The Management, Utilization and Taxation of Repatriated Offshore Funds Act (the Act) were promulgated on July 24, 2019. The FSC introduced the Regulations Governing the Financial Investment, Management, and Utilization of Repatriated Overseas Funds (the Regulations), which came into effect on August 15, 2019, according to the authorization specified in Paragraph 6 of Article 6 of the Act. For overseas funds remitted by an individual or a profit-seeking enterprise to a foreign exchange deposit account, the account holder may withdraw up to 25% of the after-tax fund and deposit it in a trust account or discretionary account for investment in financial instrument(s). The key points of the Regulations about the fund management and utilization are as follows:
1.Financial instruments that such funds can invest in and the limitations on such investments: these financial instruments include domestic securities, including government bonds, publicly offered corporate bonds, financial debentures, international bonds, stocks of OTC-listed and exchange-listed companies, emerging stocks, securities investment trust funds (including ETFs), futures ETFs and ETNs. Such investments can also be used in trading of listed warrants, futures or options for hedging purpose. Up to 3% of the after-tax fund remitted by an individual may be used to purchase domestic protection-type and elderly benefits insurance products.
2.The limitations on utilization of such funds in domestic securities and insurance products:
(1)The fund is subject to limits on its domestic securities investment to avoid portfolio concentration. The investment in stock and bonds of one company shall not exceed 20% and the shares held by such stock investment shall not exceed 10% of the invested company.
(2)The fund shall not be used for margin trading, securities lending and borrowing and investments in leveraged ETFs or ETNs, inverse ETFs or ETNs.
(3)The fund shall not be pledged as a collateral for borrowing or guarantee. Domestic insurance products purchased with such fund shall not be used for the application of policy loans.
3.Fund retrieval with installment plan after a specific period: 1/3 of the fund for investments in financial instruments may be retrieved in the fifth, sixth and seventh year respectively after the expiration of the term from the date of remittance to the foreign exchange deposit account. According to the second part of Paragraph 2 of Article 6 of the Act, retrieval of the fund that is placed in the aforementioned foreign exchange deposit account and not used in real investment and in financial instrument(s) shall be retrieved according to the aforementioned regulations.