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For domestic securities firms to efficiently use their capital and credit and to increase the scale of their participation in international finance and securities businesses, the Executive Yuan amended and approved the draft amendments to certain articles of the Offshore Financial Business Act ("Amended Act") on January 24, 2013, to permit securities firms to establish offshore securities units ("OSU"). For your better understanding, we summarize some key points in connection with the OSU in the Amended Act in Q&A format as follows:
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| Q01: |
What is an OSU? What types of businesses are permitted to be conducted by an OSU?
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Ans: |
An OSU refers to a securities unit of a securities firm with separate books and accounts within the territory of Taiwan to conduct offshore securities businesses after obtaining a special permit from the competent authorities pursuant to the Amended Act.
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An OSU may engage in the following offshore securities businesses ("Offshore Securities Businesses"):
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1. |
Selling foreign currency denominated corporate bonds or other debt certificates issued by the head office of the securities firm to natural persons, juridical persons, government agencies and financial institutions within or outside the territory of Taiwan.
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2. |
Undertaking brokerage, intermediary and agency activities with regard to foreign currency denominated securities and other foreign currency denominated financial products which are approved by the competent authorities for natural persons, juridical persons, government agencies and financial institutions within or outside the territory of Taiwan.
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3. |
Conducting borrowing or lending of funds in connection with securities businesses and buying or selling of foreign currency denominated securities and other foreign currency denominated financial products which are approved by the competent authorities, between the said OSU and other financial institutions, and between the said OSU and natural persons, juridical persons, government agencies and financial institutions outside the territory of Taiwan.
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4. |
Underwriting securities issued outside the territory of Taiwan.
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5. |
Conducting account custody, agency and consulting businesses related to the businesses mentioned above with natural persons, juridical persons, government agencies and financial institutions within or outside the territory of Taiwan.
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6. |
Conducting consulting business related to asset allocation and financial planning and distribution services related to foreign currency denominated securities and other foreign currency denominated financial products which are approved by the competent authorities with natural persons, juridical persons, government agencies and financial institutions within or outside the territory of Taiwan.
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7. |
Other securities-related foreign exchange businesses approved by the competent authorities.
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| Q02: |
What are the qualifications a securities firm must meet to apply to establish an OSU? Who are the competent authorities that a securities firm shall apply to for establishment of an OSU?
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Ans: |
Any securities firm which would like to establish an OSU must be an integrated securities firm, which refers to a securities firm licensed to conduct securities underwriting, securities proprietary trading and securities brokerage businesses per Article 16 of the Securities and Exchange Act.
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The competent administrative authority of offshore securities businesses is the Financial Supervisory Commission ("FSC") and the competent business operational authority is the Central Bank of Republic of China (Taiwan) ("CBC"). Hence, if a securities firm would like to establish an OSU, it shall apply to both the FSC and the CBC.
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| Q03: |
Is there minimum capital requirement for operating an OSU?
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Ans: |
An OSU established by a securities firm shall allocate working capital exclusively for its operation purpose. The minimum amount of the said working capital shall be stipulated by the FSC.
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| Q04: |
When an OSU conducts Offshore Securities Businesses, is it subject to foreign exchange control regulations and the Securities and Exchange Act?
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Ans: |
Since an OSU conducts foreign currency denominated offshore securities businesses outside the territory of Taiwan and such activities do not involve exchange of any New Taiwan Dollar and any onshore securities, conducting Offshore Securities Businesses shall not be subject to the limitations under the Statute Governing Foreign Exchange and the Securities and Exchange Act, unless otherwise provided in the Amended Act.
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In the Amended Act, the provisions relating to its businesses, use of funds and other matters of an OSU are as follows:
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1. |
Unless approved by the CBC, an OSU shall not engage in any business involving exchanges or other transactions between foreign currencies and New Taiwan Dollars.
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2. |
An OSU shall not engage in any direct investment and investment in real estate.
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3. |
An OSU of a domestic securities firm may operate in the same business premises as its head office, and an OSU of a foreign securities firm may operate in the same business premises as its branch appointed to engage in foreign exchange business.
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4. |
Unless otherwise required by a court order or law, OSUs are under no obligation to disclose any information to third parties.
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Telecommunications equipment and information systems to be used by an OSU in connection with its head office and other international financial institutions may be imported upon case-by-case applications.
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6. |
After the end of each fiscal year, an OSU shall submit its business report, balance sheet and income statements to the competent authorities for record. The competent authorities may at any time request the OSU to provide, within a given period of time, information concerning its business or financial conditions or other reports. However, OSUs shall be exempt from the requirements to make public their balance sheets.
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7. |
If an OSU has one of the following situations, it should report the same to the FSC for approval with a copy to the CBC:
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A. |
Change of its name;
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B. |
Change of its address;
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C. |
Change of its responsible person;
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D. |
Change in its working capital;
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E. |
Acquisition of all or a major part of the business or property of another OSU, or transfer to another OSU all or a major part of its business or property; or
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F. |
Suspension, resumption or termination of its business.
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Further, the regulations in connection with finance, businesses, use of funds, risk management, tenor and total outstanding amount of "inter market" borrowing by an OSU from financial institutions, handling of the selling and buying of different foreign currencies with designated foreign exchange banks, offshore banking units and offshore financial institutions and other matters for compliance shall be prescribed by the FSC after consulting with the CBC according to the authorization by the Amended Act.
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| Q05: |
May an OSU engage other branches of the same securities firm to handle the Offshore Securities Businesses? For such engagement, shall an OSU pay service fees to such entusted branch ("Agent Branch")?
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Ans: |
To enhance operational efficiency of the offshore securities businesses of an OSU, an OSU may appoint an Agent Branch to handle Offshore Securities Businesses for and on its behalf, including cross-strait securities activities approved by the competent authorities in accordance with the "Act Governing Relations between Peoples of the Taiwan Area and the Mainland Area" (with respect to cross-strait securities activities, the control and supervision of such activities shall be handled in accordance with the regulations related to cross-strait securities activities and the OSU shall coordinate and be responsible for such control and supervision). Further, since such Offshore Securities Businesses remain as part of the OSU's businesses, the Offshore Securities Businesses shall still be booked at the OSU although those are handled by the Agent Branch.
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The Agent Branch shall be a branch of the same securities firm which has been approved by the CBC to engage in securities-related foreign exchange business. The Agent Branch may charge the OSU reasonable fees for handling any of the OSU's activities in order to pay the operating costs. Such fees should be booked as the Agent Branch's income and be subject to local taxation. If the Agent Branch does not charge the OSU any such fees, the costs for handling the OSU's activities may not be booked as the expenses of the Agent Branch.
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| Q06: |
Do OSUs established by securities firms enjoy any tax benefits?
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Ans: |
Pursuant to Article 22-7 of the Amended Act, there are the following tax benefits in connection with OSUs' corporate income tax, business tax, stamp duty and withholding tax:
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1. |
Income from its offshore securities businesses shall be exempt from any corporate income tax; provided, however, that income from handling Offshore Securities Businesses with natural persons, juridical persons, government agencies and financial institutions within the territory of Taiwan shall be subject to taxation or exemptions as stipulated in the relevant provisions of the Income Tax Act.
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2. |
Revenues from its offshore securities businesses shall be exempt from any business tax; provided, however, that sales revenue from sales to natural persons, juridical persons, government agencies and financial institutions within the territory of Taiwan shall be subject to taxation or exemptions as stipulated in the relevant provisions of the Value-added and Non-value-added Business Tax Act.
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3. |
All types of certificates used for an OSU's operation of offshore securities businesses shall be exempt from any stamp duty; provided, however, that certificates issued in connection with transactions with natural persons, juridical persons, government agencies or financial institutions within the territory of Taiwan or with respect to business activities other than Offshore Securities Businesses shall be subject to taxation or exemptions as stipulated in the relevant provisions of the Stamp Tax Act.
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4. |
Interests paid by an OSU to financial institutions, natural persons, juridical persons and government agencies outside the territory of Taiwan and income derived from transaction of structured products shall be exempt from any withholding tax.
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However, the exemption period for business income tax, business tax, stamp duty and withholding tax shall be limited to a period of 15 years from the effective date of Article 22-7 of the Amended Act.
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The above summary is based on the Amended Act passed by the Executive Yuan. The Amended Act may be further revised during the review process of the Legislative Yuan. We will keep an eye on the relevant amendments and provide updated information as new information becomes available.
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Sherry S. L. Lin/Alex Jui-Lin Liu/Christina Chao/C. T. Chang/Grace Wang/
Abe T. S. Sung/Robin Chang/Patricia Lin/Hsin-Lan Hsu
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