Introduction to the Securitization of Financial Assets and Real Estate
In view of the growing risk in running a financial institution, the Taiwan government, has adopted the concept of securitizing financial assets, which includes but is not limited to claims under leases, credit cards, receivables, car loans, house mortgages, as well as beneficiary rights deriving from trust agreements, by the enactment of “The Statue for Financial Assets Securitization” (hereinafter referred to as the “SFAS”). Under the SFAS, the “originator” (an institution authorised by the authority in charge that grants its financial assets to a trustee/special purpose company for the trustee/ special purpose company to issue benefit securities on the basis of such assets) will be able to securitize its financial assets.
In order to encourage asset securitization, the following tax incentives, among others, are given according to the SFAS:
- Exemption on stamp duty, deed tax (except for the deed tax deriving from the disposal of real property) or business tax deriving from the transfer of assets to the trustee/special purpose company; and
- Purchase and sale of benefit securities, other than those classified by the authority in charge as short-term notes, shall attract a securities transaction tax at the tax rate applicable to corporate debentures; and
- Income deriving from special purpose trust property shall attract a business tax at the same tax rate applicable to banks; and
- Income deriving from special purpose trust property, after deducting the costs and necessary expenses, shall be deemed as interest income of the beneficiaries for tax purposes and should be excluded from the income of the trustee.
Additionally, special provisions regarding the simplification in establishment procedure and organizational requirement, as well as the limitation of business scope and utilization of capital for the special purpose vehicles have been included in SFAS to accelerate the deployment of such innovation.
It is expected that such innovation would help the financial institution better manage its assets, as well as improve its operation results and broaden its funding methods.
Moreover, to enliven Taiwan’s real estate market and heighten the liquidity of real estate, the Council for Economic Planning and Development proposed and sent for approval and deliberation a draft Statute for Real Estate Securitization. Once passed by the Legislative Yuan, individual investors will be able to participate in large real estate investment by investing small amounts of money. On the other hand, real estate companies can raise from the public the huge amount of capital needed for real estate development. The draft statue is believed to stimulate, on the macroeconomic level, economic growth and promote employment through its linking effects.