3 October, 2015
On 4 February 2015, the amendment to the International Financial Business Act (the Act) became effective following the announcement by the Office of the President. The Act allows an insurance enterprise to conduct offshore insurance business through its offshore insurance unit (OIU). Under the Act, an insurance enterprise may apply with the Financial Supervisory Commission (the FSC) for a license to establish an OIU within Taiwan, which shall have an independent accounting arrangement, to conduct offshore insurance business.
In accordance with the amendment to the Act, the FSC promulgated the Regulations Governing Offshore Insurance Branches (the Regulations) and the amendment to Enforcement Rules on the International Financial Business Act on 25 May 2015, where the FSC adopts regulations for conducting OIU business by an insurance enterprise.
The key points to note from the Act are as follows:
The insurance enterprise referred to the in the Act shall mean non-life insurance enterprises, life insurance enterprises and professional reinsurance enterprises, including local insurance enterprises and foreign insurance enterprises approved by the FSC to engage in insurance business within the territory of Taiwan.
An OIU may engage in the following types of business (the Permitted Business):
a. The following types of foreign-currency-denominated insurance business:
Personal insurance business where the applicant is a natural person, a juristic person, a government agency or a financial institution outside the territory of Taiwan and the insured is a natural person outside the territory of Taiwan.
Non-life insurance business where the applicant is a natural person, a juristic person, a government agency or a financial institution outside the territory of Taiwan and the subject matter insured is not a real property situated within the territory of Taiwan.
b. Foreign-currency-denominated reinsurance business with insurance enterprises outside the territory of Taiwan.
c. Other foreign-currency-denominated insurance-related businesses serving natural persons, juristic persons, government agencies or financial institutions outside the territory of Taiwan and approved by the FSC.
An OIU may outsource the Permitted Business to the head office of the same insurance enterprise or a branch of the same foreign insurance enterprise established in Taiwan. The outsourced matters shall be booked on such OIU's accounts.
The Permitted Business is exempted from the restrictions set forth under the Foreign Exchange Control Act and the Insurance Act of Taiwan.
The conduct of the Permitted Business may enjoy the following tax exemptions:
a. Income from the Permitted Business run by an OIU is exempt from the profit-seeking enterprise income tax; however, income derived from utilization of funds within the territory of Taiwan shall be subject to taxation or exemptions as specified in the Income Tax Act of Taiwan.
b. Sales revenue from the Permitted Business run by an OIU shall be exempt from business tax. However, sales revenue generated from utilization of funds within the territory of Taiwan shall be subject to taxation or exemption as specified in the Value-Added and Non-Value-Added Business Tax Act of Taiwan;
c. All types of certificates used for the Permitted Business run by an OIU shall be exempt from stamp tax. However, certificates issued in connection with utilization of funds within the territory of Taiwan shall be subject to taxation or exemption as specified in the Stamp Tax Act of Taiwan; and
d. Insurance benefits, interests generated on investment objects linked to investment-type insurance contracts or income derived from structured product transactions paid by an OIU to natural persons, juristic persons, government agencies or financial institutions outside the territory of Taiwan in connection with the Permitted Business shall be exempt from withholding tax under the Income Tax Act of Taiwan.
Aforementioned tax exemptions shall be in force for a period of 10 years from the effective date of the Act. However, for any insurance contract entered within the above period, the exemption period shall not exceed 30 years from the time the contract is entered to the time the effective period of the contract expires.
Unless approved by the Central Bank of China (Taiwan), an OIU shall not conduct exchanges or other transactions between foreign currencies and New Taiwan Dollars. The utilization of an OIU’s fund shall comply with the Regulations Governing Foreign Investments by Insurance Companies, and shall not be New Taiwan Dollar exchange rate, New Taiwan Dollar interest rate index, or New Taiwan Dollar denominated products. The investment portfolio shall not involve any product denominated in New Taiwan Dollars unless prior approval from the FSC is obtained.
Until the end of July of 2015, the FSC has approved 14 insurance enterprises to establish OIUs. Through the OIU, an insurance enterprise may expand its business by offering various types of insurance products to foreign customers. It is expected that the FSC will continue deregulating and encouraging the OIU business to increase competitiveness of local insurance companies.
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