate") one month prior to the deadline for filing a tax return. The following documents are required for the application:
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1.
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The corporate registration documents of the foreign profit-seeking enterprise.
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2.
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The declaration of having the corporate head office abroad issued by the foreign profit-seeking enterprise.
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The business plan for establishment of a business or commission of an enterprise in a free trade zone for the enterprise to store goods and/or perform simple processing.
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4.
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The contract signed with the enterprise in the free trade zone commissioned to store and/or per-form simple processing and its Chinese translation.
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Tax Holiday
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The Certificate issued by the competent authorities shall indicate the term of tax holiday, which cannot be longer than five years. If a foreign profit-seeking enterprise changes the enterprise it commissions in a free trade zone, or the contract with such an enterprise is renewed, the foreign profit-seeking enterprise should apply for the tax exemption status again.
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Tax Return
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After receiving the Certificate, the foreign profit-seeking enterprise should file a tax return in due course along with the following documents, then the tax holiday begins from that taxable year.
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1.
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The Certificate.
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2.
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The corporate income tax audit report submitted by a certified public accountant after checking the application form and relevant documents.
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