TALKING POINTS FOR FOREIGN INVESTORS
-IC SUBSTRATE INDUSTRY
I.Investment Niche
A、Taiwan is the global top 3 IC Substrate production country (with global market share of about 22%). However, the raw material CCL ( for IC substrate) is imported from Japan. The domestic companies supply less than 10% of the total needs. There is indeed demand in the local market.
B、The growth rate of IC substrate in Taiwan is higher than the global average.
C、The IC substrate revenue of Taiwan is rising in the passed eight years with higher growth rate than Japan and global average. The raw material production in Taiwan owns the benefit of cost down and proximity to customers.
D、There is opportunity for Taiwan becomes the IC substrate supplying countries of equal size with Japan. The feasibility has increased drastically.
E、Investing in Taiwan has the advantage of cost saving and proximity to market. In addition, Taiwan can be the starting point for exploring market in Mainland China. By setting up operation center in Taiwan and extending the tentacle to Mainland China, it is possible to significantly reduce the risk of investing directly in Mainland China.
Source: ITRI-IEK(2005/11)
Figure 1 Illustration of IC substrate supply chain
II.Market Analysis
A、Global Market
The IC substrate industry in Taiwan is showing a fast growing trend since 1998. Particularly the packaging industry of Taiwan has the advantage of large production capability and many manufacturers. Therefore, the IC substrate industry of Taiwan has a very sufficient order. Figure 2 shows the status of global market size and the historical production value of our country.
From Figure 2 which shows the weight of IC substrate revenue as compared to the global market size between 2000 and 2008, we can see the increasing importance of Taiwan. Therefore, investing in Taiwan to setup plants for producing IC substrate raw material could have the opportunity of accessing the market in Taiwan.
Source: ITRI-IEK(2005/11)
Figure 2 Comparison of global market size and Taiwan’s historical production value
B、Future Market Opportunity
Due to the global shortage of IC substrate in 2005, the production of the major IC substrate plants in Taiwan are all close to 100% of their own capacity. The ETP (global famous report in packaging field) pointed out that the IC packaging industry in the next five years should be with high growth rate. Except for the increase in overall demand of IC substrate, the demand of Flip Chip Substrate for packaging is even higher. Therefore, the demand in BT substrate, ABF film, and thin type dry film will be even much higher.
C、Product Positioning
Source: ITRI-IEK(2005/11)
Figure 3 The IC substrate industry in Taiwan
IC Substrate is the key component for IC packaging process. Its function is to protect the electric circuit, fixing circuit, dissipating heat and establishing modular standard. Through the IC substrate product with good performance and the accurate packaging process, the functions of the IC could be greatly enhanced. As the huge needs of raw material for IC substrate in Taiwan, there should be tremendous potential for raw materials.
III.Industrial Chain Analysis
A、The gap of the Taiwan IC substrate supply chain
The ratio of CCL supplied locally in Taiwan for IC substrate production is still below 5% in 2005, resulting in imbalance between supply and demand. If foreign investors could invest in Taiwan, they could take advantage of supplying the material to Taiwan’s need and achieve the mutual benefits between Taiwanese IC substrate manufacturers and the foreign material suppliers. Dry film is a kind of dry photoresist. Therefore, it is necessary to select suitable dry film material that could meet the requirement of accuracy in circuit design and machine capability. Presently, part of the dry film products is already produced in Taiwan. However, some of the high-end product are still being imported from outside. This is the opportunity for foreign companies to invest in Taiwan. As to the ABF insulation film to be used in the high-end Flip Chip BGA process, they are depending on the supply from foreign companies. There is advantage to supply local market for investing in Taiwan.
Source: ITRI-IEK(2005/11)
Figure 4 Self-sufficient ratio of CCL for IC substrate in Taiwan
B、Opportunities and Advantages of Setting-up Plants in Taiwan
For companies producing ABF insulation material to be used in the Flip Chip manufacturing process to setup plants in Taiwan, except for supplying the local demand they could also reduce cost by taking advantage of Taiwan’s ability in controlling cost. Though the revenue of Taiwan’s IC substrate is only 27% of global value, but the production volume has already reached 50% of the world production. Taiwan is a potential market for IC substrate raw material supplier.
IV.Production Cost
A、Land rent Cost
a.Rents at the Hsinchu Science-based Industrial Park
Table 1 Land rent at the Hsinchu Science-based Industrial Park
Unit: NT$
Category / Area (m2) / Rent (per month)Land / Over 2,000 / NT$ 49/ m2
Standard plant / First floor / 531.3~1280.4 / NT$ 122/ m2
Second floor / 531.3~1227.6 / NT$ 115/ m2
Third floor / 662.97~1346.4 / NT$ 106/ m2
Fourth floor / 662.97~798.6 / NT$ 99/ m2
Deluxe plant / 1485 / NT$ 204~325/ m2
Incubation center / 80
160
240 / NT$ 184/ m2
Dormitories / Single room / 15~18 / NT$2,250~2,950/unit
Double room / 15~21 / NT$1,850~3,300/unit
Familyhome / 100~290 / NT$10,550~33,300/unit
Note: The above rents are adjusted on the basis of announced rents for the current year.
b.Rents in the Tainan Science-based Industrial Park:
Land and plant buildings within the Tainan Science-based Industrial Park are leased, and will not be sold. The government will set and adjust rents on the basis of amortized cost at the time of development and subsequent yearly changes in real estate and land value taxes. Rents within the Tainan Science-based Industrial Park will consequently be lower than those outside the park. Land shall be leased for periods of 20 years, and plants leased for periods of one year. The following rents are currently charged:
Units: NT$
Category / Term / Rent (㎡/month)Land / 20 years / 12.9
Plants / 1 year / 103~120
Note: Land rents will be adjusted on the basis of announced land prices, public facility development costs, and laws and regulations.
B、Labor Cost
Table 2 Average monthly wages for workers in different industries in Taiwan
Unit: NT$
Year / Ave. 2001 / Ave. 2002 / Ave. 2003Mining and quarrying / 44,264 / 45,006 / 47,263
Manufacturing / 38,586 / 38,565 / 39,583
Electricity, gas & water / 93,091 / 89,591 / 91,034
Construction / 37,746 / 36,848 / 37,219
Trade / 39,760 / 39,202 / 39,799
Accommodation & eating-drinking places / 25,991 / 25,828 / 25,181
Transportation, storage & communication / 53,350 / 51,564 / 51,396
Finance & insurance / 62,625 / 65,767 / 64,693
Real estate& rental & leasing / 42,604 / 40,714 / 39,872
Professional, scientific & technical services / 53,191 / 49,587 / 50,990
Health care services / 54,701 / 54,115 / 55,999
Cultural,, sporting & recreational services / 41,242 / 39,489 / 40,861
Other servies / 31,157 / 30,525 / 30,057
Source: Monthly Bulletin of Earnings and Productivity Statistics and Annual Report of Earnings and Productivity Statistics published by the Directorate-General of Budget, Accounting and Statistics, Executive Yuan, Jan. 2004
V.Taxation
Table 3 Individual Consolidated Income Tax Rates
Units: NT$
Net consolidated income / Tax rate / Progressivedifferential / Tax payable
0—370,000 / x / 6% / – / 0 / =
370,001—990,000 / x / 13% / – / 25,900 / =
990,001—1,980,000 / x / 21% / – / 105,100 / =
1,980,001—3,720,000 / x / 30% / – / 283,300 / =
3,270,001–– / x / 40% / – / 655,300 / =
Table 4 Profit–Seeking Enterprise Income Tax Rates
Taxable income (P) bracket / Tax rate / Progressive differential / Quick formulaLess than NT$50,000 / 0 / –
Less than NT$100,000 / 15% / None / 1. When P is less than NT$71,428: T= (P–50,000x1/2
2. When P is greater than NT$71,428: T=Px0.15
Over NT$100,000 / 25% / 10,000 / T=Px0.25–NT$10,000
Note: T is the amount of tax.
VI.Investment Incentives
A、Preferential Taxes
The ROC Government enacted the Statute for Upgrading Industries in 1991 to develop a favorable environment for foreign and overseas Chinese investors in Taiwan and to encourage investment by foreign companies for the purpose of upgrading the ROC’s industrial base. On January 1, 2000, the statute was amended to extend preferential tax measures for another 10 years until December 31, 2009. These measures are detailed in the chart below:
Incentive Measure / Nature of IncentiveAccelerated depreciation of equipment and facilities / Equipment and facilities used exclusively for R&D, experimentation, and quality control purposes, and equipment, machinery, and facilities that are utilized for energy conservation or that use new and clean energy, are eligible for an accelerated depreciation period of two years. If there is any residual post-depreciation service life remaining following the accelerated depreciation period, depreciation may be continued for one or several years within the service life of the assets as specified in the Income Tax Law until the assets are fully depreciated.
Investment in automation equipment or technology / Companies may deduct 5% to 20% of the amount of investment in these areas from their profit-seeking-enterprise income tax over a five-year period beginning with the year in which the investment is incurred.
Investment in recycling and pollution control equipment or technology
Investment in equipment or technology for the use of new and clean energy, energy conservation, and industrial wastewater recycling
Investment in equipment or technology for reducing greenhouse gas emissions and enhancing energy efficiency
Investmentin the hardware,software and/or technology that can promote an enterprise’s digital information efficiency,such as the Internet and television functions,enterprise resource planning, communication and telecommunication products, electronics and/or audio visual equipment, and digital content production
Research and development / Companies may deduct 35% of the amount of their investment in R&D or personnel training from their profit-seeking-enterprise income tax over a five-year periodbeginning with the year in which the investment is incurred.
Companies may deduct 50% of the amount of their investment in R&D or personnel training that exceeds the average annual amount of their investment in R&D or personnel training for the previous two years from their profit-seeking-enterprise income tax.
The total amount deducted from tax due per year under the previous two items may not exceed 50% of the company's profit-seeking-enterprise income tax due for that year. The amount deducted during the final year, however, is not subject to this limitation.
Personnel training
Investment in resource-poor or lesser-developed rural areas / Companies that invest a specific amount or employ a specific additional number of persons in resource-poor or lesser-developed rural areas may deduct 20% of the invested amount from their profit-seeking-enterprise income tax over a five-year period beginning with the current year.
Investment in emerging, important, and strategic industries / The investor may choose one of the following:
Investment tax credits for shareholders:
A company or individual who subscribes to the registered stock issued by a company in an emerging, important, or strategic industry, and who holds the stock for at least three years, may claim a deduction from the profit-seeking-enterprise income tax or consolidated income tax due over a period of five years beginning with the current year:
A profit-seeking enterprise may deduct up to 20% of the cost of such stock from its profit-seeking-enterprise income tax for the current year.
An individual may deduct up to 10% of the cost of such stock from the consolidated income tax for the current year, provided that the deductible amount within each year is not more than 50% of the consolidated income tax payable for that year; this limitation will not apply, however, to the amount deducted in the final year.
The rate of tax reduction provided above will be reduced by 1 percentage point every two years beginning on Jan. 1, 2000.
Five-year tax holiday for companies:
A company investing in an important, emerging, or strategic industry may, within two years from the date at which shareholders begin paying their stock price and with the approval of its shareholders’ meeting, select exemption from the profit-seeking-enterprise income tax and waive the right of shareholders to claim income tax deductions as set forth above. Once the selection is made, no change will be allowed. The following provisions must be met:
A newly incorporated company that meets these conditions will be exempted from the profit-seeking-enterprise income tax for a period of five consecutive years from the date on which it begins to sell its products or render its services.
A company that carries out an expansion project via a capital increase will be exempted from the profit-seeking-enterprise income tax on the increased income derived from the expansion for a period of five consecutive years from the date the newly added equipment begins to operate or the rendering of services begins. However, this provision is limited to the expanded construction of independent production or service units, or the expansion of primary production or service equipment, via capital increase.
A company that is eligible for a tax exemption as described above may, within two years of the date on which it starts to sell its products or render its services, choose to defer the commencement of the tax-exemption period. The period of deferment may not be more than four years, and the date on which the exemption period begins following deferment must be the first day of a fiscal year.
A company that carries out a capital increase using undistributed profits may apply the three items above.
Reinvestment / If for the purpose of adjusting its business operations, a company invests production or service equipment and the land on which such equipment is located in a another enterprise in which it holds at least a 40% share, the land value increment tax on the reinvested land may, with prior government approval, be deferred based on the ratio of shares held and upon receipt of a proper guarantee from the company.
Investment by foreigners and overseas Chinese / When a non-resident individual or profit-seeking enterprise without a fixed place of business in the Republic of China receives a dividend distributed by a company or profit distributed by a partnership located in the Republic of China in which that individual or enterprise has invested under the Statute for Investment by Overseas Chinese or Statute for Investment by Foreign Nationals, 20% of the amount of payment will be withheld as stipulated in the Income Tax Law and the provisions of the Income Tax Law regarding tax filing will not apply.
When a non-resident director, supervisor, or manager of a company in the ROC who has invested in that companies under the Statute for Investment by Overseas Chinese or Statute for Investment by Foreign Nationals and who has resided in the ROC for more than 183 days within a tax year for the purpose of operating or managing the invested company receives a dividend from the invested company, 20% of the amount received will be withheld as stipulated in the Income Tax Law and the dividend income will not be included in the individual’s tax return for that year.
Salaries paid abroad to directors, managers, or technicians who are sent to the ROC temporarily by foreign profit-seeking enterprises that invest in the ROC under the Statute for Investment by Overseas Chinese or the Statute for Investment by Foreign Nationals to carry out investment, plant construction, or market surveys, and who do not stay in the ROC more than 183 days within a tax year, are not treated as income derived in the ROC and are thus exempt from the income tax.
Establishment of international logistics and distribution centers / When foreign profit-seeking enterprises or branch companies which they have established within the Republic of China set up themselves, or commission domestic profit-seeking enterprises to set up logistics and distribution centers in Taiwan to engage in the warehousing and simple processing of goods from the said foreign profit-seeking enterprise which are then delivered to domestic customers, the income so derived is exempt from the profit-seeking-enterprise income tax.
Company mergers / Merged companies are exempt from profit-seeking-enterprise income taxes and securities transaction taxes resulting from their merger, and may apply the provisions for the deduction of losses. In addition, the land increment tax due on land that is owned by a company and is transferred along with the merger of that company may be charged to the account of the surviving enterprise.
Establishment of operations headquarters / For companies that establish operations headquarters in Taiwan that reach a certain scale and that have a major economic effect, the income that they derive from the provision of management services or research and development to the related companies which they acquire in Taiwan, as well as royalty income, profit from investment, and gain from the disposition of properties, are exempt from the profit-seeking-enterprise income tax; in addition, such companies may procure publicly owned land at preferential prices.
Science-based industries / Effective Jan. 1, 2002, machinery and equipment that is imported for a company's own use and that is not yet manufactured domestically may, with the approval of the Ministry of Economic Affairs, be exempted from import tariffs and business taxes.
Import tariffs and business taxes will be levied on imported machinery or equipment that, within five years of its importation, is sold or its use is changed so that it no longer meets the conditions for tax exemption or conforms to its original use. Machinery or equipment that is sold to companies that operate within science-based industrial parks, economic processing zones, or other science-based industrial companies is not subject to this limitation.
Raw materials that are imported by bonded factories are exempt from import tariffs and business taxes. Import tariffs and business taxes will be levied on such raw materials, however, if they are shipped outside the bonded area.
B、R&D Subsidies：Measures for encouraging the development of leading new products