There are a number of ways for foreign businesses to operate in Taiwan. Taiwan’s Company Act allows investors to set up four kinds of companies:

1. unlimited companies,
2. unlimited companies with limited liability shareholders,
3. limited companies,
4. and companies limited by shares.

Foreign investors generally choose limited companies and companies limited by shares when they set up subsidiaries in Taiwan.

The Company Act also recognizes foreign companies and allows them to set up branches and representative offices in Taiwan. There are significant tax advantages setting up a branch. As a result, it is quite common for foreign companies to set up either a branch directly under the home office or to first set up a subsidiary in a third country and then set up a Taiwan branch of that subsidiary.
In general there are no restrictions on the nationality on directors, managers, or representatives and it is not necessary for directors to have residence or work authorization in Taiwan. Certain industries do restrict nationality or cap equity and special rules apply to citizens of the People’s Republic of China.

After considering limited share companies, limited companies, branch offices, and representative offices in somewhat more detail, we briefly treat the issues of work, residence, and taxation. This discussion is only a summary and is intended to prepare a potential investor to discuss the correct choice of entity with legal and tax counsel.

Subsidiary: Company Limited by Shares

A company limited by shares is the Taiwan corporate form that most closely resembles a U.S. corporation. Shareholder liability of a company limited by shares is in principle limited to the shareholder’s investment. In 2013, however, Taiwan’s Legislative Yuan amended Article 154 of Taiwan’s Company Act. The revision makes it possible, at least in theory, for creditors to hold shareholders liable for company obligations beyond the amount of their share ownership under certain ‘serious’ circumstances. This amendment was intended to bring Taiwanese law in line with the notion of corporate veil piercing in other jurisdictions such as the United States, the United Kingdom and Germany. As of this writing however, the Taiwanese courts have not indicated what circumstances would be serious enough to justify piercing the corporate veil. Given this erosion of strict limited corporate liability, the main remaining benefit of a company limited by shares is that it is the only type of company that can go public. Requirements for a company limited by shares include the following:

1. Foreign Investment Approval from the Investment Commission of the Ministry of Economic Affairs (IC).
2. At least two individual shareholders or one corporate shareholder.
3. At least three directors and one supervisor (the supervisor has audit rights for all company affairs, financial and operational).
4. One of the directors must be appointed chairperson. The chairperson has the right to represent the company in matters involving third parties.

Shares must be issued within three months of incorporation if the capitalization is more than NT$500 million (approximately US$15 million). Share transfers are unlimited, except that promoters’ (founders) shares may not be transferred within one year of company establishment.

The minimum paid-in capital requirement was abolished in April 2009. In practice, the competent authority will approve the incorporation application if the paid-in capital is greater than the cost of establishment.

Repatriated shareholder funds must be in the form of dividends, which are taxed at a rate of 20% unless the country of the shareholder entered into double taxation agreement with Taiwan and the agreement provides a beneficial tax rate.

The corporate income tax rate is about 17% of net income.

Subsidiary: Limited Company

The form of a limited company (similar to a “closed corporation”) places restrictions on share transfers, thereby permitting certain shareholders to control the company. Requirements for a limited company include the following:

1. Foreign Investment Approval from the IC.
2. At least one individual or corporate shareholder.
3. One to three directors. A corporate shareholder may be elected as a director itself or may appoint a representative to be elected as a director.

If there is more than one director, one may be chosen as chairperson of the company, who will then be the legal representative of the company.

If no chairperson is chosen from among multiple directors, then all directors will be considered legal representatives.

A shareholder may not transfer his contribution to the capital of the company to another person(s) without the consent of a majority of all other shareholders. The directors may not, without the unanimous consent of all other shareholders, transfer their contribution to the capital of the company.

The minimum paid-in capital requirement was abolished in April 2009. In practice, the competent authority will approve the incorporation application if the paid-in capital is greater than the cost of establishment.

Repatriated shareholder funds must be in the form of dividends, which are taxed at a rate of 20% unless the country of the shareholder entered into double taxation agreement with Taiwan and the agreement provides a beneficial tax rate.

The corporate income tax rate is about 17% of net income.

Branch Office

Although technically a dependent of the foreign parent, a branch office of a foreign company is for many practical purposes an independent company. Income tax for a branch office is about 17% of net income. The major benefit of a branch, compared to establishment of a subsidiary, is that all after-tax profit may be remitted out to the parent company without additional taxes. Certain branch offices may apply for work permits for foreign nationals to act as the branch manager and/or responsible person. Some of the requirements for a branch office include the following:

1. The branch manager must have Taiwanese domicile or residence (the legal representative and the branch manager may be the same person).
2. Operating capital must be remitted before establishment.

The minimum amount of operating capital was abolished in April 2009.  One important practical consideration is that a representative of the parent company will usually need to come to Taiwan to open a preparatory account for the future branch in person.

Representative Office

While a representative office may operate in Taiwan on behalf of an overseas principal, it may not engage in profit-seeking commercial activities or act as principal in any domestic business transactions.  Representative offices may:

1. procure and inspect goods for the overseas principal,
2. sign contracts on behalf of the overseas principal,
3. bid on projects for the overseas principal,
4. and handle the principal’s legal affairs in Taiwan.

A representative office is not permitted to obtain a Uniform Invoice Number since it is not allowed to sell goods or provide services in Taiwan. Your customers in Taiwan therefore may not be willing to do business with a representative office.

Representative offices shall be registered with the Ministry of Economic Affairs.

Note that individuals signing contracts governed by Taiwanese law on behalf of the overseas principal shall be jointly and severally liable with the principal.

Residence and Work Authorization

Many companies will want to sponsor foreign nationals for work and residence authorization. For example, a company or a branch must have at least NT$500,000 in capital to sponsor a foreign national as a manager during its first year of operation. Thereafter, the company must generate at least NT$3 million in revenue to maintain the foreign manager’s work and residence rights. The capital and revenue requirements for employees are NT$5 million and NT$10 million thereafter. Representative offices can often successfully sponsor their representative in Taiwan for work and residence authorization without being held to the minimum capital or revenue requirements.

Taxation

The tax consequences of the structure will vary and effect many important commercial concerns such as how orders will be placed (i.e., by home or local entity), payment, whether royalties are involved and so on. These should be discussed carefully in the early stages of planning the investment and business.

In general, transactions in Taiwan are subject to 5% VAT including import transactions. Most Taiwanese businesses will withhold 20% from payments for services to foreign entities or natural persons for income sourced in Taiwan because the Taiwanese business can be held liable for the unpaid business income taxes of its counterpart.
Taiwan’s tax authorities will review and audit transfer pricing arrangements.

Other Concerns

The foregoing is only a summary and there are specific issues for specific industries. For example, many industries such as telecommunications, media ventures, or hotels, require special licenses. Also, it can be quite time consuming (especially from overseas) to attend to the numerous basic administrative steps of notarization and legalization of documents, company name reservation (all must have Chinese language names), opening of a bank account, obtaining a registered address and so on.

It usually helps to have someone “on the ground” to help with these since Taiwan does not have shelf corporations and it is usually not possible to operate a virtual office without physical premises. It will usually take an organized investor two or three months to set up an entity in Taiwan.