1. Openness To, and Restrictions Upon, Foreign 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 private investment. Despite the global economic recession caused by the COVID-19 pandemic, Taiwan’s domestic private investment registered 19 percent y-o-y growth in 2021 due to continuous reshoring of investment by overseas Taiwan companies since late 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, technology industrial zones, and free trade zones aims 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 manufacturing sector. In January 2019, Taiwan launched a reshoring incentive program to attract Taiwan firms operating in the PRC to return to Taiwan.
Thus far, Taiwan has received favorable responses from Information Communication Technology (ICT) manufacturers. 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 and employee recruitment services. For investments over US $17.6 million (New Taiwan Dollar NTD 500 million), Taiwan authorities will assign a dedicated project manager for the investment process. DOIS services are available to all foreign investors. The Center’s website contains an online investment aid system (https://investtaiwan.nat.gov.tw/smartIndexPage?lang=eng ) to help investors retrieve all the required application forms based on various investment criteria and types.
Taiwan also passed the Foreign Talent Retention Act to attract foreign professionals using relaxed visa and work permit issuance process and tax incentives. As of December 2021, 3,927 foreigners received the Taiwan Employment Gold Card, a government initiative to attract highly skilled foreign talent to Taiwan (https://goldcard.nat.gov.tw/en/ ). The Taiwan Employment Gold Card also includes a residency permit for the applicant and his/her immediate relatives (parents, spouse, children), a work permit for three years, an alien resident certificate, and a re-entry permit. The Employment Gold Card policy helped alleviate recruiting companies’ liability in work permit applications and associated administrative expenditures. The MOEA is also in the process of drafting a proposed amendment to the Statute for Investment by Foreign Nationals, which would replace the existing pre-approval investment review process with an ex-post reporting mechanism and strengthen investment screening in industries of national security concern.
Taiwan maintains a negative list of industries closed to foreign investment in sectors related 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=.
The Taiwan authorities actively promote a “5+2 Innovative Industries” and six strategic industries development program to accelerate industrial transformation. Target industries under this campaign include smart machinery, biomedicine, IoT, green energy, national defense, advanced agriculture, circular economy, and semiconductors. The Taiwan authorities also offer subsidies for the research and development expenses for partnerships with foreign firms. Taiwan’s central authorities take a cautious approach to approving foreign investment in innovative industries that utilize new and potentially disruptive business models, such as the sharing economy.
Taiwan’s authorities regularly meet with foreign business groups. For example, Taiwan’s National Development Council (NDC) meets with the American Chamber of Commerce in Taiwan (AmCham Taiwan) to discuss AmCham Taiwan’s annual White Paper. Some U.S. investors have expressed concerns about a lack of transparency, consistency, and predictability in the investment review process, particularly regarding private equity investment transactions. U.S. investors claim to experience lengthy review periods for private equity transactions that involve redundant inquiries from the MOEA Investment Commission and its constituent agencies. Some U.S. investors report that public hearings convened by Taiwan regulatory agencies about specific private equity transactions appear to promote 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 that opposed specific transactions.
Foreign entities are entitled to establish and own business enterprises and engage in all forms of remunerative activity, similar with local firms, unless otherwise specified in relevant regulations. Taiwan sets foreign ownership limits in certain industries, such as a 60 percent limit on foreign ownership of wireless and fixed-line telecommunications firms, including a direct foreign investment limit of 49 percent in that sector. State-controlled Chunghwa Telecom, which controls 92 percent of the fixed-line telecom market, maintains a 49 percent limit on direct foreign investment and a 60 percent limit on overall foreign investment, including indirect ownership. There is a 20 percent limit on foreign direct investment in cable television broadcasting services, but foreign ownership of up to 60 percent is allowed through indirect investment via a Taiwan entity. However, 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. These foreign ownership limits also apply to all public switched telecommunications resources (“PSTN”) that use telecommunications resources. 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 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 with the PRC were halted in 2016.
Taiwan’s 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 US $17.6 million (NTD 500 million), obtain approval at the Investment Commission staff level within two to four days. Investments between US $17.6 million (NTD 500 million) and US $53 million (NTD 1.5 billion) in capital take three to five days to screen. The approval authority for these types of transactions 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. Final approval rests with 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 investment screening process provides Taiwan’s regulatory agencies opportunities to attach conditions to investments 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 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 participates in every investment review meeting regardless of the size of the investment. Blocked deals in recent years reflected the authorities’ increased focus on national security concerns beyond the negative-list industries. Taiwan authorities also review proposals to prevent illegal PRC investment via third-areas or through dummy accounts.
Foreign investors must submit an application form containing their 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.
Taiwan has been a member of the World Trade Organization (WTO) since 2002. In September 2018, the WTO conducted the fourth review of Taiwan’s trade policies and practices. Related reports and documents are available at: https://www.wto.org/english/tratop_e/tpr_e/tp477_crc_e.htm
MOEA took steps to improve the business registration process, including finalizing amendments to the Company Act to make business registration more efficient. Since 2014, Taiwan shortened the application review period for company registration to two days. 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 for approval within five to seven business days. Since January 2017, MOEA’s Central Region Office processes foreign investors’ company registration applications.
In recent years, the Taiwan authorities revised rules to improve the business climate for startups. To develop Taiwan into a startup hub in Asia, Taiwan authorities launched an entrepreneur visa program to permit foreign entrepreneurs to remain in Taiwan if they meet one of the following requirements: raise at least US $70,400 (NTD 2 million) in funding, hold patent rights or a professional skills certificate; operate in an incubator or innovation park in Taiwan; win prominent startup or design competitions, or receive grants from the Taiwan authorities. Since in 2019, startup entrepreneurs – including foreign investors – can use intellectual property (IP) as collateral to obtain bank loans. In July 2021, the Taiwan authorities further introduced additional tax and social security measures to attract foreign professionals to Taiwan.
Further details about Taiwan’s business registration process can be found in Invest Taiwan Center’s business one-stop service request website at https://onestop.nat.gov.tw/oss/web/Show/engWorkFlowEn.do . The Investment Commission website lists the rules, regulations, and required forms for seeking foreign investment approval: https://www.moeaic.gov.tw/businessPub.view?lang=en&op_id_one=1
Approval from the Investment Commission is required for foreign investors before proceeding with business registration. After receiving an approval letter from the Investment Commission, an investor can apply for capital verification and 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 recruiting employees.
For the manufacturing, construction, and mining industries, the MOEA defines small and medium-sized enterprises (SMEs) as companies with less than US $2.8 million (NTD 80 million) of paid-in capital and fewer than 200 employees. For all other industries, SMEs are defined as having less than US $3.5 million (NTD 100 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. Firms established by foreigners in Taiwan may receive a guarantee from the Fund. Taiwan’s National Development Fund has set aside NTD 10 billion (US $350 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. Since rising trade tensions between the United States and the PRC in 2018, the Taiwan authorities have intensified their efforts to assist Taiwan firms to diversify production by either relocating back to Taiwan or to other markets, including in Southeast Asia. The Tsai administration launched the New Southbound Policy to enhance Taiwan’s economic engagement with 18 countries in Southeast Asia, South Asia, and the Pacific. In 2021, Taiwan companies’ investment in the 18 countries totaled US $5.8 billion. 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. Taiwan’s financial regulators have urged Taiwan banks to expand their presence in Southeast Asian economies either by setting up branches or acquiring subsidiaries.
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 to invest in or have any technology-oriented cooperation with the PRC. The Taiwan authorities maintain a negative list for Taiwan firms’ investment and have special rules governing technology cooperation in the PRC. The Taiwan authorities, Taiwan companies, and foreign investors in Taiwan are increasingly vigilant about the threat of IP theft and illegal talent poaching in key strategic industries, such as the semiconductor industry.
6. Financial Sector
Taiwan authorities welcome foreign portfolio investment in the Taiwan Stock Exchange (TWSE), with foreign investment accounting for approximately 43.5 percent of TWSE capitalization in 2021. Taiwan allows the establishment of offshore banking, securities, and insurance units to attract a broader investor base. The FSC utilizes a negative list approach to regulating local banks’ overseas business not involving the conversion of the NTD.
Taiwan’s capital market is mature and active. At the end of 2021, 959 companies were listed on the TWSE, with a total market value of US $2.2 trillion (including transactions of stocks, Taiwan Depository Receipts, exchange-traded funds, and warrants). Foreign portfolio investors are not subject to a foreign ownership ceiling, except in certain restricted companies, and are not subject to any ceiling on portfolio investment. The turnover ratio in the TWSE rose to 205.3 percent in 2021 as the TWSE Capitalization Weighted Stock Index (TAIEX) soared 23.7 percent in 2021. Payments and transfers resulting from international trade activities are fully liberalized in Taiwan. A wide range of credit instruments, all allocated on market terms, is available to domestic- and foreign-invested firms alike.
Taiwan’s banking sector is healthy, tightly regulated, and competitive, with 39 banks including three online-only banks servicing the market. The sector’s non-performing loan ratio has remained below 1 percent since 2010, with a sector average of 0.17 in December 2021. Capital-adequacy ratios (CAR) are generally high, and several of Taiwan’s leading commercial lenders are government-controlled, enjoying implicit state guarantees. The sector had a CAR of 14.82 percent as of September 2021, far above the Basel III regulatory minimum of 10.5 percent required by 2019. Taiwan banks’ liquidity coverage ratio, which was required by Basel III to reach 100 percent by 2019, averaged 134.2 percent in September 2021. Taiwan’s banking system is primarily deposit-funded and has limited exposure to global financial, wholesale markets. Regulators have encouraged local banks to expand to overseas markets, especially in Southeast Asia, and minimize exposure in the PRC. Taiwan Central Bank statistics show that Taiwan banks’ PRC net exposure on an ultimate risk basis was USD 70.8 billion in the third quarter of 2021, trailing the United States’ USD 110.2 billion. Taiwan’s largest bank in terms of assets is the wholly state-owned Bank of Taiwan, which had USD 198.2 billion of assets as of December 2021. Taiwan’s eight state-controlled banks (excluding the Export and Import Bank) jointly held nearly US $1,015.6 billion, or 48 percent of the banking sector’s total assets.
The Taiwan Central Bank operates as an independent agency and state-owned company under the Executive Yuan, free from political interference. The Central Bank’s mandates are to maintain financial stability, develop Taiwan’s banking business, guard the stability of the NTD’s external and internal value, and promote economic growth within the scope of the three aforementioned goals.
Foreign banks are allowed to operate in Taiwan as branches and foreign-owned subsidiaries, but financial regulators require foreign bank branches to limit their customer base to large corporate clients. Foreigners holding a valid visa entering Taiwan are allowed to open an NTD account with local banks with passports and an ID number issued by the immigration office. Please refer to the Taiwan Bankers’ Association’s webpage: https://www.ba.org.tw/PublicInformation/BusinessDetail/10?returnurl=%2F for detailed information regarding various types of bank services for foreigners in Taiwan.
Taiwan does not have a sovereign wealth fund, although the American business community continues to advocate for one. Taiwania Capital Management Company, a partially government-funded investment company, was established in October 2017 to promote investment in innovative and other target industries. As of August 2021, Taiwania raised US $490 million for four funds investing in IoT, biotech, digital health, and early startups in automation, 5G and networking, and advanced manufacturing.
8. Responsible Business Conduct
The Taiwan public has high expectations for and is sensitive to responsible business conduct (RBC), in part due to concerns about such issues as food safety and environmental pollution. Taiwan authorities actively promote RBC. MOEA and the FSC issued guidelines on ethical standards and internal control mechanisms to urge businesses to take responsibility for the impact of their activities on the environment, consumers, employees, and communities. Although not a member of the United Nations, Taiwan pledged on its own initiative to uphold international human rights conventions. In December 2020, Taiwan’s Cabinet released the National Action Plan on Business and Human Rights (NAP) in an aim to provide better protections for human rights in the workplace. Taiwan’s labor law provides a minimum age for employment of 15 but has an exception for work by children younger than 15 if they have completed junior high school and the competent authorities have determined the work will not harm the child’s mental and physical health. The law prohibits children younger than 18 from doing heavy or hazardous work. Working hours for children are limited to eight hours per day, and children may not work overtime or on night shifts. There is no reported RBC related to forced labor or child labor issues.
The TWSE conducts an annual review of the corporate governance performance of all publicly listed companies. To promote more profit-sharing with employees, Taiwan’s Securities and Futures Act mandates that all publicly listed companies establish a compensation committee. In November 2018, the Act was amended to require all publicly listed companies to disclose average employee compensation and wage adjustment information. Taiwan Depository & Clearing Corporation, a government-run securities depository of Taiwan, in 2020 launched Taiwan ESG Dashboard to encourage sustainable investing and enhance companies’ performance on ESG issues. In 2021, 30 Taiwan companies were included in the Dow Jones Sustainability World Index. Taiwan ranks fourth among 12 Asian markets in the Corporate Governance Watch 2020 report, behind only Australia, Hong Kong, and Singapore. There are also independent NGOs and business associations promoting or monitoring RBC in Taiwan.
In August 2020, the FSC announced that it will implement the “Corporate Governance 3.0–Sustainable Development Roadmap” for the TWSE listed companies. All TWSE-listed companies are required to appoint a chief corporate governance officer. They must complete the carbon footprint verification and disclosure by 2027, and all the certification by 2029. Starting in January 2022, 42 listed petrochemical companies and 44 financial institutions were required to obtain third-party assurance for sustainability reporting. The FSC also mandates greenhouse gas emissions disclosure in annual reports beginning in 2023 for all steel and cement companies, as well as listed companies with paid-in capital of over US $360 million (NTD 10 billion).
Taiwan does not participate in the Extractive Industries Transparency Initiative. Taiwan authorities encourage Taiwan firms to adhere to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas, and many Taiwan-listed companies have voluntarily enclosed conflict minerals free statement in their annual social responsibility reports. Taiwan has a private security industry. Taiwan is not a signatory of The Montreux Document on Private Military and Security Companies, nor a participant in the International Code of Conduct for Private Security Service Providers’ Association (ICoCA.)
Taiwan’s Greenhouse Gas Reduction and Management Act in 2015 includes long-term reduction goals in its official legislation to combat climate change and maps out general guidelines in the 2017 National Climate Change Action Guidelines for greenhouse gas mitigation and climate change adaptation. Taiwan has a national strategy to protect biodiversity and maintain sustainable ecosystems. Taiwan established a national ecological network in 2018 and compiled ecological survey data over the past five years to identify key biodiversity areas and promote ecofriendly land production. The Cabinet is amending the ‘Greenhouse Gas Reduction and Management Act’ into the ‘Climate Change Response Act (CCRA)” and will strengthen climate management by appointing cabinet-level authorities to enhance Taiwan’s overall capacities for climate change mitigation through emission controls and incentive mechanisms to facilitate carbon reduction and adopting a carbon pricing mechanism with levies on Taiwan’s carbon-intensive emitters and imported commodities.
Taiwan authorities are in discussion with industry and business to promote voluntary greenhouse gas emissions reduction, decarbonized energy systems, higher energy efficiency in industry, green transportation and negative emissions technologies to achieve relevant targets/goals. The Taiwan Alliance for Net-Zero Emissions, a group comprised of local traditional manufacturing, technology, finance, and service industries, supports Taiwan authorities’ efforts to attain net-zero carbon emissions at office sites by 2030 and production sites by 2050. Another consortium, the Taiwan Climate Alliance, formed by eight ICT companies in Taiwan, plans to use 100 percent renewable energy in their manufacturing processes by 2050.
Taiwan’s Environmental Protection Administration (TEPA) adopted a carbon emission offset program in 2015. TEPA initiated a Green Mark product labeling as a voluntary scheme of environmental performance certification in Taiwan beginning from 1992. In 2011, TEPA mandated the post-market verification for green products. Subsidies are also available for renewable energy-use generators. TEPA also subsidizes new motorcycles to phase out motorcycles made before June 2007.
Taiwan’s Government Procurement Act authorizes central and local authorities and other public institutions to give preference in tenders to products with a government-approved eco-label, as well as those that increase social benefits or reduce social costs. Taiwan central authorities set annual green procurement targets and require that the public sector procurement prioritizes environmentally friendly products. Since the program started in 2012, Taiwan’s green procurement rate increased from 30 percent to 95 percent.
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- Country Reports on Human Rights Practices;
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- Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
- U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
- Xinjiang Supply Chain Business Advisory
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Taiwan implemented laws, regulations, and penalties to combat corruption, including in public procurement. The Act on Property Declaration by Public Servants mandates annual property declaration for senior public services officials and their immediate family members. In 2021, the Control Yuan discovered 29 violations and imposed a total of US $485,000 in fines. The Corruption Punishment Statute and Criminal Code contain specific penalties for corrupt activities, including maximum jail sentences of life in prison and a maximum fine of up to NTD 100 million (US $3.5 million). Laws provide for increased penalties for public officials who fail to explain the origins of suspicious assets or property. The Government Procurement Act and the Act on Recusal of Public Servants Due to Conflict of Interest both forbid incumbent and former procurement personnel and their relatives from engaging in related procurement activities. Although not a UN member, Taiwan voluntarily adheres to the UN Convention against Corruption and published its first country report in March 2018.
Guidance titled Ethical Corporate Management Best Practice Principles for all publicly listed companies was revised in November 2014. It asks publicly listed companies to establish an internal code of conduct and corruption-prevention measures for activities undertaken with government employees, politicians, and other private sector stakeholders. The Ministry of Justice is drafting a Whistle Blowers Protection Act to effectively combat illegal behaviors in both government agencies and the private sector. The Anti-money Laundering Act implemented June 2017 requires the mandatory reporting of financial transactions by individuals listed in the Standards for Determining the Scope of Politically Exposed Persons Entrusted with Prominent Public Function, Their Family Members and Close Associates, and by the first-degree lineal relatives by blood or by marriage; siblings, spouse and his/her siblings, and the domestic partner equivalent to a spouse of these politically exposed individuals. The U.S. government is not aware of cases where bribes have been solicited for foreign investment approval.
10. Political and Security Environment
Taiwan is a young and vibrant multi-party democracy. The transitions of power in both local and presidential elections have been peaceful and orderly. There are no recent examples of politically motivated damage to foreign investment.