High Economic Freedom
As a member of the international organizations such as WTO and APEC, Taiwan is highly free in economic activities. It follows the international practices and has a healthy system to protect property rights. According to the "2014 Index of Economic Freedom" published by the Heritage Foundation (a United States think tank) and the Wall Street Journal, Taiwan was ranked 17th among the 185 countries, up 3 places from last year’s ranking at 20th in the world. The ranking was Taiwan’s best performance in the index to date. Taiwan was ranked 5th in the Asia-Pacific region, only behind Hong Kong(1st), Singapore(2nd), Australia(3rd), and New Zealand(5th), ahead of Japan (25th) and South Korea (34th).
The index comprises 10 categories - property rights, freedom from corruption, fiscal freedom, government spending, business freedom, labor freedom, monetary freedom, trade freedom, investment freedom and financial freedom. Based on its aggregate score, each of 185 countries graded in the 2014 index was classified as “free” if it scored 80 or higher; “mostly free” if scoring between 70-79.9; “moderately free," 60-69.9; “mostly unfree,” 50-59.9; or “repressed," if the score fell below 50.. Taiwan’s overall score was slightly better than last year due to the biggest improvements in financial freedom and investment freedom.
The report indicated that Taiwan government made significant improvement in market openness in the past 20 years, especially its financial freedom score in 2014 climbed up 10 points to 60 on the 100-point scale. Competitive corporate tax rates and role of small and medium-sized enterprises in creating a dynamic economy were singled out. The report also praised Taiwan for continuous advancements in economic freedom by promising legal reforms and opening of the investment market since 2009 and continues to be ranked one of the world’s 20 freest economies.
Besides, Taiwan is ranked 15th out of 144 countries in the 2012 Annual Report of Economic Freedom of the World released by U.S.-based Cato Institute Sept. 18, 2012. Taiwan jumps up 15 places from the previous year and this is the best score that Taiwan has never had.
The annual Economic freedom of the World report is measured in five different areas: (1) size of government, (2) legal structure and security of property rights, (3) access to sound money, (4) freedom to trade internationally, and (5) regulation of credit, labor, and business and uses 42 distinct variables to create an index ranking countries around the world based on policies that encourage economic freedom. According to the report, Taiwan has scored ten out of 10 in the following four variables: (1) Freedom to own foreign currency bank accounts, (2) Black-market exchange rates, (3) Interest rate controls/negative real interest rates, (4) Hours regulations.
According to aforementioned report, the main reason for Taiwan's score increased in economic freedom is because the government makes its effort in enhancing administrative efficiency, promoting deregulation, and providing a more business-friendly environment. Moreover, a well-developed legal framework and the private sector benefits from a well-developed commercial code and open-market policies facilitating the free flow of capital and goods are firmly institutionalized.
Low Taxation Investment Environment
Taiwan provides an investment environment of low taxation. The ratio of government tax revenue to GNP is lower than 14%, which is lower than Japan, South Korea, and most of the developed European and American countries. In recent years, Taiwan has launched the taxation reforms to lower tax rate and simplify the taxation system. Beginning from 2010, the tax rate for profit-seeking enterprise income tax has been reduced to 17%from 20%.Taiwan has also become the lowest tax rate country in Asia like Hong Kong. Taiwan has signed with many countries the agreements for avoidance of double taxation. As of September 30, 2013, Taiwan has signed comprehensive income tax treaties with 25 countries, and 14 treaties on international transportation income tax agreements.
The global financial crisis has hit the world severely. Taiwan's healthy economy makes it more worthy of long-term investment than other emerging countries. The banking system is abundant of liquid capital and the country has huge foreign exchange reserves, a current account surplus, and low foreign debt and average debt, which contributes to Taiwan’s outstanding macroeconomic performance as well as the resistibility amid financial crisis. According to the statistics of the International Monetary Fund, Taiwan has more than USD4 trillion of foreign exchange reserves, which is ranked 4th in the world. The ratio of foreign debt to GDP for Taiwan is 36.7%. This indicates that Taiwan has a securer economy. Taiwan has large current account surpluses, which make the country resistible to the impact of capital outflow and help reduce the risk of confidence crisis. During the global economic recession, Taiwan can still work on preparing for the next wave of economic growth. Taiwan's economy is healthier than other emerging countries. With improved cross-strait relations, Taiwan is expected to have new growth momentums after recovery from the recession.
Advantages for Becoming the Asia-Pacific Capital Fund Center
Taiwan's economic environment is stable. It has four major advantages to become the financial center in the Asia-Pacific region.
- High Internationalized Capital Market: First, as of end of 2012, the stock market capitalization to GDP ratio is 152.06 percent, which indicates Taiwan Stock Market is highly sophisticated and is worth for investment. Secondly, Taiwan Stock Market is active and attractive because of TWSE turnover rate of 76.19 and the Taiwan market P/E ratio at 17.54. Last, the foreign holding of Taiwan's listed companies accounted for nearly one third of the total market value, which shows the capital market in Taiwan gradually turns into liberalization and internationalization.
- Active Stock Exchange Market: TWSE has focused on developing new products to enhance diversification of securities and provide investors with hedging tools. Listed securities on TWSE currently include stocks, entitlement certificates of convertible bonds, convertible bonds, government bonds, beneficiary certificates, call warrants, put warrants, ETFs and Taiwan Depository Receipts (TDRs). Meanwhile, Taiwan's exchange rate is stable, the capital fund costs and interest rates are relatively lower than other Asian countries. Moreover, It takes approximately NT$10 million to list on the Taiwan stock Exchange, which is lower than the costs involved in listing in Hong Kong and Singapore market. This advantage is helpful in attracting foreign investment in the capital market.
- Healthy Investment Environment: In general, with the exception of funds or capital sourced from mainland China or investments in the industries prohibited due to national security concerns, there are no restrictions on the industries for foreign investments. Applicable acts and regulations may, in a few instances, limit the percentage of equity holdings by foreign nationals in companies in certain industries (such as posts, telecommunications, and shipping) to meet policy needs related to national interests in the economic, social, or cultural spheres. Most developed countries have similar policies, and the practice in Taiwan is in line with FTSE developed-market standards.
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