January 2024
Teresa Huang and Lilian Hsu
Taiwan’s investment environment is attractive to foreign investors. According to the 2023 Investment Climate Statement from the American Institute in Taiwan, Taiwan ranked among the top twenty globally in terms of gross domestic product, possesses a pool of high-tech talent, and maintains a solid foundation in manufacturing industries related to semiconductors, 5G communications, artificial intelligence (AI), and the Internet of Things (IoT). Taiwan also plays a crucial and central role in the global high-tech supply chain.[1] Apart from evaluating industry structure, talent supply, and consumer markets, understanding investment laws and regulations and other regulatory measures is also crucial for foreign businesses planning to invest in Taiwan. This article focuses on key points to note for foreign investors seeking to invest in Taiwan with respect to requirements for investment by foreign nationals and company establishment.
I. Determination of whether the investment target falls under permitted foreign investment categories
(1) Scope of permitted investment
The first step for foreign investment is to determine whether the investment target in Taiwan falls under permitted foreign investment categories. The specific industries prohibited or restricted from investment vary based on the origin of the investor. For foreign investors outside the mainland area (hereinafter, the “Foreign Investors”), according to Article 7, Paragraph 1 of the Statute for Investment by Foreign Nationals, businesses that are detrimental to national security, public order, good social morals, or national health, or explicitly prohibited by law are strictly prohibited for the Foreign Investors. The competent authority, the Ministry of Economic Affairs, has announced industries in which the investment from the Foreign Investors is prohibited or restricted, such as chemical raw material manufacturing, tour bus passenger transport, and radio broadcasting, etc. All other unannounced sectors are open for investment, following a negative list control model.[2] However, if identified as an investment by investors from the mainland area (hereinafter, the “Mainland Investors”), Article 8 of the Regulations Governing Approval of Investment in Taiwan by the People of the Mainland Area provides that, except for industries permitted for investment as announced by the competent authority, such as certain food manufacturing, certain wholesale and retail, and specific financial industries, other sectors are prohibited from investment, following a positive list control model.[3]
(2) Determination of the Mainland Investors
Given that determining whether overseas investment actions are taken by the Foreign Investors or Mainland Investors will have an impact on the scope of investment permits and the subsequent investment review process, it is crucial to establish criteria for differentiating the “Foreign Investors” and the “Mainland Investors”. Pursuant to Article 3 of the Regulations Governing Approval of Investment in Taiwan by the People of the Mainland Area, investors from the mainland area, i.e. Mainland Investors include mainland area individuals, legal persons, groups, other organizations that invest in Taiwan, or companies invested by them in third areas. Determining whether a mainland area entity invests in Taiwan through a third area involves identifying the substantive beneficiaries of the investment behavior in individual cases. Therefore, the investment review authority may request applicants seeking to invest in Taiwan to provide a list of directors and major shareholders of relevant companies, which includes the ultimate substantive natural-person beneficiaries.
Regarding the identification of the substantive beneficiaries, whether a mainland area entity directly or indirectly holds more than thirty percent of the shares or total capital of a company in a third area or has control over such a company may cause such a mainland area entity to be identified as the substantive beneficiary of the third area company. For example, if a mainland area company or individual holds more than thirty percent of the shares of a company in a third area at the first layer (hereinafter, “Company A”), Company A will be recognized as the Mainland Investor because the substantive beneficiary of Company A is a mainland area entity. If Company A also holds more than thirty percent of the shares of a second-layer company in a third area (hereinafter, “Company B”), Company B will also be recognized as a Mainland Investor since over 30% shares of Company B are held by a Mainland Investor.
II. Determination of investment types
Once it is determined that the investment target falls within the permitted scope of foreign investment, overseas investors need to decide on the specific investment type based on their planned business model. Commonly available investment types include holding shares or capital of a Taiwanese company, establishing a company in Taiwan, setting up a branch office or other entity, or providing a loan with a term of one year or more to the invested business mentioned above.
It should be noted that if overseas investors wish to operate a business in Taiwan under a company name, such as employing workers in Taiwan and having them represent the company externally with business cards marked with the company’s name, they need to register a branch office or establish a subsidiary. Pursuant to Article 371 of the Company Act, individuals violating the above provision will face imprisonment for up to one year, detention, and/or a fine of up to NT$150,000, and should assume their own civil liability arising from their actions conducted in Taiwan under the company’s name.
Additionally, regarding personnel planning for a Taiwan-based company, if a company is established in Taiwan, it must have at least one director and one supervisor. In principle, there are no restrictions on the nationality and residence of directors and supervisors. However, it should be noted that individuals from the mainland area wishing to serve as directors or supervisors of a Taiwan company must simultaneously meet other regulatory requirements, including but not limited to being eligible only for serving as directors or supervisors of Taiwan companies invested by the Mainland Investors.
III. Process for investing in and establishing companies
The process for the Foreign Investors or Mainland Investors to set up companies in Taiwan includes conducting a company name pre-check, reserving the company name and business items, applying for investment approval, opening a bank account for the preparatory office of the company, transferring the investment funds into the account, and completing company registration. Generally, the entire process takes a minimum of 8 weeks to complete. If the investment target involves business items requiring special approval, the investors should additionally obtain approval or consent from the competent authority. In addition, investors should pay special attention to the following:
(1) The time required for investment approval applications varies by case.
The Foreign Investors or the Mainland Investors should both obtain approval from the Department of Investment Review under the Ministry of Economic Affairs. The time required for investment review varies by the investment scale, target, and funding source. For applications with smaller amounts that do not involve the Mainland Investors, the review time is at least two to four working days. For investment cases involving the Mainland Investors, the review time is at least sixty working days, and some controversial cases may require an additional one to two months.
(2) The responsible person must personally visit the bank for identity verification to open an account for the preparatory office of the company under establishment.
Since banks need to confirm customer identity when opening an account, the responsible person of the newly established company must visit the bank in person to open the account of the company’s preparatory office. Moreover, different banks have different operational regulations for account opening, and there may be specific account opening restrictions for foreign nationals.
(3) Investment projects involving a “combination” act with a scale exceeding the statutory threshold should be reviewed by the Fair Trade Commission in advance.
If an investor’s investment activities involve a “combination” act defined under the Fair Trade Act, including but not limited to mergers between businesses, holding or acquiring one-third or more of shares with voting rights in another business, directly or indirectly controlling the business operations or personnel appointments of another business, and the scale of the combination exceeds statutory thresholds. For example, if the combination of businesses causes one business’ market share to reach one-third, an application shall be filed with the Fair Trade Commission before investment. The transaction may proceed only when approval is obtained.
For violations of the above-mentioned provision, the Fair Trade Commission may prohibit the combination, order the breakup of businesses, dispose of all or part of the shares, transfer part of the business, remove the actors from their positions, or impose other necessary sanctions within a time limit. In addition, it may impose a fine of NT$200,000 to NT$50 million.
IV. Dividend taxation and capital repatriation restrictions
Regarding the requirements for dividend taxation, a Taiwanese subsidiary must, as an independent entity, withhold a 21% income tax when remitting dividends to its overseas parent company or natural person shareholders, while a branch office, as an affiliate, is not required to withhold income tax when repatriating profits. Banks may request companies to provide proof of tax payment when processing the outward remittance of the above fund.
As for capital repatriation restrictions, Taiwan does not impose additional restrictions on the inflow and outflow of foreign currency funds that do not involve the exchange of New Taiwan Dollars. However, for the inflow and outflow of foreign currency funds that involve the exchange of New Taiwan Dollars, each remittance amount reaching the equivalent of NT$500,000 for foreign exchange receipts or transactions should be reported or approved pursuant to the Regulations Governing the Declaration of Foreign Exchange Receipts and Disbursements or Transactions and relevant requirements.
Taiwan’s abundant supply of talent in the high-tech industry and comprehensive industrial structure, coupled with strong consumer purchasing power, make it an attractive destination for investment. However, general investors may not be familiar with the relevant investment laws and regulations. Engaging in non-compliant investment activities may not only affect the legal effectiveness of such actions but could also lead to civil, criminal, and administrative legal liabilities. Therefore, when proceeding with specific processes and reviewing related documents, it is advisable for enterprises to seek assistance from professionals in legal, tax, and accounting fields to ensure that investment activities comply with regulations and minimize relevant legal risks.
[1] The 2023 Investment Climate Statement: Taiwan at https://www.ait.org.tw/zhtw/2023-investment-climate-statements/ (Last Reviewed On November 27, 2023)
[2] The Negative List for Investment by Overseas Chinese and Foreign Nationals at https://law.moea.gov.tw/LawContent.aspx?id=GL000176 (Last Reviewed on November 27, 2023)
[3] The List of Taiwan Industries Invested by People from Mainland China at https://law.moea.gov.tw/LawContent.aspx?id=GL000177 (Last Reviewed on November 27, 2023)
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