Taiwan is an important market in regional and global trade and investment. It is one of the world’s top 25 economies in terms of gross domestic product (GDP) and was the United States’ 11th largest trading partner in 2018. An export-dependent economy of 23 million people with a highly skilled workforce, Taiwan is also a key link in global supply chains, a central hub for shipments and transshipments in East Asia, and a major center for advanced research and development (R&D).
Taiwan welcomes and actively courts foreign direct investment (FDI) and partnerships with U.S. and other foreign firms. The administration of President Tsai Ing-wen has aimed to promote economic growth in part by increasing domestic investment and FDI. The authorities offer investment incentives and seek to leverage Taiwan’s strengths in advanced technology, manufacturing, and R&D. Plans for expanded investment by the central authorities in physical and digital infrastructure across Taiwan complement this investment promotion strategy. The authorities convene an interagency monthly meeting to address common investment issues, such as land scarcity. Some Taiwan and foreign investors regard Taiwan as a strategic relocation alternative to insulate themselves against potential supply chain disruptions resulting from regional trade frictions.
The finance, wholesale and retail, and electronics sectors remain top targets of inward FDI, although Taiwan attracts a wide range of U.S. investors, including in advanced technology, digital, traditional manufacturing, and services sectors. The United States is Taiwan’s second largest single source of FDI after the Netherlands, through which some U.S. firms choose to invest. In 2017, according to U.S. Department of Commerce data, the total stock of U.S. FDI in Taiwan reached USD 17.0 billion. U.S. services exports to Taiwan totaled USD 10 billion in 2018.
Structural impediments in Taiwan’s investment environment include: excessive or inconsistent regulation; market influence exerted by domestic and state-owned enterprises (SOEs) in the utilities, energy, postal, transportation, financial, and real estate sectors; foreign ownership limits in sectors deemed sensitive; and regulatory scrutiny over the possible participation of People’s Republic of China (PRC)-sourced capital. Taiwan has among the lowest levels of private equity investment in Asia, although private equity firms are increasingly pursuing opportunities in the market. Foreign private equity firms have expressed concern about a lack of transparency and predictability in the investment approvals and exit processes, as well as regulators’ reliance on administrative discretion in rejecting some transactions. These challenges are especially apparent in sectors deemed sensitive for national security reasons but that allow foreign ownership. Businesses have questioned the feasibility of Taiwan’s long-term energy policy in light of plans to phase out nuclear power by 2025 and increase use of fossil fuels and renewables.
The Taiwan authorities have introduced new rules to help establish a modern regulatory framework for a thriving digital economy, but their reluctance to accommodate certain new business models, such as sharing economy platforms, presents a stark contrast to Taiwan’s efforts to position itself as a global innovation hub. Taiwan in late 2016 implemented new rules mandating a 60-day public comment period for draft laws and regulations emanating from regulatory agencies, but the new rules have not been consistently applied. Proposed amendments to foreign investment regulations, if passed, would help promote inward investment through streamlined reporting and approval procedures.
Table 1: Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||31of 180||https://www.transparency.org/country/TWN|
|World Bank’s Doing Business Report||2019||13 of 190||http://www.doingbusiness.org/en/data/exploreeconomies/taiwan-china|
|Global Innovation Index||2018||N/A|
|U.S. FDI in partner country ($M USD, stock positions)||2017||USD 8,058||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2018||N/A||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Promoting inward FDI has been an important policy goal for the Taiwan authorities because of Taiwan’s self-imposed public debt ceiling that limits public spending and its low levels of domestic private investment, which grew by 1.46 percent in 2018. Taiwan has pursued various measures to attract FDI from both foreign companies and Taiwan firms operating overseas. A network of science and industrial parks, export processing zones, and free trade zones aim to expand trade and investment opportunities by granting tax incentives, tariff exemptions, low-interest loans, and other favorable terms. Incentives tend to be more prevalent for investment in the traditional manufacturing sector. The Ministry of Economic Affairs (MOEA) Department of Investment Services (DOIS) Invest in Taiwan Center serves as Taiwan’s investment promotion agency and provides streamlined procedures for foreign investors, including single-window services and employee recruitment. For investments of over NTD 500 million (USD 17 million), the authorities will assign a dedicated project manager to the investment process. DOIS services are available to all foreign investors. The Centre’s website contains an online investment aid system (at https://investtaiwan.nat.gov.tw/smartIndexPage?lang=eng) to help investors retrieve all the required applications forms based on various investment criteria and types. Taiwan also passed the Foreign Talent Retention Act to attract foreign professionals with a relaxed visa and work permit issuance process as well as tax incentives. The proposed amendments to the Statute for Investment by Foreign Nationals, which was under priority consideration by the Legislative Yuan in the first half of 2019, would replace the existing pre-approval investment review process with an ex-post reporting mechanism.
Taiwan maintains a negative list of industries closed to foreign investment for reasons the authorities assert relate to national security and environmental protection, including public utilities, power distribution, natural gas, postal service, telecommunications, mass media, and air and sea transportation. These sectors constitute less than one percent of the production value of Taiwan’s manufacturing sector and less than five percent of the services sector. Railway transport, freight transport by small trucks, pesticide manufactures, real estate development, brokerage, leasing, and trading are open to foreign investment. The negative list of investment sectors, last updated in February 2018, is available at http://www.moeaic.gov.tw/download-file.jsp?do=BP&id=ZYi4SMROrBA= .
To accelerate industrial transformation that would boost both domestic demand and external market expansion, the authorities have been actively promoting the “5+N Innovative Industries” development program targeting industries including smart machinery, biomedicine, Internet of Things (IoT), green energy, and national defense, as well advanced agriculture, circular economy, and semiconductors, among other key industries. Taiwan authorities also offer subsidies for the research and development expenses for Taiwan-foreign partnership projects. The central authorities take a cautious approach to approving foreign investment in innovative industries that utilize new and potentially disruptive business models, such as in the sharing economy. Investors have reported that investments in the sharing economy have been approved without clear regulatory frameworks in place, generating regulatory and political difficulties and, in some cases, targeted legislation and regulations regarded as highly punitive or restrictive in ways that harm the viability of such business models in Taiwan.
The American Chamber of Commerce in Taipei meets regularly with Taiwan agencies such as the National Development Council (NDC) to promote resolution of concerns highlighted in the Chamber’s annual White Paper. The authorities also regularly meet with other foreign business groups. Some U.S. investors have expressed concerns about a lack of transparency, consistency, and predictability in the investment review process, particularly with regard to transactions involving private equity investment. Current guidelines on foreign investment state that private equity investors seeking to acquire companies in “important industries” must provide, for example, a detailed description of the investor’s long-term operational commitment, relisting choices, and the investment’s impact on competition within the sector. U.S. investors have claimed to experience lengthy review periods for private equity transactions and redundant inquiries from the MOEA Investment Commission and its constituent agencies. Some report that public hearings convened by Taiwan regulatory agencies about specific private equity transactions have appeared designed to advance opposition to private equity rather than foster transparent dialogue. Private equity transactions and other previously approved investments have, in the past, attracted Legislative Yuan scrutiny, including committee-level resolutions opposing specific transactions.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign entities are entitled to establish and own business enterprises and engage in all forms of remunerative activity as local firms unless otherwise specified in relevant regulations. Taiwan sets foreign ownership limits in certain industries, such as a 60 percent limit on direct foreign ownership of wireless and fixed line telecommunications firms, and a 49 percent limit on direct foreign investment in that sector. State-controlled Chunghwa Telecom, which controls 97 percent of the fixed line telecom market, maintains a 49 percent limit on direct foreign investment and a 55 percent limit on indirect foreign investment. There is a 20 percent limit on foreign direct investment in cable television broadcasting services, and foreign ownership of up to 60 percent is allowed through indirect investment via a Taiwan entity, although in practice this kind of investment is subject to heightened regulatory and political scrutiny. In addition, there is a foreign ownership limit of 49.99 percent for satellite television broadcasting services and piped distribution of natural gas, and a 49 percent limit for high-speed rail services. The foreign ownership cap on airport ground services firms, air-catering companies, aviation transportation businesses (airlines), and general aviation businesses (commercial helicopters and business jet planes) is less than 50 percent, with a separate limit of 25 percent for any single foreign investor. Foreign investment in Taiwan-flagged merchant shipping services is limited to 50 percent for Taiwan shipping companies operating international routes.
Taiwan has gradually eased restrictions on investments from the PRC since 2009. Taiwan has opened more than two-thirds of its aggregate industrial categories to PRC investors, with 97 percent of manufacturing sub-sectors and 51 percent of construction and services sub-sectors open to PRC capital. PRC nationals are prohibited from serving as chief executive officer in a Taiwan company, although a PRC board member may retain management control rights. The Taiwan authorities regard PRC investment in media or advanced technology sectors, such as semiconductors, as a national security concern. The Cross-Strait Agreement on Trade in Services and the Cross-Strait Agreement on Avoidance of Double Taxation and Enhancement of Tax Cooperation were signed in 2013 and 2015, respectively, but have not taken effect. Negotiations on the Agreement on Trade in Goods halted in 2016.
The Investment Commission screens applications for FDI, mergers, and acquisitions. Taiwan authorities claim that 95 percent of investments not subject to the negative list and with capital less than New Taiwan Dollars (NTD) 500 million (USD 17 million) obtain approval at the Investment Commission staff-level within two to four days. Investments between NTD 500 million (USD 17 million) and NTD 1.5 billion (USD 51 million) in capital take three to five days to screen, and the approval authority rests with the Investment Commission’s executive secretary. For investment in restricted industries, in cases where the investment amount or capital increase exceeds NTD 1.5 billion, or for mergers, acquisitions, and spin-offs, screening takes 10 to 20 days and includes review by relevant supervisory ministries and final approval from the Investment Commission’s executive secretary. Screening for foreign investments involving cross-border mergers and acquisitions or other special situations takes 20-30 days, as these transactions require interagency review and deliberation at the Investment Commission’s monthly meeting.
The screening process provides Taiwan’s regulatory agencies opportunities to attach conditions to investments in order to mitigate concerns about ownership, structure, or other factors. Screening may also include an assessment of the impact of proposed investments on a sector’s competitive landscape and protection of the rights of local shareholders and employees. Screening is also used to detect investments with unclear funding sources, especially PRC-sourced capital. To ensure monitoring of PRC-sourced investment in line with Taiwan law and public sentiment, Taiwan’s National Security Bureau has participated in every investment review meeting since April 2014, regardless of the size of the investment. Blocked deals in recent years have reflected the authorities’ increased focus on national security concerns beyond the negative-list industries. The proposed revisions to the main investment statute would, if passed, allow the authorities to apply political, social, and cultural sensitivity considerations in their investment review process.
Foreign investors must submit an application form containing the funding plan, business operation plan, entity registration, and documents certifying the inward remittance of investment funds. Applicants and their agents must provide a signed declaration certifying that any PRC investors in a proposed transaction do not hold more than a 30 percent ownership stake and do not retain managerial control of the company. When an investment fails review, an investor may re-apply when the reason for the denial no longer exists. Foreign investors may also petition the regulatory agency that denied approval, or may appeal to the Administrative Court.
Other Investment Policy Reviews
Taiwan has been a member of the World Trade Organization (WTO) since 2002. In September 2018, the WTO conducted the fourth review of the trade policies and practices of Taiwan. Related reports and documents are available at:
The Organization for Economic Cooperation and Development (OECD) and United Nations Conference on Trade and Development (UNCTAD) have not conducted investment policy reviews of Taiwan.
MOEA has taken steps to improve the business registration process and has been finalizing amendments to the Company Act to make business registration more efficient. Since 2014, the company registration application review period has been shortened to two days, while applications for a taxpayer identification number, labor insurance (for companies with five or more employees), national health insurance, and pension plans can be processed at the same time and granted decisions within five to seven business days. Since January 1, 2017, foreign investors’ company registration applications are processed by the MOEA’s Central Region Office.
In recent years, the Taiwan authorities revised rules to improve the business climate for startups. With the goal of developing Taiwan into a startup hub in Asia, Taiwan launched an entrepreneur visa program allowing foreign entrepreneurs to remain in Taiwan if they raise at least NTD 2 million (USD 66,000) in funding. Taiwan has initiated rules to enable IP rights (IPR) holders to use intellectual property (IP) as collateral in obtaining bank loans, and this and other rules apply to foreign investors.
Approval from the Investment Commission is required before proceeding with business registration. After receiving an approval letter from the Investment Commission, an investor can apply for capital verification and may then file an application for a corporate name and proceed with business registration. The new company must register with the Bureau of Labor Insurance and the Bureau of National Health Insurance before it may start recruiting and hiring employees.
For the manufacturing, construction, and mining industries, the MOEA defines small and medium-sized enterprises (SMEs) as companies with less than NTD 80 million (USD 2.5 million) of paid-in capital and fewer than 200 employees. For all other industries, SMEs are defined as having less than NTD 100 million (USD 3.1 million) of paid-in capital and fewer than 100 employees. Taiwan runs a Small and Medium Enterprise Credit Guarantee Fund to help SMEs obtain financing from local banks. Foreign firms may pay a fee to obtain a guarantee from the Fund. Taiwan’s National Development Fund has set aside NTD 10 billion (USD 330 million) to invest in SMEs.
The PRC used to be the top destination for Taiwan companies’ overseas investment given the low cost of factors of production there, such as wages and land. In recent years, however, the authorities have begun assisting Taiwan firms in relocating to lower-cost markets, including in Southeast Asia. Taiwan’s financial regulators have urged Taiwan banks to expand their presence in Southeast Asian economies either by setting up branches or by acquiring subsidiaries. The administration of President Tsai Ing-wen launched the New Southbound Policy to enhance Taiwan’s economic connection with 18 countries in Southeast Asia, South Asia, and the Pacific. The Taiwan authorities seek investment agreements with these countries to incentivize Taiwan firms’ investment in those markets. Invest Taiwan Center provides consultation and loan guarantee services to Taiwan firms operating overseas.
According to the Act Governing Relations between the People of the Taiwan Area and the Mainland Area, all Taiwan individuals, juridical persons, organizations, or other institutions must obtain approval from the Investment Commission in order to invest in or have any technology-oriented cooperation with the PRC. The authorities maintain a negative list for Taiwan firms’ investment in the PRC. The central authorities, Taiwan companies, and foreign investors in Taiwan are increasingly vigilant about the threat of IP theft in key strategic industries, such as the semiconductor industry.
2. Bilateral Investment Agreements and Taxation Treaties
Taiwan has concluded economic cooperation (free trade) agreements with El Salvador, Guatemala, Honduras, Nicaragua, Panama, Singapore, and New Zealand, and has concluded 25 bilateral investment protection agreements, available at ). In December 2018, Taiwan and India signed an updated bilateral investment agreement (BIA) and a treaty to mutually recognize respective authorized economic operation (AEO) programs.
Taiwan does not have a bilateral taxation treaty with the United States. Taiwan has 32 bilateral income tax agreements in force, available online at . Agreements with Canada and Poland took effect on January 1, 2017. Taiwan signed a taxation agreement with the PRC in August 2015, but has not yet taken effect. Taiwan has reached a tax information exchange consensus with Japan, and will start exchange financial account information and country-by-country report with Japan in 2020.
Under the Taiwan Relations Act, the terms of the 1948 Friendship, Commerce, and Navigation Treaty between the Republic of China and the United States remain in force. U.S. investors are guaranteed national treatment and are provided a number of protections, including protection against expropriation. Representatives of the United States and Taiwan signed a Trade and Investment Framework Agreement (TIFA) in 1994 to serve as the basis for consultation on trade and investment issues. TIFA discussions were suspended beginning in 2008 in response to Taiwan policies affecting U.S. beef imports, but resumed in 2013. The most-recent TIFA discussions meeting was held in 2016.
With the increasing global demand for anti-tax avoidance and greater tax information transparency, Taiwan’s legislature has passed a series of anti-tax avoidance laws since 2016, aiming to establish the legal basis for the implementation of automatic exchange of financial information for tax purposes. Starting in 2019, the Taiwan authorities implemented the OECD Common Reporting Standard (CRS), with the exchange of information with foreign countries to commence in 2020. Taiwan in 2017 also passed amendments to the Income Tax Act so that a foreign profit-seeking enterprise with a place of effective management in Taiwan will be deemed a domestic tax resident subject to corporate income tax reporting.
4. Industrial Policies
The Statute for Industrial Innovation provides the legal basis for offering tax credits for companies’ R&D expenditures. MOEA also operates several R&D subsidy programs. MOEA’s target industries for investment are IoT (including Asia Silicon Valley-related investments), smart machinery, biotechnology and biopharmaceuticals, green energy, national defense, the circular economy, and agriculture. Investors can receive tax incentives for investing in free trade zones, public construction, and biotechnology or biopharmaceuticals. Investment support from the central authorities may be available for priority projects. Industrial zones, export processing zones, science parks, and local governments offer various types of subsidies, financing, and tax deductions. Investors may receive low-interest loans or subsidies for participating in industrial R&D and industry revitalization programs. R&D tax credits, equivalent to 15 percent of total R&D expenditures, are available only to companies who file corporate income taxes in Taiwan. The Act for the Recruitment and Employment of Foreign Professionals passed in October 2017 offers relaxed visa requirements and high-earner tax deductions to foreign professionals. For a detailed list of investment incentives programs, please refer to the Invest in Taiwan website at .
Foreign Trade Zones/Free Ports/Trade Facilitation
There are seven free trade/free port zones: Anping, Kaohsiung, Keelung, Suao, Taichung, Taipei, and Taoyuan International Airport. The authorities have relaxed restrictions on the movement of merchandise, capital, and personnel into and out of these zones. As part of a broader restructuring and to increase the competitiveness of Taiwan’s ports, the Ministry of Transportation and Communication established the Taiwan International Ports Corporation (TIPC) in 2012 to manage commercial activities of Taiwan’s ports and free trade zones. TIPC facilitates cooperation with foreign shipping operations and related businesses. In addition to preferential tariff and fees, the foreign labor ceiling for manufacturers in the free ports zones is 40 percent. Kaohsiung Port also serves as a London Metal Exchange (LME) delivery port of primary aluminum, aluminum alloy, copper, lead, nickel, tin, and zinc.
Performance and Data Localization Requirements
Taiwan does not mandate local employment, but the authorities have incentivized foreign companies to hire more local staff with preferential measures, such as in the mutual fund industry. Except for restricted industries on the negative list, there is no restriction on foreigners taking roles in senior management or on boards of directors. Foreign investors have long expressed concerns over difficulties in recruiting skilled executives and professionals. The Act for the Recruitment and Employment of Foreign Professionals that took effect February 2018 aims to attract foreign professionals through simplified policies regarding work, visa, and residence, and increased benefits on retirement, insurance, and tax obligations. Taiwan does not mandate any forced localization or performance requirements, and does not ask software firms to disclose their source code.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
* Source for Host Country Data: Investment Commission, Ministry of Economic Affairs
Table 3: Sources and Destination of FDI
Data not available.
Table 4: Sources of Portfolio Investment
Data not available.