Taiwan legislation guide
By Sophia Hsieh
Tsar & Tsai Law Firm
Tel: +886 2 2781 4111 Fax: +886 2 2721 3834 Website: www.tsartsai.com.tw
In the wake of the departure of several foreign insurance companies in recent years, and especially the sale of Nan Shan Life (the life insurance vehicle of AIG in Taiwan) subsequent to AIG’s liquidity crisis in late 2008, the Financial Supervisory Commission (FSC) announced in late 2010 its so-called ‘five principles’. These set out criteria for potential buyers of insurers in Taiwan. They are:
1) Ability to raise funds
2) Long-term commitment
3) Protection of policyholders and employees
4) Proper source of funding in compliance with Taiwan law and financial soundness
5) Professional capability of managing insurance business
To formalise the five principles, new Articles 139-1, 139-2 and 171-2 of the Insurance Act were subsequently enacted in December 2010, setting up the suitability requirements for controlling shareholders of insurers.
According to the new law, any person or affiliate holding more than 5% of the outstanding voting shares of any single insurance company must lodge a filing with the FSC within 10 days after acquisition. The same shall apply to any increase or reduction of more than 1% in aggregate of the shareholding percentage thereafter. If a person or affiliate wishes to obtain more than 10%, 25% or 50% of the outstanding voting shares of any single insurance company, an application must be made in advance to the FSC for a suitability review. Prior approval from the FSC will be necessary.
Other notable legislation developments in Taiwan include:
ECFA
The Economic Cooperation Framework Agreement (ECFA) is a preferential trade agreement between Taiwan and China aiming to reduce tariffs and commercial barriers between the two. The agreement was signed on June 29 2010, taking effect on September 12 of the same year. The ‘early harvest’ list of tariff concessions agreed by the two sides in ECFA covers 539 Taiwanese products and 267 mainland Chinese goods. In the services area, China agreed to open markets in 11 service sectors such as banking, securities, insurance, hospitals and accounting, while Taiwan offers wider access in seven areas, including banking and movies.
It is expected that the ECFA will benefit Taiwan ahead of other competitors, in particular Japan and Korea, as most industrial products exported from Taiwan to China will enjoy zero tariffs. It is also expected that Taiwan will become the preferred jurisdiction for foreign companies intending to enter the China market, which should eventually boost the island’s economy.
Enactment of luxury tax legislation
With one eye on tackling rising real estate prices, Taiwan enacted ‘The Specially Selected Goods and Services Tax Act’ in May 2011, which took effect on June 1 of the same year. The Act, which is commonly known as the ‘luxury tax act’, imposes an additional 10% tax on the value of goods/services, including on:
1) Real estate, if transferred within two years after acquisition (transfer within one year will be subject to a higher tax rate of 15%);
2) Cars, yachts, airplanes, helicopters and ultra-light vehicles with values of NT$3 million or more;
3) Turtle shells, hawksbills, coral, ivory, and furs that are protected under the Wildelife Conservation Act with values of NT$500,000 or more;
4) Furniture and membership rights with selling price values of NT$500,000 or more; and
5) Imported products shall be levied by Customs upon clearance.
Enactment of anti-thinning capital law
Effective from January 2011, the amended Income Tax Act provides that if a company’s debt, owed directly or indirectly to related parties, exceeds 300% of a company’s equity, any interest accrued from the portion exceeding the limit shall not be recognised as an expense or loss of such a company.
The new law, however, does not apply to financial holding companies, the banking industry or the insurance industry.
FOS legislation
New legislation, entitled ‘Financial Consumer Protection Act’, was enacted in June 2011 with the aim of resolving financial consumer disputes more effectively. It will take effect on December 30 2011. According to the new law, ordinary consumers (other than professional investment institutions or other accredited investors) may refer consumer disputes to the Financial Ombudsman Service (FOS) for resolution. This is if they are dissatisfied with the decision of financial services companies after lodging complaints with the companies. The FOS resolution, if accepted by both parties and subsequently approved by the court, will have the same binding effect as a court’s final judgment.