Taiwan medical device market

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Taiwan medical device market

  1. 1. Taiwan Medical Device Industry Analysis &Investment Opportunities Department of Investment Services, Ministry of Economic Affairs
  2. 2. Table of ContentsI. Global Trends of the Medical Device Industry ............... 1II. The Status Quo of Taiwan’s Medical DevicesIndustry ................................................................................... 5 (I) Supply & Demand of the Medical Devices Industry .................... 5 (II) Gap in Industry Supply Chain, Investment Niche and Prospective Foreign Investors ........................................................................ 6 (III) Major Suppliers in Taiwan ........................................................... 7III. Optimal Choices for Foreign Investors ................... 11IV. Successful Examples of Cross-national StrategicAlliances and Foreign Investments in Taiwan.................... 13 (I) Foreign Investors in Taiwan ...................................................... 13 (II) SHL Healthcare and Medical, Taiwan ....................................... 16V. Industry Investment Incentives................................ 18VI. Industry-Academia Collaborations in Taiwan ....... 25
  3. 3. I. Global Trends of the Medical Device Industry The medical device industry is an industry that is closely linked to thediagnosis, relief and prevention of human diseases and illnesses. Majormedical device products in this industry may vary depending upon the typesof illnesses and the progress of medical technology. However, economicconditions have a very small impact on the demand for medical devices, andthe cost of medical devices only contributes to a small portion of the cost ofmedical cares. Since medical devices are closely applied to human body, apermit has to be obtained before the product may be distributed in the market. In the United States and Europe, the laws require product related injuriesto be reported to the relevant government agency. Because many types ofmedical devices exist, they generally involve various scientific and technicalfields, including plastics, industrial chemistry, textiles, machinery, electronics,telecommunications, material science and biomedical technology.Moreover, since medical devices generally result from the combined effortsof different fields, and the medical device industry is technology-intensiverather than labor-intensive, companies in this industry must invest more oftheir revenue and efforts in R&D. In addition, since existing medical deviceproducts are being replaced by new products with better performance,pharmaceutical companies have to constantly pursue improvement intechnological innovation in order to achieve success. The global medical device market is highly centralized. The marketshare of the top 10 medical devices was up to 82.8% of the global market in2003, and is expected to grow up to 83.6% in 2008. The United Statesholds the largest market share of about 50.6%, with the compound annualgrowth rate at about 7%, which is higher than 5.56% of the global market.Since US citizens have much higher income and the medical system is alsobetter, the medical device market is therefore more developed. 1
  4. 4. Another fast emerging market is Mainland China, with a compoundannual growth rate of 6.99%. People are now paying more attention tohealthcare as the country’s economy develops and its citizens acquire moreincome. China has become a potential market for medical device due to thecontinuous development of its hygiene industry, the increase in clinics, theupgrade of products, and requirements from hospitals. Table 1 shows themarket value of the top 10 countries and the percentage of market shares withrespect to the global medical device market in 2003 and 2008 (forecast).The monetary value of the global medical device market in 2003 was aroundUS$ 148.3 billion, and from 2003 to 2008, the global medical device marketwas estimated to grow at about 5.56%. The various segments of thisindustry are driven by various factors, most notably the aging population andincreasing rates of illness, especially found in industrial countries withadvanced medical technologies. Meanwhile, in newly emerging markets,the demand for medical devices which have high quality and advancedtechnologies with integration have also been increasing due to the rise ofincome per capita. The structure of the medical device industry varies across segments. Forinstance, the cardiovascular device sector has gone through significantconsolidation, with the top five (5) companies taking up more than 80 % ofthe global market. Meanwhile, the market for disposable surgical supplies ishighly fragmented, with the top five (5) companies representing less than onethird of the global market. The top 10 companies in the medical deviceindustry generate substantial revenues and therefore invest substantially inresearch and development. In fact, those companies accounted for morethan 70.0 % of research and development expenditures in 2007, and investedas much as 10-15 % of the revenues in research and development. 2
  5. 5. Looking into the global markets for medical devices, the United States,which has the highest income per capita and advanced medical technologiesand services, represents 50.6% of the global market. On the other hand,Japan ranks second, with a market share of 11% . Finally, Germany ranksthird and represents 6.1% of the world market. Regarding the globalperspective, the market shares of the United States, Japan and Germanyrepresent over 70% of the total global medical device market. Table 2 showsthe growing trend of the global medical device market in various categories.Table 1. Market values of the top 10 countries and the percentage of market shares with respect to the global medical device market in 2003 and 2008 (forecast) 2003 2008f 2003-2008fCountry Market Percentage Market Percentage AAGR USA 75,120 50.6% 105,359 54.2% 7.00% Japan 16,258 11.0% 18,847 9.7% 3.00%Germany 9,091 6.1% 10,540 5.4% 3.00% UK 4,052 2.7% 5,171 2.7% 3.98% France 3,825 2.6% 4,434 2.3% 3.00% Italy 3,808 2.6% 4,415 2.3% 3.00% Canada 3,204 2.2% 4,090 2.1% 5.00% Brazil 3,126 2.1% 3,989 2.1% 5.00% Spain 2,547 1.7% 3,250 1.7% 5.00% China 1,865 1.3% 2,615 1.3% 6.99%Subtotal 122,896 82.8% 162,710 83.6% 5.77% Global 148,378 100.0% 194,513 100.0% 5.56% marketSource: Espicom Business Intelligence, IEK/ITRI (2007.12)Table 2. Growth trends of the global medical device market in various categories 2003 2008 2003-2008 Categories Market Percentage Market Percentage AAGRBandages & other medical 11,539 7.8% 13,377 6.9% 3.2% supplies Contact lenses 3,999 2.7% 5,608 2.9% 8.0% Dental instruments & 3,100 2.1% 3,594 1.8% 3.2% appliances Electromedicals 14,711 9.9% 17,504 8.8% 3.2% Medical furniture 1,736 1.2% 2,012 1.0% 3.2% Medical X-ray films 3,814 2.6% 4,868 2.5% 5.5% Ophthalmic instruments 2,671 1.8% 3,746 1.9% 8.0% and appliances Orthopaedic/Prosthetic 25,971 17.5% 36,426 18.7% 8.1% goods 3
  6. 6. Other instruments and 32,766 22.1% 41,818 21.5% 5.5% appliances Rubber surgical or 3,748 2.5% 4,783 2.5% 5.5% laboratory sterilizers Syringes, needles & 19,178 12.9% 26,898 13.8% 8.1% catheters Therapy apparatus 6,842 4.6% 9,597 4.9% 8.1% Wheelchairs 1,250 0.8% 1,595 0.8% 5.5% X-ray apparatus 16,681 11.2% 23,397 12.0% 8.1% Unit:US$millionSource: Espicom Business Intelligence, IEK/ITRI (2007.12) 4
  7. 7. II. The Status Quo of Taiwan’s Medical Devices Industry(I) Supply & Demand of the Medical Devices Industry In 2006, Taiwans medical device industry had a total revenue ofUS$2.14 billion, generated by 500 companies, with an average revenue ofUS$4.2 million each. Taiwan has a workforce of about 16,350 involved inmedical devices. The current status of the medical device industry inTaiwan is shown in Table 3. The medical device industry is a fast emerginghigh tech industry, including diagnostic devices, disease treatment devices,general medical assistance equipment, and patient aid products. According tothe statistical data, medical device has the highest growth rate in Taiwan’sbiotech industry, and its annual revenue has a great increase from US$ 2.2million in 1992 to US$2.14 billion in 2006. Electronic clinicalthermometers, digital hemadynamometers, power wheelchairs and ventilatorsreach 30% of the global market share with an export value of US$914 million,import value of US $1.39 billion, and domestic demand value of US$2.65billion. Table 3. Current Status of the Medical Device Industry in Taiwan (2005/2006) Industry Medical devices Year 2005 2006 Revenue* 1.84 2.14 Company (Number) 484 500 Workforce (Number) 15,000 16,350 Export value* 0.84 0.90 Import value* 1.24 1.37 Domestic sales vs.export 54 : 46 58 : 42 Domestic market demand* 2.24 2.62 *Units: US$ billion Source: Biotechnology and Pharmaceutical Industries Program Office, MOEA, 2007 5
  8. 8. The Domestic Revenue, Domestic Demand, Import and Export Value of Taiwan’s Device industry are shown in Table 4. Table 4. 2005-2006 Taiwan Medical Device Production, Import and Export Unit: % in Billion NTD Growth Import Domestic Domestic Exports Self-sufficient Exports Imports Rate of Dependence FY Revenue Demand Percentage Ratio (B) (C) Domestic Ratio (A) (D) (B/A) (1-G) Demand (G=C/D)2005 590 270 395 715 100.0% 45.8% 55.2% 44.8%2006 697 293 447 851 119.0% 42.0% 52.5% 47.5% Source:Pharmaceutical Industry Technology Development Center, 2007 (II) Gap in Industry Supply Chain, Investment Niche and Prospective Foreign Investors At present, Taiwan has many advantages including a highly organized industry network and an excellent production and development of the medical device industry. Having a critical technology, successful marketing, and product certification are among some of the industry’s challenges or bottlenecks, while how to work together between globally renowned companies and medical device manufacturers in developing countries, and how to create effective strategies in the highly competitive market are some of the important concerns and key issues for Taiwanese companies. In recent years, there is an emerging trend for large medical device manufactories doing OEMs to gradually give their non-core production activities to other companies and instead focus more on the development of their technology research and product design center. There is therefore OEM business opportunities in the medical device industry. In the past, Taiwan has accumulated rich experiences and resources in the high tech industry. Accompanying those advantages, it is expected that Taiwan will be able to 6
  9. 9. seize OEM opportunities from foreign medical device manufactories andform an OEM business. The current state of OEM development strategies inthe medical device industry in Taiwan has found a prospect for the OEMdevelopment of medical devices. Instead of competitively lowering theproduction prices, medical device companies are advised to improve theirproduct quality instead. Consolidating the upper and lower stream of supplychain and broadening the industrial scale to improve the overallcompetitiveness. Since the regulations of a country will affect the company’smanagerial strategies, it is essential for Taiwanese medical device companiesto provide thorough services to seize or extend the cooperation opportunitieswith foreign medical device companies. As a result, the more resources andefforts spent on research and development, the more rewards are reaped. Thetechnological transfer and interaction between two companies lead to someperformance issues. Generally speaking, the problem usually begins when thecompany releasing or transfering the technology is less willing even when therecipient company has the ability to adopt quickly to the new technology.Taiwan is a leader in the manufacturing of medical devices, producingdiagnostic test kits and equipment and mechanical products, such as portableelectrocardiograms, motorized vehicles for the elderly, and digitalthermometers, blood pressure and glucose monitors, and pulse oximeters.With the healthcare industry shifting its focus from treatments and therapiesto disease prevention and wellness, Taiwans medical device companies arewell-positioned to capture those new global market opportunities.(III) Major Suppliers in Taiwan(1) Medical Device Industry Supply Chain Medical device is one of the fast emerging and major industriespromoted by the Taiwan govenment. Short-, mid-, and long-term plansfocusing on developing potential medical device products have been mappedout. Short-term plans will focus on clinical trials/bio-equivalence, clinical 7
  10. 10. animal experiments, biotech-related contract manufacturing, bioinformatics,biochips, drug development. The mid- to long-term plans will focus on genediagnostics and gene therapy, stem cell technologies, and artificial tissues andorgans. It is hoped that the development of these key technologies andproducts will support the successful expansion of the islands medical devicesectors and companies.(2) Investment NicheA. Advantages The government has plans to bring together the R&D capabilities of thegovernment, academic and research institutes to establish biotech industryclusters, promoting the industry by focusing all the essential elements in oneplace. In the northern part of Taiwan, the Taipei area, specifically theNangGang Biotech Plaza, has 2 incubation centers: the Biotech IncubationCenter, Small and Medium Enterprise Administration, MOEA and theIncubation Center, Genomic Research Center, Academia Sinica. More than50 biotech companies are located here, thereby making it a biotech cluster.In addition, Hsinchu county is the home to Taiwan’s first science-basedindustrial park, set up to help the development of high-tech industries. A newBiomedical Science Park is underway and will be managed by the HsinchuScience Park Administration Office. Taiwan has many strengths that give it an edge over its competitors inAsia. Some of Taiwan’s advantages include: existing expertise in hightechnology; strategic location at the crossroads of three leading Asianeconomic regions – Northeast Asia, China, and Southeast Asia; strong legalframework; highly educated workforce, particularly in IT and biology;world-class research facilities; abundant capital and Asias most vibrant 8
  11. 11. venture capital industry; and knowledge and experience in IT and moldindustry. The listed incentive industry among newly encouraged emergingstrategic industries. The government has enthusiastically developed aconducive environment to continuously attract foreign investors. Taiwan hassufficient local capability for upstream medical devices’ research anddevelopment. Compared with other Asia Pacific nations, Taiwan hashigh-standard capabilities in conducting Chinese and western clinical trials,and is suitable for developing contract research organization (CRO) services.Taiwan has ensured conformity with international standards by implementingcGMP regulations; domestic pharmaceutical companies are experienced indeveloping generic drugs. Ample biotechnology and pharmaceuticalprofessionals are based both locally and internationally. Taiwan has a conducive environment for the development of small andmedium size enterprises. Also, the Taiwanese are recognized for theircapitalist nature and entrepreneuial spirit. Advanced IT and mold technologysupports the development of medical device.B. Investment Opportunities (a) Rising demand for better living standards in the Asia-Pacific; (b)Growing economy and market for potential development; (c) Increasingnumber of strategic alliances and technology transfer cases withmultinational biotech and pharmaceutical companies; (d) R&D and precisionprocessing sectors are ready to take advantage of the growing global trendtowards outsourcing in the biotech industry; (e) Right timing for endlessbusiness opportunities in post human gene decoding; (f) High value-added,long life cycle and value chain of biotech; many points of entry available, 9
  12. 12. from R&D to marketing; (g) Flourishing biotech R&D service industries(technical evaluation, R&D design, intellectual property services, andstart-up incubation services); (h) Many large-sized and high-quality medicalcenters provide optimal conditions for undertaking clinical trials; (i) Clearmarket segmentation from temperate zone products of advanced countrieswith Taiwans sub-tropical climate develops Asian sub-tropical agriculturalbiotech; (j) With the world’s rapidly aging population, the growth in demandfor medical and health products is inevitable. 10
  13. 13. III. Optimal Choices for Foreign Investors(1) Complete development of advanced industries such as photovoltaic, communication, electronics, and semiconductor etc., mature development of traditional manufacturing industries such as plastics, material, and machinery, etc.(2) Advanced medical system and standards enable the industry to provide an ideal test environment and good chimical results.(3) Taiwan has endeavored to protect intellectual property rights and established suitable legal system. The protection of intellectual property rights ranks 4th in Asia.(4) Taiwan has abundant circuit board design, IC chip design capability and human resources, and safety regulations, verification and quality control personnel to integrate upstream electronic parts and components, which is beneficial for the development of medical electronic products.(5) Globally recognized for reliable manufacturing, product quality, vertical integration and complete supply chain, as well as industry cluster.(6) Strategic geographical location enables Taiwan to serve as the ideal gateway or springboard to other Asian markets.(7) Taiwan’s multicultural society enables its people to communicate in English and Japanese fluently.(8) Taiwan’s dynamic small and medium enterprises can serve as ideal partners due to their sufficient experience in international sales and merketing as well as global operations and logistics.(9) Taiwan’s venture capital sector is the largest in Asia, which can integrate technology, manpower, market opportunity and capital to develop new market and industries.(10) Strong government support and promotion.(11) Strong network with other industry professionals and experts, as well as 11
  14. 14. close relations with various government agencies, academic institutions and research centers.(12) Advanced infrastructure, information and communication technology. 12
  15. 15. IV. Successful Examples of Cross-national Strategic Alliances and Foreign Investments in Taiwan (I) Foreign Investors in Taiwan In Taiwan, there is still a shortage of manufacturers to produce advancedmedical devices such as X-ray imaging, computed tomography (CT),magnetic resonance imaging (MRI), ultrasound imaging, etc. which aremostly supplied by foreign multinational corporations with subsidiaries thatprovide marketing and after sales services (e.g. education and training,technical services, maintenance) in Taiwan. In their early stages ofdevelopment, Knowles Electronics, Home Diagnostics, and Top Corporationestablished production plants in Taiwan due to the country’s high techindustries and skilled workforce. Recently, the government has successfullyattracted high-tech companies such as Inovise Medical, U-System, AcryMed,and Scandinavian Health Ltd. to invest in Taiwan. Although MedtecsInternational is successfully established abroad, it has returned to Taiwan toset up on operation center. A potential foreign company BD (Becton, Dickinson and Company) is aleading global medical technology company that is focused on new productresearch and development. BD established its subsidiary in Taiwan in 1987,providing omnibus research and diagnostic tools for the medical industry. BDhas three main subsidiaries: BD Medical, BD Diagnostics, and BD Biosciences.It serves healthcare institutions, life science researchers, clinical laboratories, theindustry, and the general public. Baxter International Inc. was founded in 1930, and its Taiwan branch wasfounded in 1981. Baxter manufactures and sells more than 120,000 medicalproducts, and provides products and services for home healthcare. Afterdeveloping the first hemodialysis machine in the 1950s, Baxter became one of 13
  16. 16. the leading dialysis companies in the world. Baxter also introducedcontinuous ambulatory peritoneal dialysis (CAPD) as a practical alternativeto hemodialysis in 1979. Over thousands of patients developed healthier lifethrough Baxter’s hemodialysis service. Dada Behring is a global clinical diagnostic company that providesclinical products, health system and health care services, as well as improvespatients’ quality of life. It provides chemical tests, immunity tests, blood tests,and diagnosis of microbial and infectious diseases. GE Health is GE’s medical group, which is comprised of GE HealthcareTechnology and GE Healthcare Bioscience. It has annual sales of US$14billion. GE Health is a global leader in medical imaging and informationtechnologies, medical diagnostics, patient monitoring systems, diseaseresearch, drug discovery and manufacturing. ARC Pharmaceuticals Inc. is a Canadian bio-company that focuses onthe research & development of novel therapeutic devices and diseaseprevention methods after surgery, such as surgical adhesions. Cochlear, Ltd. was founded in 1982 as a major producer of nucleusproducts and accessories which convert surrounding sounds into digitalsignals to stimulate the hearing nerve within the cochlea. After many years ofdevelopment and improvement, Cochlear, Ltd. has become a world leader inhearing solutions. Over thousands of Taiwanese patients regain their hearingby using Cochlear’s products. From the list of global top 10 medical device manufacturers in Table 3,majority comes from the US, with the exception of 3 large Europeancompanies, namely Siemens Medical Solutions and B. Braun from Germany,and Philips Medical Systems from Holland. 14
  17. 17. Most of the big medical device companies use M&As as a strategy toexpand their operation scale and market share. But there are differentstrategies for the deployment of production lines. Some companiesaggressively merge with leading manufacturers in various fields to expandtheir production lines for diversifying operations. On the contrary, somecompanies reduce their product lines and seek for more efficient managementand sales. The medical device industry ranks first among the top 10 high techbusiness opportunities in the 21st century. While the contunous increase ofthe Gross National Income (GNI) and the evident aging population, thedemand for medical devices is growing annually. According to the dataprovided by the Department of Health, people aged 65 or older willoutnumber children under the age of 5. Among developing countries, thepopulation growth for people aged 65 and older is expected to rise up to140 % by the year 2030. Those factors are placing an increasing burden onthe global healthcare sector. However, the healthcare industry has identified asolution, that is, shifting its focus from post-disease therapy and treatment towellness and disease prevention. This change is spurring on the globalmedical devices industry to further explore opportunities in this area. Therefore, the global medical device market will continue to maintainsteady growth due to aging population; development of new products such asdrug-eluting stent and pace synchronization systems being launched; andglobal economic growth with increasing purchasing power. Looking into theglobal medical device market, the US, Japan and Europe represent over 70%of the global markets, and their growth will ensure that the global medicaldevice market continues to grow. 15
  18. 18. (II) SHL Healthcare and Medical, Taiwan The SHL Group is a global leader in OEM/ODM solutions for advanceddrug delivery devices, home & institutional healthcare products, and medical& industrial manufacturing. SHL Healthcare delivers OEM/ODM solutionsfor complex hospital and home healthcare equipment with a focus on patientcomfort. The products are found in major hospitals and clinics throughout theworld. SHL Healthcare integrates the collaborative strength of the SHL group,offering design and development of new products to suit the demandingneeds of global customers. Following a period of significant investment in manufacturing andtesting equipment, personnel and logistical supply systems, SHL Healthcareis now a recognized leader in the manufacture and supply of home healthcaresolutions. The company’s products include slings, alternating pressuremattress systems, and beds. SHL Healthcare leverages the synergies of theSHL Group by offering the design and development of devices tailored to thedemanding needs of global customers. Currently, SHL Healthcare isrepresented in Taiwan, in addition to Australia, Denmark, the UK, the USAand Germany. The international presence facilitates close support for localprojects, with accurate follow-up and status reviews. SHL also providessignificant cost benefits through increased production efficiencies and aglobal logistics system. With experienced engineers, intelligent logistics anda flexible support team, SHL Healthcare can deliver tailored solutionsaccording to the exact requirements of the market. New Medical Tech Corp. (NMC) is a Taiwan medical device company.NMC develops Digital X-ray Retrofit systems for general radiography (DR)and digital mammography (DM) applications. NMC products featurestate-of-the-art flat panel detectors combined with unique acquisition andpost processing workstations to be integrated with existing traditional 16
  19. 19. medical X-ray systems. In addition to the DR & DM products, NMC alsoteams up with strategic partners in developing HIFU (High Intensity FocusedUltrasound) systems for advanced image-guided therapy solutions. Backed by extensive know-how of medical diagnostic equipment design,image processing technologies, and optical electronics, NMC bridges the twoworlds of healthcare industry and strong IT industry between Taiwan andKorea. By taking advantage of local world class industrial strengths in bothTFT & CMOS semiconductor foundry capabilities, NMC is positioned tomake a breakthrough in its technological innovation, improving cost barriersand employing a fast time-to-market strategy. NMC visions to dominate inthe emerging digital X-ray conversion market by offering superior productsat reasonable costs. 17
  20. 20. V. Industry Investment Incentives1. Preferential Taxes The ROC government enacted the Statute for Upgrading Industries in1991 to develop a more favorable environment for foreign and overseasChinese investors in Taiwan, and to further attract foreign investments for thepurpose of upgrading the ROC’s industrial base. On January 1, 2000, thestatute was amended to extend preferential tax measures for another 10 yearsuntil December 31, 2009. These measures are detailed in the chart below:Incentive Measures Nature of Incentives 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 forAccelerated depreciation of an accelerated depreciation period of two years. If there is anyequipment and facilities 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. Companies may deduct 5% to 20% of the amount of investmentInvestment in automation in these areas from their profit-seeking-enterprise income taxequipment or technology over a five-year period beginning with the year in which the investment is incurred.Investment in recycling andpollution control equipment ortechnologyInvestment in equipment ortechnology for the use of newand clean energy, energyconservation, and industrialwastewater recyclingInvestment in equipment ortechnology for reducinggreenhouse gas emissions andenhancing energy efficiency 18
  21. 21. Incentive Measures Nature of IncentivesInvestment in the hardware,software and/or technology thatcan promote an enterprise’sdigital information efficiency,such as the Internet and televisionfunctions, enterprise resourceplanning, communication andtelecommunication products,electronics and/or audio visualequipment, and digital contentproduction • 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 periodResearch and development beginning 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 exceed 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 thePersonnel training previous two items may not exceed 50% of the companys profit-seeking-enterprise income tax due for that year. The amount deducted during the final year, however, is not subject to this limitation. Companies that invest a specific amount or employ a specific additional number of persons in resource-poor orInvestment in resource-poor or lesser-developed rural areas may deduct 20% of the investedlesser-developed rural areas amount from their profit-seeking-enterprise income tax over a five-year period beginning with the current year. 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 theInvestment in emerging, cost of such stock from its profit-seeking-enterprise incomeimportant, and strategic tax for the current year.industries 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 19
  22. 22. Incentive Measures Nature of Incentives 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. 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 inReinvestment 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. • 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 TaxInvestment by foreigners and Law and the provisions of the Income Tax Law regarding taxoverseas Chinese 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
  23. 23. Incentive Measures Nature of Incentives 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. 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 enterprisesEstablishment of international to set up logistics and distribution centers in Taiwan to engagelogistics and distribution centers 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. 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 ofCompany mergers 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. 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 companiesEstablishment of operation which they acquire in Taiwan, as well as royalty income, profitheadquarters 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. • Effective Jan. 1, 2002, machinery and equipment that is imported for a companys 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 longerScience-based industries 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. 21
  24. 24. In 2007, the Taiwan government announced the “Statute for theDevelopment of Biotechnology New Drug Industry” in order to breakthrough the barriers.Incentive Measure Nature of Incentive • Companies may deduct 35% of the amount of their investment in R&D or personnel training from their profit-seeking-enterprise income tax over aInvestment in five-year period beginning with the year in which the investment ispersonnel training, incurred.research and • Companies may deduct 50% of the amount of their investment in R&D ordevelopment personnel training that exceed 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. A profit-making business, through the original share subscription or subscription of shares issued by the said company, became a registered shareholder for more than three years, and the said biotechnology new drug company did not file for, based on the amount of the subscribed shares or the subscription of shares, the exemption of business income tax or the deduction entitled from shareholder’s investment according to other regulations, then this business is entitled to deduct each year’s business income tax payable for a period of five years starting from theEncouraging the year that the business income tax payable is incurred. The deductibleinvestment of amount is limited to 20% of the acquisition price of the shares.biotechnology newdrug company In the event that the aforementioned profit –making business is a venture capital business, its shareholders, in accordance with the original deductible amount of the said venture capital business specified in item 1, take the shareholding ratio of the venture capital business to calculate the deductible amount from the investment, and deduct each year’s business income tax payable for the period of five years starting from the fourth year after the venture capital business becomes a registered shareholder of the biotechnology new drug company. High ranking professionals and technology investors of biotechnology new drug company as the technology shares are permitted not to be included in the personal taxable income or business taxable income of the year. Whereas, when the ownerships of such shares are transferred, gifted, or distributed as heritage, the total transfer prices, or the marketAttracting high value at the time of gifting or distributing as heritage shall be included inranking the income of the year when filing income tax report, the cost can beprofessionals and deducted.technologyproviders to When the issuing company processes the title transfer of theparticipate aforementioned shares, it shall file to the district taxation authority within 30days starting from the next day after the title is transferred. In the event that technology investors, while calculating the aforementioned income, are not able to submit the certificate document of the acquisition cost, they can deduct 30% of the transfer price as the cost. 22
  25. 25. After the resolution is reached by the consent of more than half of the board director attendees in a board meeting attended by more than two third of the board directors, and after the approval of the governing authority, the biotechnology new drug company may issue stock warrants to high ranking professionals or technology investors.Attracting talentsand technology by The holders of the aforementioned stock warrants may subscribe specificstock warrant number of shares according to agreed prices, the subscribed price is not constrained by Article 140 of the Company Law which stipulate that the price shall not be lower than the face value. The aforementioned regulation applies to the payable income tax of the acquired stocks. Article 267 of the Company Law is not applicable when biotechnology new drug company issues new shares according to Article 7 In the case that the major technology provider of a newly establishedEncouraging biotechnology new drug company is a researcher employed by a state-runresearchers in research institute, then this researcher, subject to the consent of thepublic institutes to employer, may have the ownership of more than ten percent of the totaltransfer shares at the time the company is founded. The researcher may take thetechnologies role of a founder, a board director, or a technology advising commissioner, he/she is not constrained by Article 13 of Public Servant Service Law.Enhancing thecollaboration Researchers in the academic and research institutes, subject to the consent ofbetween industrial, the employer, may take the position of research and development advisinggovernmental, commissioners or advisers.academic andresearch sectors2. R&D Subsidies: Below are some government measures for boosting the development ofnew products:(1) Contents In order to encourage new product development by manufacturers withR&D potential, and to relieve some of the burdens of risk, the governmentmay provide a subsidy of up to 40% of the cost of development.(2) Scope of Eligible Products (a) Products of emerging key industries. 23
  26. 26. (b) Products employing key technologies that surpass current standardsof industrial technology in Taiwan. (c) Products that have a strong connection with good market potential,and which can stimulate the development of related industries.3. Intellectual property rights revert to developing companies4. Low-interest Loans To accelerate the industrial development and economic growth of thecountry, a special fund has been allocated by the Development Fund of theExecutive Yuan for cooperation with banks in providing various kinds ofspecial low-interest loans. These include preferential loans for small andmedium-sized enterprises (SMEs) to upgrade and purchase automationequipment, and loans to private enterprises for purchasing pollution controland pollution treatment equipment. In addition, the government has allocatedNT$100 billion from new postal deposit funds for the “Medium-andLong-term Capital Loan Plan.” Private investors whose projects have a valueof NT$ 100 billion or more may apply for loans under this plan.5. Government Participation in Investments(1) Investors can ask the government to participate in their investmentprojects to a maximum of 49% of the total capitalization. The followinggovernment agencies represent the government in providing capital:(a) The Sci-Tech Development Fund and other development funds(b) Mega Bank(c) Management Committee of the Executive Yuan Development Fund 24
  27. 27. (2) Investment Focus(a) In the past, the focus was on major productive industries included in the government’s economic construction plans, such as petrochemicals and semiconductors.(b) In recent years, the focus has been on Ten (10) Emerging Industries, including information, communications, aerospace, and biotechnology.VI. Industry-Academia Collaborations in Taiwan1. Biotechnology and Pharmaceutical Industries Program Office, MOEA (The Executive Yuans One-Stop-Service Office for the BiotechnologyIndustry) Responsible for promoting and implementing the governmentsbiotech-related plan and strategies; serves as the contact for internationalcommunications for the industry; provides relevant information oninvestment incentives, laws & regulations, provides consultation for businessstartups. Rm. A, 17F, 3 Yuan Qu St., Nangang District, Taipei, Taiwan (http://www.biopharm.org.tw)2. Council of Agriculture, Executive Yuan Monitors matters or issues relating to local and national agriculturalaffairs, forestry, fisheries, livestock herding, and other food-relatedadministrative affairs. 37 Nanhai Road, Taipei, Taiwan (http://www.coa.gov.tw) 25
  28. 28. 3. Overseas Chinese Affairs Commission Coordinates with overseas Chinese and facilitates them in all mattersrelating to business and investment processing, advertising, and promotion;assists overseas Chinese businesses; provides visa services, newsbroadcasting, and overseas promotional materials. 16F, 5 Hsu-Chou St., Taipei, Taiwan (http://www.ocac.gov.tw/)4. Department of Health (DOH), Executive Yuan Taiwans highest-level health administrative body, the DOH isresponsible for health administration affairs of the whole nation. The DOH isalso responsible for instructing, monitoring, and coordinating regional healthbodies. 11F, 100 Aikuo East Road, Taipei, Taiwan (http://www.doh.gov.tw)5. Industrial Development Bureau, MOEA Responsible for industrial development strategies and policies, theexecution of industrial upgrades, industrial development and management,planning of related financial and tax measures, industrial pollution prevention,industrial security guidance and factory management, and general industrialadministrative management. 41-3 Hsinyi Road, Sec. 3, Taipei, Taiwan (http://www.moeaidb.gov.tw) 26
  29. 29. 6. Intellectual Property Office, MOEA Offers service in patent examination; trademark registration; copyrightprotection; trade secrets protection; intellectual property rights and relatedinformation; prevention of counterfeits. 3F, No. 185, Hsinhai Road, Sec. 2, Taipei City, Taiwan, R.O.C. http://www.moeaipo.gov.tw7. Board of Foreign Trade, MOEA Provides economic and trade information; import-export services;international and regional economic and trade promotion. 1 Hukou St., Taipei, Taiwan (http://www.trade.gov.tw)8. Department Of Investment Services (DOIS) Actively promotes Taiwan as an ideal investment destination to overseasinvestors; provides guidance to local companies to invest in other countries,and recruits skilled and expert personnel from overseas. 8F, 71 Kuanchien Road, Taipei, Taiwan (http://www.idic.gov.tw/spring.html)9. Department of Industrial Technology (DOIT), MOEA Responsible for researching and planning industrial technologydevelopment strategies, technology project budgets, combining relatedinstitutes to promote and develop industrial technology in these categories;pioneering technologies, key technologies, and adaptive use technologies,DOITs overall aim is to promote the development emerging high-techindustries, and accelerate the upgrading of local industries. 6F, D-Building, 15 Foo-Chow St., Taipei, Taiwan (http://doit.moea.gov.tw) 27
  30. 30. 10. Economic Processing Zone Administration, MOEA Responsible for investments in the zone; engages in foreign trade & sales;company registration; labor; construction & land administration affairs. 600 Cha-Chang Rd., Nantze, Kaoshiung City, Taiwan (http://www.epza.gov.tw)11. Department of Commerce, MOEA Responsible for the drawing up of business policies & laws; businessplanning, managing, guiding, monitoring, and orchestrating; researchingbusiness contracts, business taxes, and business registration management &monitoring. 15 Foo-Chow St., Taipei, Taiwan (http://www.moea.gov.tw/~meco/doc/ndoc/default.htm)12. Investment Commission, MOEA Responsible for overseas investments, technological collaborations, andexamination of foreign investments. 8F, 7 Roosevelt Road, Sec. 1, Taipei, Taiwan (http://www.moeaic.gov.tw)13. Hsinchu Science-based Industrial Park Administration Responsible for investments; locating land/factories; granting researchdevelopments; personnel training, etc. 2 Hsin-an Road, Hsinchu City, Taiwan (http://www.sipa.gov.tw/index_apis.php) 28
  31. 31. 14. Taiwan External Trade Development Council (TAITRA) Provides customized trade and investment services to domestic andoverseas enterprises. 5-7 Floors, International Trade Building, 333 Keelung Road, Sec. 1, Taipei, Taiwan (http://www.taiwantrade.com.tw/cgi-bin/bv60/TWTRADE/index_tc.jsp)15. Overseas Chinese Enterprises Commission Promoting joint ventures between overseas Chinese firms and localcompanies. 11F, No. 63 Hangchou South Road, Sec. 1, Taipei, Taiwan16. Taiwan Venture Capital Association Conducts surveys to local and overseas venture capital industries;lobbying on behalf of the industry; serves as a bridge between members andhigh-tech companies, providing investment-related industrial information tomembers; improving international collaboration between overseas and localVC companies. Rm. 301, 3F, 142 Minchuan East Road, Sec. 3, Taipei, Taiwan (http://www.tvca.org.tw)17. Taiwan Pharmaceutical Development Association Improving the production technology R&D, business management, andencouraging international exchanges to enhance the development of Taiwanspharmaceutical industry. 3F, 12-1 Tunhwa North Road, Alley 145, Taipei, Taiwan 29
  32. 32. 18. Taiwan Pharmaceutical Manufacturers Association Increasing the quality and stability of locally-produced pharmaceuticalproducts; working on R&D of new medicines; promoting and upgrading theindustry; strengthening overseas collaboration and attracting investments;expansion of overseas markets; providing efficient communication betweenthe pharmaceutical industries of Taiwan and China; providing informationresources to the local industry; personnel training. 3F, 267 Tunhwa South Road, Sec. 2, Taipei, Taiwan (http://www.tpma.org.tw) 30
  33. 33. Appendix 1:Related Laws and Regulations Regarding Taiwans BiotechnologyIndustryI. Biotechnology and Pharmaceuticals1. Statute of the Development of Biotechnology New Drug Industry (Enacted on 2007/06/15) (http://lis.ly.gov.tw/npl/fast/02814/960614.htm)2. Pharmaceutical Affairs Law (http://www.doh.gov.tw/EN/Webpage/ )3. Nutritional Product Management Law(http://www.doh.gov.tw/EN/Webpage/ )4. Pharmaceutical Affairs Law: Details(http://www.doh.gov.tw/EN/Webpage/ )5. Statutes on Blood Derivatives (http://www.doh.gov.tw/EN/Webpage/ )6. Rare Disease Prevention and Drug Law(http://www.doh.gov.tw/EN/Webpage/ )7. Guidelines for Good Clinical Practice(http://www.doh.gov.tw/EN/Webpage/ )8. Standards for Establishing Pharmaceutical Manufacturing Factories (http://www.doh.gov.tw/EN/Webpage/ )9. Ethical Guidelines of Placental Dry Cell Research(http://www.doh.gov.tw/EN/Webpage/ )10. GMP for Medical Devices (http://www.doh.gov.tw/EN/Webpage/ )11. cGMP for Pharmaceutical Drugs (http://www.doh.gov.tw/EN/Webpage/ )12. Good Manufacturing Practice for Pharmaceuticals(http://www.doh.gov.tw/EN/Webpage/ )II. Agriculture1. Environmental Drug Management Law (http://law.epa.gov.tw/en/laws/288564189.html ) 31
  34. 34. 2. The Plant Variety and Plant Seed Act (http://eng.coa.gov.tw )3. Regulations Governing Management Practices for Transgenic Plant Field Tests (http://www.afa.gov.tw )4. The Plant Variety and Plant Seed Law (http://eng.coa.gov.tw )5. Enforcement Rules of Veterinary Drugs Control Act (http://eng.coa.gov.tw )6. Veterinary Drugs Control Act (http://eng.coa.gov.tw )7. Regulation for the Field Trial of Transgenic Breeding Livestock (Fowl) and the Bio-Safety Assessment (http://eng.coa.gov.tw )8. Plant Health Inspection and Quarantine (http://eng.coa.gov.tw )III. Intellectual Property Rights1. Copyright Law (http://www.tipo.gov.tw/eng )2. Guidelines for Ownership and Use of the Scientific Technological R&D Results of the Government (http://www.nsc.gov.tw/ls/LS0000S.ASP )3. Guidelines for Ownership and Use of Results from Research Subsidized or Commissioned by the Ministry of Economic Affairs (http://doit.moea.gov.tw/newenglish/00_whatsnew/whatsnew.asp )4. The Foundation Law for Technological Development (http://web.nsc.gov.tw )5. The Plant Variety and Plant Seed Act (http://eng.coa.gov.tw )6. Measures for Safekeeping of Microbiology-Related Patent Applications (http://www.tipo.gov.tw/eng )7. Trademark Law (http://www.tipo.gov.tw/eng )8. Patent Law (http://www.tipo.gov.tw/eng )9. Guidelines for Rights to R&D Results of the National Science Council (http://web.nsc.gov.tw )10. Trade Secrets Act (http://www.tipo.gov.tw/eng ) 32
  35. 35. IV. Tax Benefits and Incentives1. Agricultural Development Regulations2. Tax Deduction Measures for Company R&D and Personnel Training Expenditures3. Incentive Measures for R&D and Manufacture of Drugs for Rare Diseases4. Incentive Measures for Emergent Important Industries Belonging to Agriculture5. Statutes for Upgrading Industries6. Scope of Venture Capital Business and Consulting Guidelines7. IDB of MOEA Contracted Proposal for Points Regarding Industry Technology and Production to be Developed Successfully and Having Marketability to relax the listing requirement of local biotechnology companies to apply for listing on the Taiwan Stock Exchange and the OTC Exchange.8. Regulations Governing Tax Incentives for Operations Headquarters and Bylaws9. Rules for Encouraging Pharmaceutical Technology Research and Development10. Guidelines for Considering Expenditures Incurred by Companies Involved in R&D Commissioned by Local Biotech and Pharmaceutical Companies as Investment.11. Incentive Measures for Emergent Important Strategic Industries Belonging to Manufacturing and Technology Service 33
  36. 36. References[1]Taiwan Biotech and Pharmaceutical Industries, Asia Pacific Biotech, Vol.11, No. 12, 2007.[2]Spot on Taiwan, Advertisement Feature, Nature, 5 April (2007).[3]Taiwan, A Key Link in the Bioscience Global Supply Chain, p.40,BioSpectrum, Asia Edition, Vol. 1. Issue 1, March-April 2006.[4]2007, Introduction to Biotechnology & Pharmaceutical Industries in Taiwan, BPIPO, MOEA, Taiwan. 34

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