TALKING POINTS FOR FOREIGN INVESTMENT-METAL ORTHOPEDIC INDUSTRY
I. Investment Niche
A、Stable global market growth
The global sale value of orthopedic material witnesses the increase of US$11.6 billion in 1999 to US$18.4 billion in 2003 with average at 12.3% per annum.
B、New requirement derived from old aging epproach
Under the old aging tide, the old men will be counted to 35.5% of the population in 2051 in Taiwan, it implies the artificial joint is on rising.
C、The material productive capability in Taiwan industrial chain
Besides the integrated material supply chain, Taiwan has had the productive capability in forging the titanium golf club head which can be easily converted into the production of artificial joints.
Taiwan has complete line of metal industry in forging, casting and surface treatment with outstanding accomplishment.
D、Investment in Taiwan helps control China market.
Taiwan and China are in same race and speak the same language. The sports product developed for Taiwanese skeleton must fit for all Chinese in China too. The low cost artificial joints are easy to enter the China market.
E、Government promotion policy
Taiwan is intended to build up the biological technological development society as a globalized key loop and a biological R&D, production and operation center in the Asian-Pacific zone. In addition to 12 biological science block situated in the Nankang biological technological yard and Hsinchu biomedical yard,, it is planned to organize the Kaohsiung medical material yard exclusively for the research and development of the surgical operation devices, artificial implanting material, medical robot, high function medical supplement and medical instrument.
Table 1Artificial joint market in Taiwan 1999 – 2004
Year / Production Value A / ExportB / Import
C / Domestic Requirement
D=A-B+C / Growth
Rate
E / Export Percent
F=B/A / Import Dependence
G=C/D / Local Consumption
I-G
2000 / 102,402 / 414 / 385,658 / 487,646 / -- / 0.4% / 79.1% / 20.9%
2001 / 129,428 / 4,114 / 376,775 / 502,089 / 3.0% / 3.2% / 75.0% / 25.0%
2002 / 138,546 / 7,500 / 486,565 / 617,611 / 23.0% / 5.4% / 78.8% / 21.2%
2003 / 149,988 / 6,001 / 401,777 / 545,764 / -11.6% / 4.0% / 73.6% / 26.4%
2004 / 193,599 / 72,318 / 477,029 / 598,310 / 9.6% / 37.4% / 79.7% / 20.3%
Note:The value is calculated based on the selling price of Combined Orthopedic Company
Source: Yearbook of Combined Orthopedic company, Monthly Export Statistics published by Customs Administration and Metal Research Center, ITSI Project
II. Market Analysis
A、Analysis of Market Status and Scale
a.Development in past 4 years.
The global sale value of orthopedic material witnesses the increase of US$11.6 billion in 1999 to US$18.4 billion in 2003 as shown in fig. 1 with average CAGR growth rate at 12.3% per annum.
b.Analysis by Product Category
(a)Rehabilitation element (artificial joint), the major element in orthopedic material, sold in 2003 worth of US$7.47 billion, 40% of whole orthopedic material purchase.
(b)Spinal implant element and devise: the second large sale, worth of US$2.84 billion in 2003, 15.4% of whole orthopedic material purchase.
(c)Fractural fixture: :the third sale, worth of US$2.16billion in 2003, 11.7% of whole orthopedic material purchase.
B、Current and Future Market
a.Judging from the past four year development and the future growth tendency, it will sustain to grow at the annual rate of 15% (CAGR). It is expected that the global sale of the orthopedic material in 2008 will be worth of US$3\9.84 billion.
Table 2Global orthopedic material market Trend 2004 = 2008
2004 (e) / 2005 (e) / 2006 (e) / 2007 (e) / 2008 (e)Rehabilitation element / 84.8 / 96.2 / 109.2 / 124.0 / 140.7
Fractural fixture / 24.1 / 26.9 / 29.9 / 33.4 / 37.2
Spinal implant element and devise / 34.5 / 42.0 / 51.1 / 62.1 / 75.5
Spinal endoscope and recovery soft tissue / 19.4 / 21.7 / 24.3 / 27.2 / 30.5
Biological correction / 16.8 / 20.7 / 25.4 / 31.3 / 38.4
Others / 48.0 / 53.9 / 60.5 / 67.8 / 76.1
Total / 227.6 / 261.4 / 300.4 / 345.8 / 398.4
Source: Metal Institute Center OTSI Project
b.The gap of Taiwan metal orthopedic material chain
Fig. 1Metal orthopedic material supply chain
In fact, the Taiwan orthopedic material industry is at the start point, the plant is of small scale, with no reputed brand name to support and insufficient raw material supply. Favorable consideration shall be given to the cooperation with foreign high reputed companies.
III.Analysis of Competition
A、Major Competitors
a.From the orthopedic material market, the world top ten manufacturers share 75.7% of global market, in which, the spinal material market holds the highest market share percentage and the top ten share 96.5%, in particular, Medtronic Sofanmor Danek who dominates 40%. It seems that the spinal material is a monopolized market.
B、Three leader in orthopedic material
a. Artificial joint: the first two are Zimmer and Johnson & Johnson. JMM in Japan after merged another spinal manufacturer in September 2004 is now the largest artificial joint manufacturer in Japan in an attempt to be expand the global market.
b. Fractural fixture: Synthes is the world largest manufacturer in the fractural fixture with world market share of 35%.
c. Spinal fixture: Medtronic Sofamor Danek is number one manufacturer in the spinal fixture with ma\world market share of 40%.
IV.Production Cost
A、Land rent Cost
a.Rents at the Hsinchu Science-based Industrial Park:
Table 3 Land rent at the Hsinchu Science-based Industrial Park:
Unit: NT$
Category / Area (m2) / Rent (per month)Land / Over 2,000 / NT$ 49/ m2
Standard plant / First floor / 531.3~1280.4 / NT$ 122/ m2
Second floor / 531.3~1227.6 / NT$ 115/ m2
Third floor / 662.97~1346.4 / NT$ 106/ m2
Fourth floor / 662.97~798.6 / NT$ 99/ m2
Deluxe plant / 1485 / NT$ 204~325/ m2
Incubation center / 80
160
240 / NT$ 184/ m2
Dormitories / Single room / 15~18 / NT$2,250~2,950/unit
Double room / 15~21 / NT$1,850~3,300/unit
Familyhome / 100~290 / NT$10,550~33,300/unit
Note: The above rents are adjusted on the basis of announced rents for the current year.
b.Rents in the Tainan Science-based Industrial Park:
Land and plant buildings within the Tainan Science-based Industrial Park are leased, and will not be sold. The government will set and adjust rents on the basis of amortized cost at the time of development and subsequent yearly changes in real estate and land value taxes. Rents within the Tainan Science-based Industrial Park will consequently be lower than those outside the park. Land shall be leased for periods of 20 years, and plants leased for periods of one year. The following rents are currently charged:
Units: NT$
Category / Term / Rent (m2/month)Land / 20 years / 12.9
Plants / 1 year / 103~120
Note:Land rents will be adjusted on the basis of announced land prices, public facility development costs, and laws and regulations.
B、Labor Cost
Table 4Average monthly wages for workers in different industries in Taiwan
Unit: NT$
Year / Ave. 2001 / Ave. 2002 / Ave. 2003Mining and quarrying / 44,264 / 45,006 / 47,263
Manufacturing / 38,586 / 38,565 / 39,583
Electricity, gas & water / 93,091 / 89,591 / 91,034
Construction / 37,746 / 36,848 / 37,219
Trade / 39,760 / 39,202 / 39,799
Accommodation & eating-drinking places / 25,991 / 25,828 / 25,181
Transportation, storage & communication / 53,350 / 51,564 / 51,396
Finance & insurance / 62,625 / 65,767 / 64,693
Real estate& rental & leasing / 42,604 / 40,714 / 39,872
Professional, scientific & technical services / 53,191 / 49,587 / 50,990
Health care services / 54,701 / 54,115 / 55,999
Cultural,, sporting & recreational services / 41,242 / 39,489 / 40,861
Other servies / 31,157 / 30,525 / 30,057
Source:Monthly Bulletin of Earnings and Productivity Statistics and Annual Report of Earnings and Productivity Statistics published by the Directorate-General of Budget, Accounting and Statistics, Executive Yuan, Jan. 2004
V.Taxation
Table 5 Individual Consolidated Income Tax Rates
Units: NT$
Net consolidated income / Tax rate / Progressivedifferential / Tax payable0—370,000 / × / 6% / – / 0 / =
370,001—990,000 / × / 13% / – / 25,900 / =
990,001—1,980,000 / × / 21% / – / 105,100 / =
1,980,001—3,720,000 / × / 30% / – / 283,300 / =
3,270,001–– / × / 40% / – / 655,300 / =
Table 6 Profit–Seeking Enterprise Income Tax Rates
Taxable income(P) bracket / Tax rate / Progressive differential / Quick formula
Less than NT$50,000 / 0 / –
Less than NT$100,000 / 15% / None / 1. When P is less than NT$71,428: T= (P–50,000x1/2
2. When P is greater than NT$71,428: T=Px0.15
Over NT$100,000 / 25% / 10,000 / T=Px0.25–NT$10,000
Note: T is the amount of tax.
VI.Investment Incentives
A、Preferential Taxes
The ROC Government enacted the Statute for Upgrading Industries in 1991 to develop a favorable environment for foreign and overseas Chinese investors in Taiwan and to encourage investment by foreign companies for the purpose of upgrading the ROC’s industrial base. On January 1, 2000, the statute was amended to extend preferential tax measures for another 10 years until December 31, 2009. These measures are detailed in the chart below:
Incentive Measure / Nature of IncentiveAccelerated depreciation of equipment and facilities / 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 for an accelerated depreciation period of two years. If there is any 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.
Investment in automation equipment or technology / Companies may deduct 5% to 20% of the amount of investment in these areas from their profit-seeking-enterprise income tax over a five-year period beginning with the year in which the investment is incurred.
Investment in recycling and pollution control equipment or technology
Investment in equipment or technology for the use of new and clean energy, energy conservation, and industrial wastewater recycling
Investment in equipment or technology for reducing greenhouse gas emissions and enhancing energy efficiency
Investmentin the hardware,software and/or technology that can promote an enterprise’s digital information efficiency,such as the Internet and television functions,enterprise resource planning, communication and telecommunication products, electronics and/or audio visual equipment, and digital content production
Research and development / 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 periodbeginning 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 exceeds 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 the previous two items may not exceed 50% of the company's profit-seeking-enterprise income tax due for that year. The amount deducted during the final year, however, is not subject to this limitation.
Personnel training
Investment in resource-poor or lesser-developed rural areas / Companies that invest a specific amount or employ a specific additional number of persons in resource-poor or lesser-developed rural areas may deduct 20% of the invested amount from their profit-seeking-enterprise income tax over a five-year period beginning with the current year.
Investment in emerging, important, and strategic industries / 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 the cost of such stock from its profit-seeking-enterprise income tax for the current year.
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 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.
Reinvestment / 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 in 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.
Investment by foreigners and overseas Chinese / 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 Tax Law and the provisions of the Income Tax Law regarding tax 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% 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.
Establishment of international logistics and distribution centers / 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 enterprises to set up logistics and distribution centers in Taiwan to engage 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.
Company mergers / 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 of 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.
Establishment of
operations headquarters / 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 companies which they acquire in Taiwan, as well as royalty income, profit 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.
Science-based industries / Effective Jan. 1, 2002, machinery and equipment that is imported for a company's 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 longer 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.
B、R&D Subsidies：Measures for encouraging the development of leading new products
C、Contents
In order to encourage new product development by private manufacturers with R&D potential, and to share some of the burden of risk, the government may provide a subsidy of up to 40% of the cost of development.
D、Scope of Eligible Products
a.Products of emerging important strategic industries.
b.Products employing key technologies that surpass current standards of industrial technology in Taiwan.
c.Products that have a strong linking effect and good market potential, and that can stimulate the development of related industries.
d.Intellectual property rights revert to the developing company.
E、Low-interest Loans
To accelerate industrial development and economic growth, a special fund has been set aside by the Development Fund of the Executive Yuan for cooperation with banks in providing various kinds of special low-interest loans. These include preferential loans for small and medium-sized enterprises (SMEs) to upgrade and purchase automation equipment, and loans to private enterprises for purchasing pollution control and pollution treatment equipment. In addition, the government has allocated NT$100 billion from new postal deposit funds for the “Medium-and Long-term Capital Loan Plan.” Private investors whose projects have a value of NT$ 100 billion or more may apply for loans under this plan.