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 "2013 Index of Economic Freedom" published by the Heritage Foundation (a United States think tank) and the Wall Street Journal, Taiwan is ranked 20th among the 177 countries. It is also the fifth year in a row that Taiwan's overall score has been increasing. Taiwan is ranked 5th out of 41 economies in the Asia-Pacific region, only behind Hong Kong, Singapore, Australia, and New Zealand and is in 3rd place in Southeast Asia, ahead of Japan (25th), South Korea (34th), and Mainland China (136th).
Taiwan's overall score has been uninterrupted advanced in economic freedom for a fourth straight year, rose to 72.7 points this year from 69.5 points of 2009. Of the 10 items that comprise the index, Taiwan's scores have significantly increased in "Business Freedom," (88.5 to 94.3) "Labor Freedom," (46.6 to 53.3) "Freedom From Corruption," (58 to 61) and "Labor Freedom,"(80.4 to 80.5) That is, it shows that Taiwan is readily receiving recognition in the world by devoting the structural reform, openness to global commerce, and purge of corruption. Both Business freedom and labor freedom, especially in the ranking advancement, are up more than ten places while compared with the ranking of last year.
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 have.
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 the two said report, the main reason for Taiwan's score increased in economic freedom is because the government make its effort in enhancing administrative efficiency, promote deregulation, and provide 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.
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 December 31, 2012, Taiwan has signed tax treaties with 25 countries, and 13 treaties on air and sea transportation income tax exemption.
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 make the fundamental value of Taiwan's economy stands out and the country resistible to the 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 is nearly 40% for South Korea and the Philippines, while ratio for Taiwan is lower than 25%. 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 2011, the stock market capitalization to GDP ratio is 133.72 percent, which indicates Taiwan Stock Market is highly sophisticated and is worth for investment. Secondly, Taiwan Stock Market is active and attracted because of TWSE turnover rate of 119.87 and the Taiwan market P/E ratio at 15.76. 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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