Is Taiwan the answer for firms leaving Hong Kong? It's complicated

After 20 years working in Hong Kong, for multinationals as well as her own firm, Yee Ming Tan moved to Taiwan a decade ago for her partner. For global firms on the lookout for a regional office, Tan said, the cost of living there is lower, the quality of life higher and the cities safer. But Hong Kong makes it easier to do business, she says, requiring less research to set up a business and less work to follow all the rules.

"The runaround with the different government departments is pretty difficult. Of course, if you're resourceful you would hire a lawyer, but normally it is quite a challenge," said Tan, 53, the Malaysian-born operator of an executive coaching firm.

Taiwan has said it will help Hongkongers seeking to move over in the wake of Beijing's tightening grip over the city, with a national security law set to be passed as early as this week. A government office due to open next month in Taipei will offer individual Hongkongers humanitarian assistance, including finding jobs or setting up businesses.

But Taiwan has not released too many details about whether it would offer special incentives for businesses considering leaving Hong Kong, especially foreign firms mulling over an exit strategy.

The government's InvesTaiwan office leads foreign investors to some of the major incentives being offered. It lists 12 sectors, including green energy and biomedicine, where Taiwan particularly welcomes investment. There are tax breaks for companies that set up in special industrial zones around the island.

But Taiwan is not positioning itself to be a financial hub, even though Taiwanese lawmakers are reportedly asking the government to do more to entice firms that have their Asia-Pacific headquarters in Hong Kong.

Among the hurdles are tight regulations for the financial sector and steeper taxes in comparison with Hong Kong and Singapore. Tax rates can rise to 40 per cent on income of more than NT$4.53 million (US$153,000) for foreigners who live in the island for more than 183 days a year.

The Taiwanese government has been trying to come in line with its rivals' lower taxes: foreigners who spend less than half the year in Taiwan pay a flat rate of 18 per cent, and as of this year full-time residents on a new type of visa pay tax on only half their income above NT$3 million, according to the finance ministry.

In terms of global foreign-exchange transactions, those between the Taiwanese dollar and the US dollar come to about 0.9 per cent of the international currency market, Bloomberg reported in December, meaning the local currency's significance as a trade instrument is in line with the Turkish lira or the South African rand.

He has received more queries about Taiwan from curious Hong Kong start-up founders over the past two months than during the same period last year, and he said younger Hongkongers looking to start firms who speak Taiwanese Mandarin fitted in especially fast.

"Taiwan is actually the most natural choice, because if you go to Thailand or Malaysia the market entry barrier is a lot higher," Yau said. While he said the higher standard of English in Hong Kong made the city a draw for international talent, Taiwan stood out for the "quality of life, quality of the people who you meet".

Taiwan's Investment Commission has logged a total of 1,760 investment projects from Hong Kong since 1962, worth a total of US$7.9 billion. Photo: Reuters alt=Taiwan's Investment Commission has logged a total of 1,760 investment projects from Hong Kong since 1962, worth a total of US$7.9 billion. Photo: Reuters

Local labour in Taiwan is notably cheaper too. On average, monthly net salaries in Hong Kong are more than double those in Taiwan, according to the Numbeo database.

Hongkongers found Taiwan reassuring as another place that was resisting rule by Beijing, said Liang Kuo-yuan, president of the Polaris Research Institute in Taipei.

The island in January re-elected President Tsai Ing-wen from the independence-leaning Democratic Progressive Party in polls dominated by issues of national sovereignty and democracy. "Because of the political issues, there's a natural connection already," Liang said.

Taiwan's Investment Commission has logged a total of 1,760 investment projects from Hong Kong since it began keeping tabs in 1962, worth a total of US$7.9 billion " half the value of investments from Singapore and slightly less than Japan, but five times more than South Korea.

To Hong Kong entrepreneurs, the island loses points for its bureaucracy, talent mismatches and lack of a one-stop place to get clear information about doing business.

They also found relatively little talent in Taiwan from the finance sector, said Alicia Garcia-Herrero, Hong Kong-based chief economist for Asia-Pacific with investment bank Natixis; as a decades-old manufacturing centre, Taiwan is heavy on engineers. Employers in Hong Kong were also still able to draw more foreign talent, she said.

Entrepreneurs curious about Taiwan normally click through numerous unrelated websites for information they need on visas, immigration and laws affecting their investments. At least three contactable central government agencies and one Taipei city department employed people to help offshore start-ups, but no single office had all the information that founders usually wanted, said Yau from Taiwan Startup Stadium.

Taiwan, influenced over the decades by protectionist lobby groups, does not promote some of its advantages to foreign investors. Gold card visas, introduced in 2008, combine a work permit with an alien resident certificate and a re-entry certificate. The annual quota of 2,000 visas is easily reached, but applicants find out about them more often through word of mouth than from the government, according to expatriates and relocation specialists.

Tan, who runs the executive coaching firm in Taiwan, moved there because her partner is Taiwanese. She said a lot of those who came to the island did so because of private connections rather than picking it through a methodical comparison of countries and regions.

"Taiwan has never been known to be international," Tan said. "The mindset is local. It's more like people who know Taiwan love it but those who are not here will never consider it."

Taiwan's Mainland Affairs Council "welcomes" Hong Kong enterprises, including start-ups, that helped its economy and industrial development, a council spokesperson said, adding that investors from the city could get customised service and arrange "relevant incentives" through the InvesTaiwan office.

This article originally appeared on the South China Morning Post (SCMP).

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