Due to the tension between Taiwan and mainland China, Taiwan’s government holds strict management over Chinese, Hong Kong, and Macau investors. Prior investment approval is required for foreign investors, and the timeline will be different for investors with different nationalities:
|Foreign Investors Excluding Mainland China, Hong Kong, and Macau Investors||Hong Kong and Macau Investors||Mainland China Investors|
|1||Reserve the Chinese name in Taiwan||1~3 days||1~3 days||1~3 days|
|2||Sign and notarize the Power of Attorney (POA) in front of local Notary Public, and then have the POA apostiled by local government agency/court||Depends on the investors||Depends on the investors||Depends on the investors|
|3||Legalize/authenticate the POA in Taiwan consular in that country||Depends on the investors||Depends on the investors||Depends on the investors|
|4||Apply for investment approval||2~3 weeks||1~2 months||3~6 months|
|5||Open a preparatory bank account in Taiwan||Depends on the investors||Depends on the investors||Depends on the investors|
|6||Remit the capital from the foreign parent company to the new bank account||Depends on the investors||Depends on the investors||Depends on the investors|
|7||Inform Taiwan government to check the capital||2~3 weeks||2~3 weeks||2~3 weeks|
|8||Company registration||1~3 days||1~3 days||1~3 days|
|Total||4~6 weeks||2~3 months||3~6 months|
Disclosure of UBO
Due to the tension between Taiwan and mainland China, one of the main purposes in assessing foreign investors is to determine which are Chinese. Any foreign investor considered to be controlled or significantly affected by China will be subject to the special Act Governing Relations Between Peoples Of The Taiwan Area And The Mainland Area. Therefore, clarifying the investment structure and disclosing ultimate beneficiary owners are first steps and most crucial. Sometimes the disclosure of ultimate beneficiary owners is not that easy, especially with complicated investment structures and numerous parties involved.
Definiton and Goal
The definition of “significantly affected by China” is as below, and, therefore, we are required to disclose at least 70% of the UBOs who are not Chinese:
- More than 30% of the foreign investing company is held by Chinese shareholders directly or indirectly, or
- Chinese people in the board.
Please note the definition of UBO and purpose of identifying them here is different from Bank’s anti-money laundering procedures. And the disclosure of only material UBOs who own more than 25% is not sufficient.
Business scope of a business entity in Taiwan must be registered with the government and disclosed to the public prior to commencement of operations (List of Business Category Codes). And some of the industries are subject to high government controls:
Industries prohibited or restricted to foreign investors
For example, manufacture of chemical material, fertilizers and Nitrogen compounds, plastic and rubber materials, Man-made fibres. (List of forbidden or restricted items to foreign investors)
Industries highly regulated and requiring a license
A industry with Business Category Code ending with “1” is highly regulated and requires a license. Such intensively regulated business includes the import of tobacco and alcohol, manufacturing of medical equipment, etc.
Basically, unless below missions are involved, there is no threshold for the amount of capital involved in setting up a company in Taiwan:
- When the company in Taiwan is to engage in a highly regulated business, and under certain other conditions.
- The company in Taiwan will hire foreign employees.
- The company in Taiwan takes part in the immigrant investor program.
The capital is supposed to be sufficient to operate the company. If the capital investment is too small, when the accumulated net loss exceeds the capital, the company needs to announce its insolvency or inject additional capital. And the procedure for injecting additional capital is almost the same as setting up a new company. It takes time, effort, and money. On the contrary, in Taiwan, if the capital size is over TWD 30 million, the audit will become mandatory.
The capital needs to be wired from the foreign parent company to the Taiwanese entity’s bank account. It will be audited by both the investment committee and the CPA. Withdrawing capital after the audit can lead to criminal charges. The capital is only meant for operating the Taiwanese entity.
Loans from the parent company
Loans from the parent company lasting over one year are also regarded as investments, just like the capital. They also require the investment committee’s approval in advance.
Capital amount has nothing to do with tax treatment.
Types of organization
Generally, there are four options: Subsidiary company, Branch, Partnership, and Representative office. If the business entity in Taiwan will generate sales revenue, and the sales revenue cannot be controlled, a branch is more advisable considering the exemption of profit distribution to foreign headquarters. On the other hand, if the entity in Taiwan is designated only for liaison with Taiwanese clients or suppliers, a representative office is recommended considering its comparatively low regulation and exemption from certain tax procedures.
|NO||Subsidiary Company||Branch||Partnership||Representative Office|
|1||Taiwan eneity’s legal status||A legal person||Not a legal person and belongs to the foreign headquarter||Not a legal person and belongs to the foreign individual||Not a legal person and belongs to the foreign headquarter|
|2||Foreign investor’s financial responsibility in Taiwan||Limited liability||Joint liability||Joint liability||Joint liability|
|3||Permitted Activities||Business activities||Business activities||Business activities||Liaison only|
|4||Corporate Income Tax||20%||20%||20%||No business activities and profits|
|5||Withholding tax on profits distributed to foreign investors||21%||Not applicable||21%||No business activities and profits|
|6||Additional income tax on undistributed profit||5%||Not applicable||Not applicable||No business activities and profits|
|7||Tax incentive for R&D expenses||Qualified to apply||Not qualified to apply||Not qualified to apply||No business activities and profits|
|8||Government subsidy for startups||Usually qualified to apply||Usually not qualified to apply||Usually not qualified to apply||No business activities and profits|
|9||Periodic Report of Shareholding||Required||Not applicable||Not applicable||Not applicable|
Notarize, apostille, and legalize the POA
When setting up a Taiwanese company, the foreign investor may need to sign a power of attorney (“POA”) to engage a Taiwanese CPA as his investment agent in Taiwan. Since usually the POA is signed in a foreign country, Taiwan government requires the POA notarized, apostilled, and ligalized. The procedures may be slightly different considering different local legal systems:
|1||Notarize||Local Notary Public||Certify the investor's signature on POA is true.||I, ***, a Notary Public in and for (country), do hereby certify that the attached original POA is true.|
|2||Apostille||Local government agency||Certify the local Notary Public's signature is true and effective||This public document has been signed by *** acting in the capacity of Notary Public...|
|3||Legalize||Taiwan consulate in the country||Certify the local government agency's signature is true and effective||Embassy of Taiwan certifies that the signature of ***, officier of (local government agency), is authentic.|
Exemplary POA from a Cayman company
Apply for investment approval
Prior investment approval is required for foreign investors. When applying for the investment approval, the investor will be required to disclose the following information:
|1. Background||1.1 Disclosure of UBO|
1.2 Date of incorporation
|2. Operation||2.1 Products or services|
2.2 Number of employees
|3. Source of funding||3.1 Net value (=Total assets - total liabilities = Shareholder’s equity in the balance sheet)|
3.2 Annual sales revenue
3.3 Company statements
|4. Business plan in Taiwan||4.1 Business scope|
4.2 Capital amount*
4.3 Financial forecast and budget
4.4 Employment plan
* The amount must be fully wired into the Taiwan company’s preparatory bank account from the investor's foreign bank account.
AML & Banking
Some banks are friendlier to new foreign clients. These include the Shanghai Commercial & Savings Bank (上海商銀), the Chang Hwa Commercial Bank (彰化商銀), the E.Sun Bank (玉山銀行), the Taishin International Bank (台新銀行), and the CTBC Bank (中國信託).
Other banks are more discreet. These include the Bank of Taiwan (台灣銀行), the Cathay United Bank (國泰世華), the Shin Kong Bank (新光銀行), DBS (星展銀行), Citibank, and HSBC.
Rent an office
When looking for a office in Taiwan, we should notice:
Registered address vs the place of operation
A company is required to register and disclose its place of operation to the public. Therefore, if, for any reason, a company registers with a “virtual address” and operates at another place, the tax office would pay more attention to the company.
Land use zoning
The place of operation should comply with regulations of land use zoning. Therefore, we suggest to check the address before signing the leasing contract.
Withholding tax and supplementary national health insurance premium
When discussing rental with the landlord, related association due, tax and government fees should be clarified.
Time to sign the leasing agreement
The registered address is not required when applying for investment approval. Therefore, we don’t need to sign the leasing agreement until the last step of registering the company.