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Set up a company

Overview

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:

Step
Procedures
Foreign Investors Excluding Mainland China, Hong Kong, and Macau InvestorsHong Kong and Macau InvestorsMainland China Investors
1Reserve the Chinese name in Taiwan1~3 days1~3 days1~3 days
2Sign and notarize the Power of Attorney (POA) in front of local Notary Public, and then have the POA apostiled by local government agency/courtDepends on the investorsDepends on the investorsDepends on the investors
3Legalize/authenticate the POA in Taiwan consular in that countryDepends on the investorsDepends on the investorsDepends on the investors
4Apply for investment approval2~3 weeks1~2 months3~6 months
5Open a preparatory bank account in TaiwanDepends on the investorsDepends on the investorsDepends on the investors
6Remit the capital from the foreign parent company to the new bank accountDepends on the investorsDepends on the investorsDepends on the investors
7Inform Taiwan government to check the capital2~3 weeks2~3 weeks2~3 weeks
8Company registration1~3 days1~3 days1~3 days
Total4~6 weeks2~3 months3~6 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.

example

Business scope

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.

Capital amount

Threshold

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.
Capital size

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.

Capital verification

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.

Tax treatment

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.

NOSubsidiary CompanyBranchPartnershipRepresentative Office
1Taiwan eneity’s legal statusA legal personNot a legal person and belongs to the foreign headquarterNot a legal person and belongs to the foreign individualNot a legal person and belongs to the foreign headquarter
2Foreign investor’s financial responsibility in TaiwanLimited liabilityJoint liabilityJoint liabilityJoint liability
3Permitted ActivitiesBusiness activitiesBusiness activitiesBusiness activitiesLiaison only
4Corporate Income Tax20%20%20%No business activities and profits
5Withholding tax on profits distributed to foreign investors21%Not applicable21%No business activities and profits
6Additional income tax on undistributed profit5%Not applicableNot applicableNo business activities and profits
7Tax incentive for R&D expensesQualified to applyNot qualified to applyNot qualified to applyNo business activities and profits
8Government subsidy for startupsUsually qualified to applyUsually not qualified to applyUsually not qualified to applyNo business activities and profits
9Periodic Report of ShareholdingRequiredNot applicableNot applicableNot 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:

OrderProcedureProcessor
Purpose
Wording
1NotarizeLocal Notary PublicCertify 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.
2ApostilleLocal government agencyCertify the local Notary Public's signature is true and effectiveThis public document has been signed by *** acting in the capacity of Notary Public...
3LegalizeTaiwan consulate in the countryCertify the local government agency's signature is true and effectiveEmbassy 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:

ItemDetails
1. Background1.1 Disclosure of UBO
1.2 Date of incorporation
2. Operation2.1 Products or services
2.2 Number of employees
3. Source of funding3.1 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 Taiwan4.1 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.