Even as it expands the suite of investment products available to wealthy clients, Taiwan’s ambitions to become an international wealth management centre will likely be constrained if it proves unable to lower its tax rate, admits a senior local regulator.
These aspirations have been given fresh impetus in the wake of Hong Kong's mass protests – which have now dragged on for nearly five months and have hurt Hong Kong's status as a wealth hub, prompting some individuals to move their assets to Taiwan.
The anti-extradition bill protests in Hong Kong are a “catalyst” for Taiwan to introduce a new wealth management proposal that aims to put Taiwan on a par with Singapore and Hong Kong, Chang Chuang-chang, vice chairman of the Financial Supervisory Commission (FSC), told AsianInvestor in an interview. The regulator intends to roll out the plan by the end of the year.
He admits, however, that the core of the success of Hong Kong and Singapore as wealth hubs lie in their low-tax environments. While the FSC is making efforts to communicate with different government departments on potentially lowering the relevant tax, it remains a difficult task.
“This takes time, we must admit. It’s because this involves the adjustment of the entire taxation system, and requires considerations of our fiscal expense,” Chang said. "[The decision] is not just based on the FSC’s desire to develop Taiwan's capital markets.
Sherri Chuang, deputy director-general of the banking bureau under the FSC, added during the same interview: “Hong Kong and Singapore’s tax incentives belong to personal income tax and corporate income tax. If these were to be changed, the [Taiwanese] Ministry of Finance would have to think about it for a long time, because the facets it involves are too broad.”
WOOING ASSETS FROM HK
Chang, however, is still hopeful that the social unrest in Hong Kong will prompt some high-net-worth individuals (HNWIs) to shift assets to Taiwan.
“We know that there are difficulties in terms of tax incentives … but [investors’] money parked there [in Hong Kong] is not necessarily safe. When you do asset allocation, not all of your considerations are from the tax perspective,’ Chang said.
With an estimated international market of $790 billion as of end-2017, Hong Kong ranked fourth after Switzerland, the UK and the US in international wealth management standings, according to a report published last year by Deloitte. Singapore was sixth on the list with an estimated $470 billion.
Taiwan didn't feature on the Deloitte list, which placed the United Arab Emirates in ninth and last place on $10 billion.
In the sub-category of tax, Hong Kong and Singapore ranked first and third respectively among the nine centres in the study.
EYEING OVERSEAS TAIWANESE
Chang said that the initial step is to convince overseas Taiwanese to repatriate capital and that it is doing so by reducing the relevant tax rates and providing them with more investment choices.
Under the bill introduced in August, HNWIs – defined as having NT$100 million ($3.3 million) in assets – can enjoy a tax rate of 8% instead of 20% when they repatriate their funds in the first year, and 10% in the second year. And if they invest funds into the real economy in Taiwan, the tax rates will be further lowered by half. HWNIs are also allowed to invest as much as 25% of repatriated funds in financial assets.
The FSC has also investigated what kinds of financial products Hong Kong and Singapore offer to diversify the range of financial products on the island. It is treating those hubs as its benchmark, Chang said.
In addition, it is planning to broaden the investment options for wealthy clients.
For instance, the FSC might relax the credit rating of fixed income products in which HNWIs can invest so that they can assume higher risks by investing in products with lower credit ratings. They may also be allowed to invest in offshore investment funds, Chang said.
“Hong Kong and Taiwan did not succeed in one move," he added. "We do things step-by-step, executing the plan first and then seeking to improve it."