Taiwan company incorporation Q&A (2)

 

In order to promote economic development, Taiwan has been devoted to creating a friendly investment environment welcoming foreign investors to invest in Taiwan. The main laws and regulations governing foreign investments in Taiwan are the Statute for Investment by Foreign Nationals (the “Statute? and Regulations for Verification of Investment by Overseas Chinese and Foreign Nationals. In order to efficiently provide services and manage foreign investments, the government has specifically established the Investment Commission under the Ministry of Economic Affairs (http://www.moeaic.gov.tw/), which is equivalent to the Ministry of Economy, trade and Industry in Japan, as the competent authority for foreign investment matters.

 

All investments made by foreign nationals within the territory of Taiwan must comply with the provisions of the Statute and receive permission from the Investment Commission, provided that in order to establish a new subsidiary located in the Export Processing Zone or Science Park or to invest in an existing company located in these areas, a foreign national is required to obtain permission not from the Investment Commission but from the Export Processing Zone Administration or Science Park Administration of the Ministry of Economic Affairs.

 

However, according to the Regulations Governing Investment in Taiwan by the People of Mainland China, if a person, juristic person, organization or other institution of Mainland China directly or indirectly holds more than 30% of the shares of a company located in the third area (which means the area outside Taiwan and China), contributes a total amount of more than 30% of the company’s capital or has controlling power over the company (e.g., directly controls the human resources or finances of the company), then such company falls under an investor to which the Regulations Governing Investment in Taiwan by the People of Mainland China shall apply and the Statute shall not apply to investments made in Taiwan by such company.

 

Therefore, such company shall separately receive permission from the Investment Commission in accordance with the Regulations Governing Investment in Taiwan by the People of Mainland China.

 

 

According to Article 6 of the Statute, investments by foreign nationals may be made pursuant to the following methods: 
(1) cash; 
(2) machinery and equipment or raw materials for their own use; 
(3) patent rights (which is equivalent to the aggregation of patent rights, utility model rights and design rights in Japan), trademark rights, copyrights, technical know-how or other intellectual property rights; and 
(4) other property the investment in which has been approved by the competent authority.

 

 

In order to encourage foreign nationals to invest in Taiwan, the government adopts an open policy in respect to the business activities in which are allowed foreign nationals to invest in Taiwan, with a few prohibitions based on considerations of national security, public policy, social morals, and national health, or based on statutory provisions or international treaties and restrictions on certain special businesses. Therefore, according to the administrative ordinance “Negative List for Investment by Overseas Chinese and Foreign Nationals - the Prohibited or Restricted Industries,?issued pursuant to Article 7 of the Statute by the Investment Commission, business activities in which foreign nationals are prohibited or restricted to invest in are regulated by way of negative lists. The investments that are prohibited include businesses such as post delivery, broadcasting, television, etc., and the investments that are restricted refer to specific industries that require the prior permission of the relevant competent authority, such as power supply, trusts and investments, passenger car rental and leasing, insurance, etc.

 

 

The type of regulatory approval required depends on the type of business organization that the foreign national wishes to establish in Taiwan. 

(1) Where a foreign national wishes to establish a subsidiary or directly invest in an existing company 
In principle, in order to establish a subsidiary or to directly invest in an existing company, a foreign national must apply to the Investment Commission of the Ministry of Economic Affairs for investment permission. However, if the subsidiary or existing company to be invested in is located within the jurisdiction of the Export Processing Zone Administration or Science Park Administration, he/she must apply to the Export Processing Zone Administration or Science Park Administration for investment permission and is not required to obtain permission from the Investment Commission. 

(2) Where a foreign national wishes to establish a branch 
A foreign national wishing to establish a branch must apply to the Ministry of Economic Affairs for the recognition of a foreign company and registration of a branch according to Article 370 and related provisions of the Company Act, before the branch can begin its operations. 

(3) Where a foreign national wishes to appoint a representative to engage in legal acts for its business in Taiwan 
A foreign national wishing to appoint a representative to engage in legal acts for its business in Taiwan must report to the Ministry of Economic Affairs for recordation pursuant to Article 386, paragraph 1 of the Company Act. If the said representative resides in Taiwan on a regular basis, the representative’s office must be established and the foreign national must apply for recordation of the address of the office to the Ministry of Economic Affairs.

 

 

According to Article 98, paragraph 1 of the Company Act, which provides that “a limited company shall be organized by one or more shareholders,?a limited company can be established by one shareholder who wholly owns such company.

 

Moreover, according to Article 128-1, paragraph 1 of the Company Act, a company limited by shares which is established by the government or by one juristic shareholder is free from the restriction regarding the foundation of a company that “a company limited by shares shall have two or more promoters?(Article 128, paragraph 1 of the Company Act). In this regard, a company limited by shares may be established by the government or by one juristic shareholder. In addition, there are no special provisions on foreign companies with respect to the application of the aforementioned provisions. In other words, a foreign company may establish a wholly owned or share-held subsidiary in Taiwan. The functional duties and power of the shareholders’ meeting of a company limited by shares which is organized by a single government shareholder or single juristic person shareholder shall be exercised by its board of directors, to which the provisions governing shareholders’ meetings as set out in the Company Act shall not apply (Article 128-1, Paragraph 1 of the Company Act).

 

Furthermore, the directors and supervisors of the aforementioned company limited by shares are not required to be elected and may be directly appointed by the government or juristic shareholder (Article 128-1, Paragraph 2 of the Company Act).

 

 

(1) Setting up a subsidiary 

(a) Procedure: The procedure for setting up a subsidiary can be divided into five stages: 
application for registration of the company name and scope of business, application for investment permission, capital remittance, application for capital verification and company registration. 

(b) Time required for review by relevant government agency: The review of the application for registration of the company name and scope of business requires approximately four working days. The time required for the review of an application for investment permission and application for capital verification depends on the amount invested by the foreign company and the industry invested in. For an investment amount less than NT$500,000,000, the review requires approximately two to four working days. For an investment amount over NT$500,000,000, the review requires approximately three to five working days. For an investment amount over NT$1,000,000,000, the review requires approximately 14 to 30 working days. The review of company registration requires approximately four working days.

 

(2) Direct investment in existing company

 

(a) Procedure: The procedure for direct investment in an existing company can be divided into three stages-application for investment permission, capital remittance, and application for capital verification. Once this procedure is finished, if there is any change to the directors or supervisors of the company invested in, a change of registration must be applied for within 15 days. 
(b) Time required for review by the relevant government agency: The time required for the review of an application for investment permission and application for capital verification depends on the amount invested by the foreign company. For investment amount less than NT$500,000,000, the review requires approximately two to four working days. For an investment amount over NT$500,000,000, the review requires approximately three to five working days. For an investment amount over NT$1,000,000,000, the review requires approximately 14 to 30 working days.

 

(3) Setting up a foreign branch

 

(a) Procedure: The procedure for setting up a subsidiary can be divided into four stages - application for registration of the company name and scope of business, application for foreign company recognition and branch registration, capital remittance, submission of proof of capital remittance and completion of recognition and registration procedure. 
(b) Time required for review by relevant government agency: The review of the application for registration of the company name and scope of business requires approximately four working days. The review of an application for foreign company recognition and branch registration requires approximately four working days. The review of a submission of proof of capital remittance and completion of recognition and registration procedure also requires approximately four working days.

 

(4) Applying for registration of representative or representative’s office

 

(a) Procedure: Only one stage is required - application to the Ministry of Economic Affairs. 
(b) Time required for review by relevant government agency: Approximately four working days.

 

 

(1) Principle of reciprocity 

Article 18 of the Land Act provides that only those foreign nationals may acquire or create rights over land in Taiwan who are nationals of States that permit, according either to treaty or to their municipal Acts, Taiwanese nationals to enjoy the same rights in their respective countries. This provision adopts the principle of reciprocity. If the law of the foreign national’s home country permits Taiwanese nationals to acquire or create rights over land of the said country, then the nationals of that country may claim the same right in Taiwan.

 

(2) Restrictions on foreign nationals’ acquisitions of land

 

According to Article 19 of the Land Act, foreign nationals may, for self use, investment or public 
welfare, acquire land for (a) residences, (b) businesses, office buildings, shops and factories, (c) churches, (d) hospitals, (e) schools for the children of foreign nationals, (f) diplomatic and consular buildings and office buildings of organizations for the promotion of public welfare, (g) cemeteries and (h) investments helping major infrastructure projects in Taiwan, overall economic development, or agricultural and animal husbandry industries, which have been approved by the central authority in charge.

 

Specifically, the investments helping major infrastructure projects in Taiwan, overall economic development, or agricultural and animal husbandry industries mentioned in (8) means the following:

 

A. Investment in major infrastructure projects means investment in projects approved by the central government authorities concerned or reported to Executive Yuan (which is equivalent to the Cabinet in Japan) for approval. 

B. Investment in overall economic development means investments as listed below: 
(a) Development of tourist hotels, entertainment and tourist facilities, sport centers or stadiums. 
(b) Residences and buildings. 
(c) Industrial plants or factories. 
(d) Development of industrial zones, business and industry complexes, high technology scientific parks and other special zones.
(e) Tidal land. 
(f) Public infrastructure construction. 
(g) Development of new cities/towns and new communities, or urban renovation. 
(h) Other permissible investments announced by the central government authorities concerned.

 

C. Investment in agricultural and animal husbandry industries means investments that comply with the categories and criteria of technical intensive and capital-intensive agriculture specified and announced by the Council of Agriculture of the Executive.

 

(3) Procedure of acquiring land by foreign nationals