Taiwan as a Regional Hub: Free Trade Zones, Bonded Warehouses, Science Parks and the FTZ Income Tax Exemption

Can a US distributor keep inventory in a Taiwan free trade zone, ship it on to customers in Vietnam and Japan, and owe no Taiwan income tax on the profit? Sometimes. Since tax year 2019, Article 29, paragraph 1 of the Act for the Establishment and Management of Free Trade Zones (自由貿易港區設置管理條例) exempts that income only where the enterprise's activities in Taiwan are merely preparatory or auxiliary and the FTZ management authority (自由港區管理機關) has approved.

Duty and business tax (營業稅, Taiwan's VAT) follow a separate track. Goods that pass through a free trade zone, a bonded warehouse or a logistics center and leave Taiwan again do not bear them at all. Tax arises when goods enter the domestic market, the "taxable area" (課稅區), and is levied as on an import. Nothing is deferred.

Goods inside a free trade zone

Goods that an FTZ enterprise (自由港區事業) brings in from abroad for its operations are exempt from customs duty, commodity tax, business tax, tobacco and alcohol tax, the tobacco health and welfare surcharge, the trade promotion service fee and the harbor service fee (Article 21). No exemption application, security or book-entry is needed. Own-use machinery is also exempt, but the taxes are recaptured if it goes into the taxable area within five years.

How long can stock stay? There is no limit. Goods held over two years must appear in a printed report when customs needs one (FTZ customs clearance regulations, Article 18, item 7).

Leaving the zone for the domestic market changes the picture. Article 23 taxes those goods as imports, with the same duties and fees as Article 21; for goods processed or rearranged in the zone, the dutiable value is their price on leaving minus the value added inside. Business tax law agrees: bonded goods moving from a bonded area into the rest of Taiwan are imports (Business Tax Act, Article 5, item 2), and customs collects the tax (Article 41). According to a Ministry of Finance eTax Q&A, the domestic buyer files the import declaration and the bonded-area seller issues no uniform invoice (統一發票).

Only a company or a foreign company's Taiwan branch may become an FTZ enterprise (FTZ enterprise regulations, Article 2, paragraph 2). It obtains establishment and operating permits from the FTZ management authority on the basis of an operating plan (Article 13 of the Act).

Bonded warehouses, logistics centers and bonded factories

Imported goods placed in a bonded warehouse and exported within the storage period, as they are or after rearrangement, are duty-free (Customs Act, Article 58). The two-year limit and its exceptions are in Article 45 of the bonded warehouse regulations. Logistics centers may also rearrange goods and carry out simple processing, and exports from them are duty-free (Customs Act, Article 60; logistics center regulations, Articles 5 and 18).

Bonded factories serve export manufacturers. A registered factory imports raw materials for export products free of duty, and neither the products nor those materials may leave without customs approval and duty on their form at exit (Customs Act, Article 59). Article 4 of the bonded factory regulations requires a registered factory and the regulation's financial and facility conditions, plus either NT$50 million of paid-in capital in a company limited by shares or NT$50 million of operating capital actually remitted and registered by a foreign company's Taiwan branch.

For business tax, Article 6-1 treats free trade zones, science parks, bonded factories, bonded warehouses and logistics centers as "bonded areas" (保稅區). Sales of goods for operations to bonded-area enterprises are zero-rated, as are bonded-area sales to domestic businesses of goods exported directly or stored for export in an FTZ, bonded warehouse or logistics center (Article 7, items 4, 8 and 9). Filing periods and export zero-rating are covered in Business Tax for a New Taiwan Subsidiary.

The FTZ income tax exemption since 2019

Article 29, paragraph 1 is open to any profit-seeking enterprise, foreign or not. Whether it acts itself or through an FTZ enterprise, its activity in the zone must be procurement, import, storage or transport of goods. The current text applies from tax year 2019 returns, and the exemption ends on December 31, 2042. Approvals under the earlier rule ran out no later than December 31, 2021 (paragraphs 4 to 6).

That earlier rule is where the "store it in an FTZ and it's exempt" idea comes from. The version of December 28, 2012 exempted a foreign enterprise or its Taiwan branch that stored goods or did simple processing in a zone and sold them to domestic or foreign customers.

Under Article 4 of the exemption regulations (營利事業於自由貿易港區從事貨物採購輸入儲存或運送免徵營利事業所得稅辦法), an entity organized under foreign law is presumed to be engaged only in preparatory or auxiliary activities in Taiwan. Three findings defeat the presumption: its place of effective management is in Taiwan; it carries on all of its main business in Taiwan; or part of its business through a fixed place in Taiwan goes beyond preparatory or auxiliary activity. The test asks whether the functions, risks and assets in Taiwan are core, necessary or important to the business as a whole.

Article 5 narrows the activity itself. Selling must happen outside Taiwan, or inside Taiwan only through brokers, general commission agents or other independent agents. Buyers may not be individuals. Storage and transport cover only work that leaves the goods unchanged, such as sorting, grading, repacking, packing, relabeling and cutting. Sales to Taiwan customers of goods bought in Taiwan are limited to two listed cases.

Picture a Ho Chi Minh City electronics trader that signs contracts with buyers in Japan and the Philippines from Vietnam and pays a Taiwan FTZ logistics firm only to store, sort and relabel stock (an invented example). That is close to what the regulations describe. Hire a sales team in Taipei to close deals with Taiwan retailers, and the independent-agent condition is no longer met.

Certificate first, then a claim every year

The exemption is never automatic. Under Article 6, the enterprise applies to the FTZ management authority for a certificate (證明函) before the end of the third month of the fiscal year following the income year. For a calendar-year taxpayer, 2026 income means a deadline at the end of March 2027. A certificate covers at most five years. Attachments include a declaration that effective management is outside Taiwan, a business plan and any FTZ contract with a Chinese summary translation.

A certificate alone exempts nothing. Article 7 requires a timely annual return claiming the exemption, with a copy of the certificate and the tax incentive schedule (租稅獎勵表). An enterprise with neither a fixed place of business nor a business agent in Taiwan must appoint, with the tax office's approval, a Taiwan resident individual or an enterprise with a fixed place of business in Taiwan to file and pay for it. A new FTZ enterprise, new entrusted work or a contract renewal means a fresh application (Article 10).

Without the exemption, the Taiwan contractor files

What if there is no approval? Ministry of Finance Order No. 10600664060 of April 17, 2018 covers a foreign enterprise with no fixed place of business in Taiwan that entrusts a Taiwan enterprise, including an FTZ enterprise or a bonded warehouse operator, with importing, storing, selling or shipping its goods. That Taiwan enterprise becomes its business agent (營業代理人). It computes the foreign enterprise's Taiwan-source income within the agency and files and pays under Article 73, paragraph 2 of the Income Tax Act.

How much of the profit is Taiwan's? If Taiwan's contribution is hard to compute, the order puts Taiwan's share at 3% of the total profit from the whole transaction flow for import, storage and sale cases. With manufacturing or processing in Taiwan, it is 3% plus the share of Taiwan processing costs in the related costs, capped at 100%. A tax office that finds a higher actual contribution assesses on that.

Science parks are for approved park enterprises

Science parks (科學園區) are bonded areas too, but the exemptions in Article 23 of the science park act belong to park enterprises (園區事業). Their imported machinery and equipment for own use, raw materials, supplies, fuel, semi-finished goods, samples and finished goods for trade are free of import duties, commodity tax and business tax. Those items are taxed if they go into the taxable area, machinery and equipment within five years of import. Exported products and services are zero-rated and free of commodity tax.

Who counts? A science enterprise approved to develop, make or research high-tech products or services, or an enterprise approved to give such enterprises operating, management or technical services (Articles 4 and 5). A science enterprise must be a company, branch or other business organization established or recognized under law, and must spend a set share of revenue on research and development. A regional distribution company does not fit.

To discuss an FTZ contract or certificate application, write to Hovering International Law Firm at wei@hoveringlaw.com.tw with the draft contract and the flow of goods and sales.

The FTZ income tax exemption is available until December 31, 2042, and only for years that a certificate covers and the annual return claims.

Official sources

• Act for the Establishment and Management of Free Trade Zones (自由貿易港區設置管理條例, last amended January 16, 2019), Art. 13, Art. 21, Art. 23, Art. 29, and the superseded version of December 28, 2012
• Regulations Governing Profit-seeking Enterprise Income Tax Exemption for Profit-seeking Enterprises Conducting Procurement and/or Importation and/or Storage and/or Delivery of Goods in Free Trade Zones (營利事業於自由貿易港區從事貨物採購輸入儲存或運送免徵營利事業所得稅辦法, last amended October 9, 2019), Art. 4, Art. 5, Art. 6, Art. 7, Art. 10
• Regulations Governing the Operation and Management of Free Trade Zones Enterprises (自由貿易港區事業營運管理辦法, last amended October 16, 2024), Art. 2
• Regulations Governing Customs Clearance for Goods in Free Trade Zones (自由貿易港區貨物通關管理辦法, last amended May 9, 2025), Art. 18
• Value-added and Non-value-added Business Tax Act (last amended May 28, 2025), Art. 5, Art. 6-1, Art. 7, Art. 41
• Customs Act (關稅法, last amended May 11, 2022), Art. 58, Art. 59, Art. 60
• Regulations Governing the Establishment and Management of Bonded Warehouses (保稅倉庫設立及管理辦法, last amended July 20, 2026), Art. 45
• Regulations Governing Customs Bonded Factories (海關管理保稅工廠辦法, last amended June 12, 2026), Art. 4
• Regulations Governing Customs Clearance for Goods in Logistics Centers (物流中心貨物通關辦法, last amended January 14, 2025), Art. 5, Art. 18
• Act for Establishment and Administration of Science Parks (科學園區設置管理條例, full-text amendment of June 6, 2018; competent-authority functions moved to the National Science and Technology Council by a notice of July 27, 2022), Art. 4, Art. 5, Art. 23, amendment history
• Income Tax Act (所得稅法, last amended September 11, 2026), Art. 73
• Ministry of Finance, Order 台財稅字第10600664060號 of April 17, 2018
• Ministry of Finance eTax Portal Q&A, 保稅區營業人銷貨至國內課稅區，處理手續如何？ (updated April 22, 2021)
• Official English titles checked at law.moj.gov.tw/ENG

Checked: October 7, 2026