Article Series About Advanced Overseas Investment by Taiwanese Enterprises (1) ─ Points to Note for Foreign Investment and Establishment of Overseas Companies

January 2023

Teresa Huang and Lilian Hsu

In recent years, due to incessant trade and tariff disputes between the United States and China, as well as the war between Russia and Ukraine and the rise of global protectionism, many Taiwanese enterprises have been under pressure from national policies and laws and requests from business partners in the industrial supply chain to gradually change their group governance framework and arrangements from the ones that heavily betted on the China market in early days to a bipolar or multipolar structure.  In particular, the semiconductor industry is confronted with the most pressing need to adjust its development strategies.  According to news reports, investment in China by Taiwanese enterprises is on the decline year by year recently, while investment in new southbound countries is gradually rising, and the two amounts were slightly similar in 2021.  For example, the five major electronic giants in Taiwan (i.e., Quanta Computer, Compal, Pegatron, Inventec, and Wistron) have reduced reliance on their factories in China and pursued manufacturing and assembly bases and suppliers of parts and components in regions outside of China such as Vietnam, Thailand, India, and other Southeast Asian countries.[1] 

In view of the different legal regimes for foreign investment, company formation and corporate governance in different countries, it is necessary to consider and evaluate the potential issues or relevant concerns in the course of corporate operation in order to choose the most appropriate establishment locations among the various regions.  This article explores the points to note concerning the requirements for foreign investment and the establishment of companies when a Taiwanese enterprise intends to invest in a whole new country.

1. Whether the target country has any industry in which operation by foreign investors is prohibited or restricted

When determining a target country for investment, it is necessary to first confirm whether the intended business items are encouraged by the target country, or whether they are in an industry in which foreign investment is prohibited or restricted in the target country.  Most countries clearly list the business items that are prohibited or restricted from foreign investment based on national security considerations or the need to protect specific domestic industries, and the business items, which are usually restricted, include businesses involving arms and weapons, dangerous chemicals and minerals, energy and mineral mining, planning and control of national power system, generation of nuclear power, air transport business, postal and telecommunications services, publishing, education, specialized professional services, etc.

2. The presence of any special application or review mechanism for foreign investors to invest in the target country, and the average time spent

Most countries have a special review procedure for foreign investment, and the ease of passing the review and the length of time it takes will seriously affect the willingness of Taiwanese enterprises to invest in that country.  Some countries encourage foreign investment by adopting an online application procedure that can be completed in as little as half an hour, while others adopt a strict review mechanism that takes several months to complete the foreign investment review procedure.

3. The number of directors and supervisors that should be set up in a company operated by foreign investors and the target country nationality or domicile restrictions, if any, on the directors and supervisors

When choosing a new target country for investment, Taiwanese enterprises mostly rely on the personnel of the parent company in Taiwan for remote control during the preparation stage, and it is more difficult to immediately find local personnel in the target country to serve as directors and supervisors or managers of the new company.  Therefore, whether the target country has nationality or domicile requirements for the directors and supervisors of foreign-invested companies becomes one of the important considerations for Taiwanese enterprises when they venture into the target country.  Some countries adopt more relaxed requirements and do not restrict the nationalities or domiciles of directors and supervisors, but some countries require not only a certain number of directors, supervisors or corporate secretaries but also those with the nationality and domicile of the target country to serve as directors and supervisors, so as to facilitate the administration by the local government.

4. Whether an anti-monopoly approval procedure should be followed upon acquisition of the shares of a local company by foreign investors in the target country

Take the Taiwan law as an example.  When a foreign investor intends to acquire at least one third of the shares of a domestic company, this is deemed an act of combination.  If the market share or annual sales amount of the combination transaction reaches the statutory threshold, the investment may not proceed until the notification procedure for the combination is completed.  The antitrust laws and regulations and the threshold of notification requirements vary from country to country.  Some countries use the assets, turnover of the participants or the amount of the merger and acquisition transaction as the threshold to determine whether a notification is required, and some countries prohibit mergers and acquisitions that substantively undermine market competition without a clear quantified prohibition threshold.

5. The typical tax rate that should be assumed by foreign investors in operating a company and the additional requirement for tax withholding when earnings are distributed

The tax burden ratio is also an important consideration for Taiwanese enterprises when they choose a location for overseas investment to avoid the complete erosion of local business profits due to excessive tax burden in the target country.  Common types of taxes include, but are not limited to, corporate income tax, value-added business tax, consumption tax, or special local taxes.  In addition, most countries require tax withholding on the remittance of dividends, but different withholding rates will apply depending on the policy of each target country and whether a tax agreement has been signed between Taiwan and the target country.  In addition, Taiwanese enterprises should note that some countries providing tax incentive program also adopt a minimum tax scheme at the same time.  Therefore, even if income tax is exempt under certain incentive program, the enterprise may still have to pay the minimum basic tax.

6. The presence of any control over the exchange and remittances of cross-border funds in the target country; for example, whether there is any annual outbound remittance limit

In response to the rising geopolitical risks, Taiwanese enterprises have started to establish a bipolar or multipolar group governance structure, and thus increasing the need to invest and set up factories and make capital arrangements and mobilization in different countries.  If the target country imposes several restrictions on cross-border remittance of funds, it will greatly reduce the incentives for Taiwanese enterprises to invest in such a country.  Some countries adopt a liberal attitude without any foreign exchange control measures, while some others require ex-post notification or ex-ante reporting when the amount of remittance reaches a certain threshold.

Since the decision of a cross-border investment structure and location can have a significant impact on the future direction of a group’s business and involves a large amount of capital and manpower investment, it is important to consult local professionals in each potential candidate country for obtaining complete and necessary information before a final decision is made.  Lee, Tsai & Partners, as a member representing Taiwan of TerraLex, ELA, and other cross-border associations of law firms, has assisted many Taiwanese clients in cooperating with local law firms in various countries over the years, so that we can serve as a single point of contact for our clients in their global deployment and provide more comprehensive legal services and assistance.


[1] Yi-pin Tsao, Chung-hsing Chen, and Hsia-hsiao Liu, Formation of Dual Supply Chains: Expansion of Factories in Southeast Asia by Taiwanese Enterprises, Mirror Media, February 20, 2022, https://www.mirrormedia.mg/story/20220215fin006/ (last reviewed on December 10, 2022)


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