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 private investment.  Taiwan’s domestic private investment surged by 9.6 percent in 2019 due to increased reshoring 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, 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 manufacturing sector.  In January 2019, Taiwan launched a reshoring incentive program to attract Taiwan firms operating in the PRC to return to Taiwan and has received favorable responses from 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 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 MOEA is 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 screening of investment in industries of national security concerns.

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+2 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 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 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.  There are concerns that the PRC might unilaterally terminate the implementation of the Economic Cooperation Framework Agreement that was signed between the PRC and Taiwan in June 2010.

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: https://www.wto.org/english/tratop_e/tpr_e/tp477_crc_e.htm 

Business Facilitation

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 meet one of the following requirements: raise at least NTD 2 million (USD 66,000) in funding, hold patent rights or a professional skills certificate; operate in an incubator or innovation park in Taiwan; win major startup or design competitions, or receive grants from Taiwan Government.  Starting from 2019, startup entrepreneurs can use intellectual property (IP) as collateral in obtaining bank loans, and this applies to foreign investors.

Further details about business registration process can be found in Invest Taiwan Center’s business one-stop service request website at http://onestop.nat.gov.tw/oss/web/Show/engWorkFlow.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 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.  Firms established by foreigners in Taiwan may obtain a guarantee from the Fund.  Taiwan’s National Development Fund has set aside NTD 10 billion (USD 330 million) to invest in SMEs.

Outward Investment

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.  With rising trade tensions between the United States and the PRC starting in 2018, the Taiwan authorities have intensified their efforts to assist Taiwan firms to relocate back home, or to lower-cost markets, including in Southeast Asia.  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.  In 2019, Taiwan companies’ investment in the 18 countries totaled USD 2.8 billion.  The Taiwan authorities seek investment agreements with these countries to incentivize Taiwan firms’ investment in those markets.  Invest in Taiwan  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 by 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 in order 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 in key strategic industries, such as the semiconductor industry.

Transparency of the Regulatory System

Taiwan generally maintains transparent regulatory and accounting systems that conform to international standards.  Publicly listed Taiwan companies have fully adopted International Financial Reporting Standards (IFRS) since 2015, and synchronized accounting standards with IFRS 9 and IFRS 15 in 2018.  In January 2019, Taiwan adopted IFRS 16. Ministries generally originate business-related draft legislation and submit it to the Executive Yuan for review.  Following approval by the Executive Yuan, draft legislation is forwarded to the Legislative Yuan for consideration.  Legislators can also propose legislation.  While the cabinet level agencies are the main contact windows for foreign investors prior to entry, foreign investors also need to abide by local government rules including those related to transportation services and environmental protection, among others.

Draft laws, rules, and orders are published on The Executive Yuan Gazette Online for public comment.  The Taiwan authorities on December 25, 2015, first instituted a 14-day public comment period for new rules but extended it to no less than 60 days beginning December 29, 2016.  All draft regulations and laws are required to be available for public comment and advanced notice, unless they meet certain criteria allowing a shorter window.  While welcomed by the U.S. business community, the 60-day comment period is not uniformly applied.  Draft laws and regulations of interest to foreign investors are regularly shared with foreign chambers of commerce for their comments.  For the ongoing amendment to the Statute for Investment by Foreign Nationals, the authorities held several regional public hearing and professional consultations meetings before finalizing its draft for the Executive Yuan review.

These announcements are also available for public comment on the NDC’s public policy open discussion forum at https://join.gov.tw/index.  Foreign chambers of commerce and Taiwan business groups’ comments on proposed laws and regulations, as well as Taiwan ministries’ replies, are publicly posted on the NDC website.  In October 2017, the NDC launched a separate policy discussion forum specifically for startups, which can be found online at http://law.ndc.gov.tw/,  serving as the main platform to harmonizing regulatory requirements governing innovative businesses and startups operation.

The Executive Yuan Legal Affairs Committee oversees the enforcement of regulations.  Ministries are responsible for enforcement, impact analysis, draft amendments to existing laws, and petitions to laws pursuant to their individual authorities.  Impact assessments may be completed by in-house or private researchers.  To enhance Taiwan’s regulatory coherence in the wake of regional economic integration initiatives, the NDC in August 2017 released a Regulatory Impact Analysis Operational Manual as a practical guideline for central government agencies.

Taiwan regularly discloses government finance data to the public, including all debts incurred to all levels of government.  Past information is also retrievable in a well-maintained fiscal database.  Taiwan’s national statistics agency also publishes contingent debt information each year.

International Regulatory Considerations

Taiwan is not a member of any regional economic grouping.  Although Taiwan is not a member of many international organizations, it voluntarily adheres to or adopts international norms, including in the area of finance, such as IFRS.  MOEA in July 2014 notified other Taiwan agencies of the requirement to notify the WTO of all draft regulations covered by the WTO’s Agreement on Technical Barriers to Trade and the Agreement on Sanitary and Phytosanitary Measures.  Taiwan is a signatory to the Trade Facilitation Agreement (TFA) and has met some of the customs facilitation requirement specified in the TFA, such as single-window customs services and preview of the origin.  In January 2018, citing tax parity for domestic retailers and the risk of fraud, Taiwan lowered the de minimis threshold from NTD 3,000 (USD 100) to NTD 2,000 (USD 67), an approach regarded as contrary to facilitating customs clearance and trade, especially for small- and medium-sized U.S. businesses.  NDC is in the process of drafting proposed amendment to the Personal Information Protection Act and related regulations to meet the European Union’s General Data Protection Regulation (GDPR) standards and obtain adequacy status.

Legal System and Judicial Independence

Taiwan has a codified system of law.  In addition to the specialized courts, Taiwan has a three-tiered court system composed of the District Courts, the High Courts, and the Supreme Court. The Compulsory Enforcement Act provides a legal basis for enforcing the ownership of property.  Taiwan does not have discrete commercial or contract laws.  A variety of different laws regulate businesses and specific industries, such as the Company Law, the Commercial Registration Law, the Business Registration Law, and the Commercial Accounting Law. Taiwan’s Civil Code provides the basis for enforcing contracts.

Taiwan’s court system is generally viewed as independent and free from overt interference by other branches of government.  Taiwan established its Intellectual Property Court in July 2008 in response to the need for a more centralized and professional litigation system for IPR disputes.  There are also specialized divisions in the District Courts and High Courts to deal with labor disputes.  Foreign court judgments are final and binding and enforced on a reciprocal basis.  Companies can appeal regulatory decisions in the court system.

Laws and Regulations on Foreign Direct Investment

Regulations governing FDI principally derive from the Statute for Investment by Foreign Nationals and the Statue for Investment by Overseas Chinese.  These two laws permit foreign investors to transact either in foreign currency or the NTD.  The laws specify that foreign-invested enterprises must receive the same regulatory treatment accorded local firms.  Foreign companies may invest in state-owned firms undergoing privatization and are eligible to participate in publicly financed R&D programs.

Amendments the Legislative Yuan passed in June 2015 to the Merger and Acquisition Act clarified investment review criteria for mergers and acquisition transactions.  The Investment Commission is drafting amendments to the Statute for Investment by Foreign Nationals in an aim to simplify the investment review process, including an amendment that would replace a pre-investment approval requirement with a post-investment reporting system for investments under a USD 1 million threshold, which is considered too low by many stakeholders.  Ex ante approval would still be required for investments in restricted industries and those exceeding the threshold.  The new proposal would also allow the authorities to impose various penalties for violations of the law.  Guidance that previously required special consideration of the impact of a private equity fund’s investment has been folded into the set of general evaluation criteria for foreign investment in important industries.  The MOEA in November 2016 released a supplementary document to clarify required documentations for different types of investment applications.  This document, which was last revised in 2018 and in Chinese only, can be found at http://www.moeaic.gov.tw/download-file.jsp?do=BP&id=5dRl9fU97Fk= .

All foreign investment related regulations, application forms, and explanatory information can be found on the Investment Commission’s website, at http://run.moeaic.gov.tw/MOEAIC-WEB-SRC/OfimDownloadE.aspx 

The Invest in Taiwan Portal also provides other relevant legal information of interest to foreign investors, such as labor, entry and exit regulations, at https://investtaiwan.nat.gov.tw/showPageeng1031003?lang=eng&search=1031003 

Competition and Anti-Trust Laws

Taiwan’s Fair Trade Act was enacted in 1992.  Taiwan’s Fair Trade Commission (TFTC) examines business practices that might impede fair competition.  In October 2017, TFTC imposed a USD 774 million antitrust fine on a U.S. technology company.  The MOEA publicly expressed concern about the ruling’s potential impact on foreign investment.  TFTC in 2018 reached a settlement with this U.S. company, lowering its fine to USD 90 million, and the company promised to make USD 700 million investment in Taiwan.

Expropriation and Compensation

According to Taiwan law, the authorities may expropriate property whenever such a course is determined to be necessary for the public interest, such as for national defense, public works, and urban renewal projects.  The U.S. government is not aware of any recent cases of nationalization or expropriation of foreign-invested assets in Taiwan.  There are no reports of indirect expropriation or any official actions tantamount to expropriation.  Under Taiwan law, no venture with 45 percent or more foreign investment may be nationalized, as long as the 45 percent capital contribution ratio remains unchanged for a period of 20 years after the establishment of the foreign business.  Taiwan law requires fair compensation be paid within a reasonable period when the authorities expropriate constitutionally protected private property for public use.

Dispute Settlement

ICSID Convention and New York Convention

In part due to its unique political status, Taiwan is neither a member of the International Centre for the Settlement of Investment Disputes (ICSID) nor a signatory to the 1966 Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).  It also is not a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

Investor-State Dispute Settlement

Foreign investment disputes with the Taiwan authorities are rare.  Taiwan resolves disputes according to its domestic laws and based on national treatment or investment guarantee agreements.  Taiwan has entered into bilateral investment agreements with countries including Singapore, Thailand, Malaysia, and India.  Taiwan does not have an investment agreement with the United States.  Taiwan’s bilateral investment agreements serve to promote and protect foreign investments.  DOIS is not aware of investment disputes involving U.S. investors, although there have been reports of disputes between U.S. investors and their local Taiwan partners.

International Commercial Arbitration and Foreign Courts

Parties to a dispute may pursue mediation by a court, a mediation committee of a town or city, and/or the Public Procurement Commission.  Mediation is generally non-binding unless parties agree otherwise.  Civil mediation approved by a court has the same power as a binding ruling under civil litigation.  The Judicial Yuan announced that alternative dispute resolution will be one of the issues addressed in an upcoming National Judicial Conference.  Arbitration associations in Taiwan include the Chinese Arbitration Association, Taiwan Construction Arbitration Association, Labor Dispute Arbitration Association, and Chinese Construction Industry Arbitration Association in Taiwan.

A court order on recognition and enforcement must be obtained before a foreign arbitral award can be enforced in Taiwan.  Any foreign arbitral award may be enforceable in Taiwan, provided that it meets the requirements of Taiwan’s Arbitration Act.  In November 2015, the Legislative Yuan amended the Arbitration Act to stipulate that a foreign arbitral award, after an application for recognition has been granted by a court, shall be binding on the parties and have the same force as a final judgment of a court, and is enforceable.  Taiwan referred to the United Nations Commission on International Trade Law (UNCITRAL) model law when the Arbitration Act was revised in 1998.

Bankruptcy Regulations

Taiwan has a bankruptcy law that guarantees creditors the right to share the assets of a bankrupt debtor on a proportional basis.  Secured interests in property are recognized and enforced through a registration system.  Bankruptcy is not criminalized in Taiwan.  Corporate bankruptcy is generally governed by the Company Act and the Bankruptcy Act, while the Consumer Debt Resolution Act governs personal bankruptcy.  The quasi-public Joint Credit Information Center is the only credit-reporting agency in Taiwan.  In 2018, there were 217 rulings on bankruptcy petitions.

Investment Incentives

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 https://investtaiwan.nat.gov.tw/showPage?lang=eng&search=1031001   To promote Taiwan’s green energy industry, Taiwan authorities are considering a national guarantee mechanism to facilitate financing green energy investment.

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.  As of 2019, more than 500 people have obtained the Employment Gold Card, which includes a visa, work permit, alien resident certificate, and re-entry permit; 24 percent of the recipients were Americans. Taiwan does not mandate any forced localization or performance requirements and does not ask software firms to disclose their source code.  In September 2019, the Taiwan Financial Supervisory Commission amended rules to allow banks to store data on overseas cloud servers, as long as Taiwan regulators can obtain information for such operations and maintain the right to execute on-site examinations.

Real Property

Interests in property are enforced in Taiwan, and it maintains a reliable recording system for mortgages and liens.  Taiwan law protects the land use rights of indigenous peoples.  Taiwan’s Land Act stipulated that forests, fisheries, hunting grounds, salt fields, mineral deposits, sources of water, and lands lying within fortified and military areas and those adjacent to national frontiers may not be transferred or leased to foreigners.  Based on the Ministry of Interior’s (MOI) Operational Regulations for Foreigners to Acquire Land Rights in Taiwan, foreigners coming from countries that provide Taiwan residents the same land rights will be allowed to acquire or set the same rights in Taiwan.  In May 2015, the Cadastral Clearance Act was passed to promote better land registration management.  As in other investment categories, Taiwan has specific regulations governing property acquisition by PRC investors.

Intellectual Property Rights

Taiwan is not a member of the World Intellectual Property Organization (WIPO), but adheres to key international agreements such as the Berne Convention and the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS).  Reflecting progress in Taiwan’s IPR legal regime and enforcement, the Office of the U.S. Trade Representative removed Taiwan from the Special 301 Watch List in 2009.  The United States continues to monitor a number of IPR issues in Taiwan, including online piracy of copyrighted materials, illegal textbook copying on university campuses, end-user piracy of software, satellite signal theft, corporate trade secret theft, and weak pharmaceutical patent protections.  The importation and transshipment of counterfeit products, mainly from the PRC, continues to be a problem.  The United States is actively working with Taiwan authorities to address these issues.

Taiwan’s legislature in 2017 passed an amendment to the Pharmaceutical Affairs Act introducing a patent linkage system aiming for better protection of innovative pharmaceuticals, and the implementing regulations were introduced in 2019 to include biologics and biosimilars.  Proposed amendments to the Copyright Act, which features 93 amendments and 17 new articles seeking to prevent intellectual property infringement in the digital age, are still under legislative review.  The Legislative Yuan has passed articles that would impose two-year criminal penalty or monetary fines up to NTD 500,000 (USD 16,700) for selling pirated TV boxes.   In December 2019, the Legislative Yuan passed amendment to the Trade Secrets Act, which would allow prosecutors to issue a confidentiality preservation order over all information received and produced during investigations.  Taiwan also passed amendment to the National Intelligence Work Act in 2019 to allow Taiwan’s intelligence agencies to collect information about illegal trade secret theft on behalf of foreign countries.  Taiwan’s emphasis on improving its trade secrets protection regime has resulted in not only amendments to the Trade Secrets Act but also a major judicial ruling in favor of a U.S.-based investor over a local firm in a high-profile trade secrets theft case.

Taiwan’s National Police Agency reported that the value of trademark, copyright, and trade secret violation in 2019 totaled NTD 12.1 billion (USD 403 million), 11.3 percent up from the NTD 10.9 billion (USD 360 million) in 2018.  Taiwan Customs reported 186 cases, or 111,525 items involving seizures of imported counterfeit branded goods in 2019, with the majority of the violations in footwear, clothing, and pharmaceutical industries.  Taiwan prosecutes IP infringement, and imposes up to five years prison time for copyright violations, in addition to monetary fines.  Affirmed IP infringement cases by the Prosecutors’ Offices of the District Courts totaled 6,315 cases in 2019, a 10.8 percent decline over the previous year, and nearly 57 percent of the cases were not indicted.

A trademark or patent applicant must file an application with Taiwan’s Intellectual Property Office (TIPO).  TIPO normally renders a decision within six months after it receives all supporting documents.  If the application is approved, the mark or patent will be published and registered after the applicant pays registration fees within two months upon receiving the approval notice.  Taiwan has Patent Prosecution Highway (PPH) agreements with the United States (2011), Japan (2012), Spain (2013), the Republic of Korea (2015), and Poland (2017), with 455 requests to the United States filed in 2019.

In July 2018, TIPO hosted its first hearing for patent invalidation proceedings under the new invalidation mechanism.  The hearings are considered a procedural alternative to administrative appeal and are expected to increase efficiency in resolving patent disputes.

Patent holders may request that Taiwan Customs authorities suspend clearance and detain goods suspected of infringing their patent rights.  An affected rights holder must submit a written statement detailing the infringement allegation and a security deposit equivalent to the import value.  If final judgment confirms that the detained goods have infringed the patentee’s rights, the owner of the detained goods will be responsible for all relevant expenses incurred.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

Taiwan authorities welcome foreign portfolio investment in the Taiwan Stock Exchange (TWSE) and Taipei Stock Exchange, with foreign investment accounting for approximately 40 percent of TWSE capitalization in the past few years.  Taiwan allows the establishment of offshore banking, securities, and insurance units to attract a broader investor base.  The Financial Supervisory Commission (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.  As of the end of 2019, there were 942 companies listed on the TWSE, with a total market trading volume of USD 882 billion (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 dropped to 73 percent in 2019, likely indicating more investors were willing to hold their positions for longer.  Payments and transfers resulting from international trade activities are fully liberalized in Taiwan.  A wide range of credit instruments, all allocated on market terms, are available to both domestic- and foreign-invested firms.

Money and Banking System

Taiwan’s banking sector is healthy, tightly regulated, and competitive, with 36 banks servicing the market.  The sector’s non-performing loan ratio has remained below 1 percent since 2010, with a sector average of 0.21 in December 2019.  Capital-adequacy ratios (CAR) are generally high, and several of Taiwan’s leading commercial lenders are government-controlled, enjoying implicit state guarantees.  The sector as a whole had a CAR of 14.07 percent as of December 2019, 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 139.6 percent in December 2019.  Taiwan’s banking system is mostly 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 to minimize exposure in the PRC.  Taiwan Central Bank statistics show that Taiwan banks’ PRC net exposure on an ultimate risk basis reached USD 68.1 billion in the fourth quarter of 2019, trailing the United States’ USD 86.4 billion.  Taiwan’s largest bank in terms of assets is the wholly state-owned Bank of Taiwan, which had USD 171 billion of assets as of December 2019.  Taiwan’s eight state-controlled banks (excluding the Taiwan Export and Import Bank) jointly held nearly USD 820 billion, or 48 percent of the banking sector’s total assets.

Foreign Exchange and Remittances

Foreign Exchange

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.  To promote the asset management business in Taiwan, starting in May 2015, foreigners holding a valid visa entering Taiwan have been allowed to open an NTD account with local banks with passports and an ID number issued by the immigration office, replacing the previous dual-identification (passport and resident card) requirements.  Please refer to the Taiwan Bankers’ Association’s webpage: https://www.ba.org.tw/EnglishVer/BusinessEngDetail/2   for detailed information regarding various types of bank services (credit card, loans, etc.) for foreigners in Taiwan.

Foreign Exchange

There are few restrictions in place in Taiwan on converting or transferring direct investment funds.  Foreign investors with approved investments can readily obtain foreign exchange from designated banks.  The remittance of capital invested in Taiwan must be reported in advance to the Investment Commission, but the Commission’s approval is not required.  Funds can be freely converted into major world currencies for remittance, but in order to retain funds in Taiwan they must be held in currency denominations offered by banks.  In addition to commonly used U.S. dollar, euro, and Japanese yen-denominated deposit accounts, most Taiwan banks offer up to 15 foreign currency denominations.  The exchange rate is based on the market rate offered by each bank.  The NTD fluctuates under a managed float system.

Remittance Policies

There are no restrictions on remittances deriving from approved direct investment and portfolio investment.  No prior approval is required if the cumulative amount of inward or outward remittances does not exceed the annual limit of USD 5 million for an individual or USD 50 million for a corporate entity.  Declared earnings, capital gains, dividends, royalties, management fees, and other returns on investment may be repatriated at any time.  For large transactions requiring the exchange of NTD into foreign currency that could potentially disrupt Taiwan’s foreign exchange market, the Taiwan Central Bank may require the transaction to be scheduled over several days.  There is no written guideline on the size of such transactions, but according to law firms servicing foreign investors, amounts in excess of USD 100 million may be affected.  Capital movements arising from trade in merchandise and services, as well as from debt servicing, are not restricted.  No prior approval is required for movement of foreign currency funds not involving conversion between NTD and foreign currency.

Sovereign Wealth Funds

Taiwan does not have a sovereign wealth fund. Taiwania Capital Management Company, a partially government-funded investment company, was established in October 2017 to help promote investment in innovative and other target industries.  In December 2018, Taiwania raised USD 350 million for two funds investing in IOT and biotech industries.

According to the NDC, there are 17 SOEs with stakes by the central authorities exceeding 50 percent, including official agencies such as the Taiwan Central Bank.  Please refer to the list of all central government, majority-owned SOEs available online at https://ws.ndc.gov.tw/001/administrator/10/relfile/0/1295/374a165c-c930-461e-bb5b-07893b3e5ea2.doc .  Some existing SOEs are large in scale and exert significant influence in their industries, especially monopolies such as Taiwan Power (Taipower) and Taiwan Water.  MOEA has stated that Taipower’s privatization will not take place in the near future but plans to restructure it as a new holding company under Electricity Industry Act revisions passed in January 2017 that will gradually liberalize power generation and distribution.  CPC Corporation (formerly China Petroleum Corporation) controls over 70 percent of Taiwan’s gasoline retail market.  In August 2014, the Aerospace Industrial Development Corporation (AIDC) was successfully privatized through a public listing on the TWSE, and MOEA’s stake in AIDC declined to 35.2 percent by the end of 2019.  The Labor Insurance Bureau ceased to be an SOE in 2014 but remained under the Ministry of Labor (MOL).  Taiwan authorities retain control over some SOEs that were privatized, including through managing appointments to boards of directors.  These enterprises include Chunghwa Telecom, China Steel, China Airlines, Taiwan Fertilizer, Taiwan Salt, CSBC Corporation (shipbuilding), Yang Ming Marine Transportation, and eight public banks.

In 2018 (latest data available), the 17 SOEs together had net income of NTD 347 billion (USD 11.6 billion), up 1.5 percent from the NTD 342 billion (USD 11.4 billion) in 2017.  The SOEs’ average return on equities continued to decline from a recent peak of 11.13 percent in 2015 to 9.83 percent in 2018.  These 17 SOEs employed a total of 118,359 workers.

Taiwan has not adopted the OECD Guidelines on Corporate Governance for SOEs.  In Taiwan, SOEs are defined as public enterprises in which the government owns more than 50 percent of shares.  Public enterprises with less than a 50 percent government stake are not subject to Legislative Yuan supervision, but authorities may retain managerial control through senior management appointments, which may change with each administration.  Public enterprises owned by local governments exist primarily in the public transportation sector, such as regional bus and subway services.  Each SOE operates under the authority of the supervising ministry, and government-appointed directors should hold more than one-fifth of an SOE’s board seats.  The Executive Yuan, the Ministry of Finance, and MOEA have criteria in place for selecting individuals for senior management positions.  Each SOE has a board of directors, and some SOEs have independent directors and union representatives sitting on the board.

Taiwan acceded to the WTO’s Agreement on Government Procurement (GPA) in 2009.  Taiwan’s central and local government entities, as well as SOEs, are now all covered by the GPA.  Except for state monopolies, SOEs compete directly with private companies.  SOEs’ purchases of goods or services are regulated by the Government Procurement Act and are open to private and foreign companies via public tender.  Private companies in Taiwan have the same access to financing as SOEs.  Taiwan banks are generally willing to extend loans to enterprises meeting credit requirements.  SOEs are subject to the same tax obligations as private enterprises and are regulated by the Fair Trade Act as private enterprises.  The Legislative Yuan reviews SOEs’ budgets each year.

Privatization Program

There are no privatization programs in progress.  Taiwan’s most recent privatization, of AIDC in 2014, included imposition of a foreign ownership ceiling of 10 percent due to the sensitive nature of the defense sector.  In August 2017, Taiwan authorities identified CPC Corporation, Taipower Company, and Taiwan Sugar as their next privatization targets.  Following passage of the Electricity Industry Act amendments in January 2017, the authorities planned to submit a Taipower privatization plan within six to nine years after successfully separating Taipower’s power distribution/sales business from its power generation business.

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 have 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.  MOEA maintains an online newsletter to publicize best practices and raise awareness of the latest RBC-related developments in Taiwan and abroad. The Taiwan Stock Exchange conducts an annual review of corporate governance performance of all publicly listed companies.

Taiwan authorities place a high priority in addressing and promoting socially responsible investment.  In 2015, the authorities mandated that publicly listed companies with more than NTD 10 billion (USD 333 million) in capital and firms with direct impact on consumers such as food processing, restaurants, chemicals, and financial prepare annual social responsibility reports.  Starting in 2017, the capital threshold for mandatory reporting was lowered to NTD 5 billion (USD 167 million).  More than 500 of the TWSE’s 907 listed companies have issued annual social responsibility reports.  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 mandate all publicly listed companies disclose average employee compensation and wage adjustment information.  In addition to the Taiwan Top Salary 100 index and the Taiwan Corporate Governance 100 index that were respectively launched in 2014 and 2015, Taiwan Index Plus, an indexing subsidiary under the TWSE, together with FTSE Russel in December 2017 launched the FTSE4Good TIP Taiwan ESG Index, to help investors integrate environmental, social and governance (ESG) considerations into their portfolios.

In response to food safety and environmental protection problems, Taiwan authorities have imposed stricter monetary penalties on violators and launched a registration platform for food industry suppliers to track food ingredients used in the industry’s production chain.  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.  In 2019, 15 Taiwan companies were included in the Dow Jones Sustainability World Index.  Taiwan does not participate in the Extractive Industries Transparency Initiative.

Taiwan has implemented laws, regulations, and penalties to combat corruption, including in public procurement. The Act on Property-Declaration by Public Servants mandates annual properties declaration for senior public services officials and their immediate family members.    In 2019, there were 59 violations found by the Control Yuan and a total of USD 480 thousand of fines were imposed.   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 (USD 3.3 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 an 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 aiming 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 spouse of these politically exposed individuals.  The U.S. government is not aware of cases where bribes have been solicited for foreign investment approval.

Resources to Report Corruption

Agency Against Corruption, Ministry of Justice
Overall Planning Division
No. 318, 2nd floor, Song-jiang Road, Taipei
aac2043@mail.moj.gov.tw
https://www.aac.moj.gov.tw/7170/278724/BossmailUsual 

Transparency International Taiwan
https://www.transparency.org/country/TWN 
http://www.tict.org.tw/ 
Dr. YEH, I Jan
Executive Director
TI Chinese Taipei
5F, No.111 Mu-Cha Road, Section 1
Taipei, Taiwan 11645
Tel: +886-2-2236-2204
Email: tict@tict.org.tw

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.

Against a strong domestic economic rebound, Taiwan’s unemployment rate in 2019 edged up to 3.73 percent, while the unemployment rate for people aged between 15 and 24 years also rose from 11.5 percent in 2018 to 11.9 percent.  MOI data show that 47 percent of Taiwan’s population aged above 15 years is at least college-educated.  An official labor force survey indicated that atypical employment has hit 819,000 in 2019, and among the 819,000 atypical workers, 278,000 had at least college education.

The size of Taiwan’s labor force is decreasing as the society ages.  Taiwan transitioned from an “aging society” to an “aged society” in 2018.  In 2019, 15.3 percent of its population are 65 years old or above, up from 10.6 percent in 2009.  Taiwan’s total fertility rate in 2018 was 1.06, remaining one of the lowest in the world.  As of December 2019, there were 718,058 foreign laborers in Taiwan, of which 456,601 were working in the industrial sector.  The Labor Standard Act and the Act of Gender Equality in Employment are universally applied to both domestic and foreign workers, with the exception that domestic foreign helpers are not covered by the Labor Standard Act.

Taiwan Ministry of Labor (MOL) data indicated that, while labor shortage rates remained stable at around 3 percent in the manufacturing industry, the rates have been increasing over past few years in services industries such as food and accommodation, information and communication, art and entertainment, recreation, and real estate activities.  Industry groups have long claimed that a lack of blue-collar workers is one of the major issues facing manufacturers operating in Taiwan and have urged the authorities to increase the ceiling on foreign workers.  To attract Taiwan businesses to relocate back to Taiwan, Taiwan authorities lifted foreign workers ceiling for specific industries, but the foreign workers ceiling across the board remained at 40 percent of total employees.  Taiwan businesses are also urging the authorities to ease work visa requirements to recruit foreign professionals, especially the skilled white-collar labor in the information technology sector.  However, Taiwan’s low wage growth compared with neighboring economies poses a challenge for talent recruitment and retention.  Taiwan issued 31,125 working permits to foreign professionals in 2019, and 23.5 percent of them were from Japan, followed by 13.5 percent from Malaysia, and 11.8 percent from the United States.  21.7 percent of foreign professionals work in the manufacturing industry.  Taiwan authorities sponsor training and certificate programs for college graduates to increase the talent pool for the manufacturing industry.

Private companies are not subject to rules requiring the hiring of nationals.  Employers may institute unpaid leave with employees’ consent but must notify the labor authorities and continue to make health insurance, labor insurance, and pension contributions.  Taiwan provides unemployment relief based on the Employment Insurance Law, vocational training allowances for jobless persons, and employment subsidies to encourage hiring.  Labor laws are not waived in order to attract or retain investment.

Labor unions have become more active in Taiwan over the past decade, and the Collective Agreement Act outlines the negotiation mechanism for collective bargaining in order to protect labor’s interests in the negotiations.  The number of effective collective bargaining agreements increased from 723 in 2018 to 772 in 2019, mainly due to an increase of such agreements with corporate unions.  If a proposal is refused, a union may submit an application for arbitration to the MOL’s Committee for Dispute Resolution for Unfair Labor Practices.  Taiwan has labor dispute resolution mechanisms in operation at all levels of labor, and the number of dispute cases filed slightly dropped 26,649 in 2018 to 26,435 in 2019, with disputes over wages accounting for more than 40 percent of total dispute cases. Taiwan also introduced an arbitration mechanism in 2011 to preempt disputes through a professional and neutral mediation system.

Labor relations in Taiwan are generally harmonious.  Although Taiwan is not a member of the International Labor Organization (ILO), it adheres to ILO conventions on the protection of workers’ rights.  Taiwan law, including related regulations and statutory instruments, protects the right to join independent unions, conduct legal strikes, and bargain collectively.  Taiwan’s labor authorities have announced the increasing frequency and coverage of labor inspections.  A new Labor Incident Act took effect in January 2020 mandates the establishment of special labor courts, which would help improve labor right through accelerated dispute resolution and reduced financial cost for labor filing employment lawsuits.

Improving labor welfare is the one of the core themes pursued by the current Tsai administration.  Minimum monthly wage has been raised since 2017 to NTD 23,800 (USD 793) in 2020.  MOL is also drafting a bill aiming to replace the current annual minimum wage review panel with a Minimum Wage Act.  In March 2018, Taiwan amended the Labor Standard Act to address foreign investor community’s concerns over rules governing rest days, overtime work, and overtime pay.  In December 2019, the Middle-aged and Elderly Employment Promotion Act was passed to promote employment opportunities for employees aged above 45 years, but the effective implementation date has yet to be announced.

There have been strikes in the aviation industry since 2016.  During the Lunar New Year peak travel week in 2019, pilots at the state-controlled flag carrier China Airlines, of which Taiwan government owns a 35 percent stake, launched a 160-hour strike.  In June, flight attendants at Taiwan’s second largest airline Eva Air also launched a 488-hour strike when the peak summer travel season started.  Under public pressure, the Ministry of Transportation and Communications proposed a draft amendment to MOL, suggesting MOL stipulate a seven-to-ten-day notice requirement if any union, particularly in the transportation industry, plans to strike.

Link to the U.S. Department of State Human Rights Report on Taiwan: https://www.state.gov/reports/2019-country-reports-on-human-rights-practices/taiwan/

* Source for Host Country Data:  GDP: Directorate General of Budget, Accounting, and Statistics; FDI: 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.

Arati Shroff
Deputy Chief, Economic Section, American Institute in Taiwan
100 Jinhu Road, Taipei, Taiwan
+886-2-2162-2000
ShroffA@state.gov

Transparency of the Regulatory System

Generally, Thai regulations are readily available to the public. Foreign investors have, on occasion, expressed frustration that draft regulations are not made public until they are finalized. Comments stakeholders submit on draft regulations are not always taken into consideration. Non-governmental organizations report, however, the Thai government actively consults them on policy, especially in the health sector and on intellectual property issues. In other areas, such as digital and cybersecurity laws, the Thai government has taken stakeholders’ comments into account and amended draft laws accordingly.

U.S. businesses have repeatedly expressed concerns about Thailand’s customs regime. Complaints center on lack of transparency, the significant discretionary authority exercised by Customs Department officials, and a system of giving rewards to officials and non-officials for seized goods based on a percentage of their sales price. Specifically, the U.S. government and private sector have expressed concern about inconsistent application of Thailand’s transaction valuation methodology and the Customs Department’s repeated use of arbitrary values. Thailand’s latest Customs Act, which entered into force on November 13, 2017, is a moderate step forward. The Act removed the Customs Department Director General’s discretion to increase the Customs value of imports. It also reduced the percentage of remuneration awarded to officials and non-officials from 55 percent to 40 percent of the sale price of seized goods (or of the fine amount). While a welcome development, reduction of this remuneration is insufficient to remove the personal incentives given Customs officials to seize goods nor to address the conflicts of interest the system entails.

Consistent and predictable enforcement of government regulations remains problematic. In 2017, the Thai government launched a “regulatory guillotine” initiative to cut down on red tape, licenses, and permits. The policy focused on reducing and amending outdated regulations in order to improve Thailand’s ranking on the World Bank “Ease of Doing Business” report. The regulatory guillotine project has helped improve Thailand’s ranking and is still underway.

Gratuity payments to civil servants responsible for regulatory oversight and enforcement remain a common practice. Firms that refuse to make such payments can be placed at a competitive disadvantage to other firms that do engage in such practices.

The Royal Thai Government Gazette (www.ratchakitcha.soc.go.th ) is Thailand’s public journal of the country’s centralized online location of laws, as well as regulation notifications.

International Regulatory Considerations

Thailand is a member of the World Trade Organization (WTO) and notifies most draft technical regulations to the Technical Barriers to Trade (TBT) Committee and the Sanitary and Phytosanitary Measures Committee. However, Thailand does not always follow WTO and other international standard-setting norms or guidance, butprefers to set its own standards in many cases. In October 2015, the country ratified the WTO Trade Facilitation Agreement, which came into effect in February 2017.

Legal System and Judicial Independence

Thailand has a civil code, commercial code, and a bankruptcy law. Thailand has an independent judiciary that is generally effective in enforcing property and contractual rights. The legal process is slow in practice, and litigants or third parties sometimes influence judgments through extra-legal means. Monetary judgments are calculated at the market exchange rate. Decisions of foreign courts are not accepted or enforceable in Thai courts. Disputes such as the enforcement of property or contract rights have generally been resolved in Thai courts.

There are three levels to the judicial system in Thailand: The Court of First Instance, which handles most matters at inception; the Court of Appeals; and the Supreme Court. There are also specialized courts, such as the Labor Court, Family Court, Tax Court, the Central Intellectual Property and International Trade Court, and the Bankruptcy Court.

The Specialized Appeal Court handles appeals from specialized courts. The Supreme Court has discretion whether to take a case that has been decided by the Specialized Appeal Court. If the Supreme Court decides not to take up a case, the Specialized Appeal Court decision stands.

Laws and Regulations on Foreign Direct Investment

The Foreign Business Act (described in detail above) governs most investment activity by non-Thai nationals. Other key laws governing foreign investment are the Alien Employment Act (1978) and the Investment Promotion Act (1977). However, as explained above, many U.S. businesses enjoy investment benefits through the U.S.-Thailand Treaty of Amity and Economic Relations (often referred to as the ‘Treaty of Amity’), which was established to promote friendly relations between the two nations. Pursuant to the Treaty, American nationals are entitled to certain exceptions to the FBA restrictions.

Pertaining to the services sector, the 2007 Financial Institutions Business Act unified the legal framework and strengthened the Bank of Thailand’s (the country’s central bank) supervisory and enforcement powers. The Act allows the Bank of Thailand to raise foreign ownership limits for existing local banks from 25 percent to 49 percent on a case-by-case basis. The Minister of Finance can authorize foreign ownership exceeding 49 percent if recommended by the central bank. Details are available at https://www.bot.or.th/English/AboutBOT/LawsAndRegulations/SiteAssets/Law_E24_Institution_Sep2011.pdf .

Apart from acquiring shares of existing (traditional) local banks, foreign banks can enter the Thai banking system by obtaining new licenses. The Ministry of Finance issues such licenses, following a consultation process with the Bank of Thailand. The Thai central bank is currently studying new licenses for digital-only banks, a tool meant to enhance financial inclusion and keep pace with consumer needs in the digital age. Digital-only banks can operate at a lower cost and offer different services than traditional banks.

The 2008 Life Insurance Act and the 2008 Non-Life Insurance Act apply a 25 percent cap on foreign ownership of insurance companies. Foreign boards of directors’ membership is also limited to 25 percent. However, in January 2016 the Office of the Insurance Commission (OIC), the primary insurance industry regulator, notified that Thai life or non-life insurance companies wishing to exceed these limits may apply to the OIC for approval. Any foreign national wishing to hold more than 10 percent of the voting shares in an insurance company must seek OIC approval. With approval, a foreign national can acquire up to 49 percent of the voting shares. Finally, the Finance Minister, with OIC’s positive recommendation, has discretion to permit greater than 49 percent foreign ownership and/or a majority of foreign directors, when the operation of the insurance company may cause loss to insured parties or to the public.

The Board of Investment offers qualified investors several benefits and provides information to facilitate a smoother investment process in Thailand. Information on the BOI’s “One Start One Stop” investment center can be found at http://osos.boi.go.th . A physical office is located on the 18th floor of Chamchuri Square on Rama 4/Phayathai Road in Bangkok.

Competition and Anti-Trust Laws

Thailand updated the Trade Competition Act on October 5, 2017. The updated Act covers all business activities, except: state-owned enterprises exempted by law or cabinet resolution; specific activities related to national security, public benefit, common interest and public utility; cooperatives, agricultural and cooperative groups; government agencies; and other enterprises exempted by the law. The Act broadens the definition of a business operator to include affiliates and group companies, and broadens the liability of directors and management, subjecting them to criminal and administrative sanctions if their actions (or omissions) resulted in violations. The Act also provides details about penalties in cases involving administrative court or criminal court actions. The amended Act has been noted as an improvement over the prior legislation and a step towards Thailand’s adoption of international standards in this area.

The Office of Trade Competition Commission (OTCC) is an independent agency and the main enforcer of the Trade Competition Act B.E. 2560 (2018). The OTCC is comprised of seven members nominated by a selection committee and endorsed by the Cabinet. The Commission has the following responsibilities: advises the government on issuance of relevant regulations; ensures fair and free trade practices; investigates cases and complaints of unfair trade; and pursues criminal and disciplinary actions against those found guilty of unfair trade practices stipulated in the law. The law focuses on the following areas: unlawful exercise of market dominance; mergers or collusion that could lead to monopoly; unfair competition and restricting competition; and unfair trade practices.

The government has authority to control the price of specific products and services under the Price of Goods and Services Act. The MOC’s Department of Internal Trade administers the law and interacts with affected companies. The Committee on Prices of Goods and Services makes final decisions on products to add or remove from price controls. As of October 2019, the MOC decreased the number of controlled commodities and services to 52 from 54 the previous year. Examples of controlled products include automotive tires, agricultural fertilizer, and sugar. Raising prices of controlled products and services is prohibited without obtaining the Committee’s approval. The government uses its controlling stakes in major suppliers of products and services, such as Thai Airways and PTT Public Company Limited (the national petroleum company), to influence prices in the market.

Expropriation and Compensation

Thai laws provide guarantees regarding protection from expropriation without compensation and non-discrimination for some, but not all, investors. Thailand’s Constitution provides protection from expropriation without fair compensation and requires the government to pass a specific, tailored expropriation law if the expropriation is required for the purpose of public utilities, national defense, acquisition of national resources, or for other public interests. The Investment Promotion Act also guarantees the government shall not nationalize the operations and assets of BOI-promoted investors.

The Expropriation of Immovable Property Act (EIP), most recently amended in 2019, applies to all property owners, whether foreign or domestic nationals. The Act provides a framework and clear procedures for expropriation; sets forth detailed provision and measures for compensation of land owners, lessees and other persons that may be affected by an expropriation; and recognizes the right to appeal decisions to Thai courts. The 2019 EIP requires the government to return land that was expropriated but has not been used back to the original property owners. However, the EIP and Investment Promotion Act do not protect against indirect expropriation and do not distinguish between compensable and non-compensable forms of indirect expropriation.

Thailand has a well-established system for land rights that is generally upheld in practice, but the legislation governing land tenure still significantly restricts foreigners’ rights to acquire land.

Dispute Settlement

ICSID Convention and New York Convention

Thailand is a signatory to the New York Convention, which means that investors can enforce arbitral awards in any other signatory country. Thailand signed the Convention on the Settlement of Investment Disputes in 1985 but has not ratified it. Therefore, most foreign investors covered under Thailand’s treaties with investor-state dispute settlement (ISDS) provisions that are limited to ICSID arbitration have not been able to bring ISDS claims against Thailand under these treaties.

Investor-State Dispute Settlement

Thailand is party to bilateral investment treaties with 46 nations. Two treaties — with the Netherlands and United States (Treaty of Amity) — do not include binding dispute resolution provisions. This means that investors covered under these treaties are unable to pursue international arbitration proceedings against the Thai government without first obtaining the government’s consent. There have been two notable cases of investor-state disputes in the last fifteen years, neither of which involved U.S. companies. The first case involved a concession agreement for a construction project filed under the Germany-Thailand bilateral investment treaty. In the second case, Thailand is engaged in a dispute over the government’s invocation of special powers to shut down a gold mine in early 2017.

International Commercial Arbitration and Foreign Courts

Thailand’s Arbitration Act of 2002, modeled in part after the UNCITRAL Model Law, governs domestic and international arbitration proceedings. The Act states that “in cases where an arbitral award was made in a foreign country, the award shall be enforced by the competent court only if it is subject to an international convention, treaty, or agreement to which Thailand is a party.” Any arbitral award between parties subject to the New York Convention should thus be enforced. The following organizations provide arbitration services in Thailand: the Thai Arbitration Institute of the Alternative Dispute Resolution Office; Office of the Judiciary; and the Office of the Arbitration Tribunal of the Board of Trade of Thailand. In addition, the semi-public Thai Arbitration Center offers mediation and arbitration for civil and commercial disputes. An amendment to the Arbitration Act that allows foreign arbitrators to take part in cases involving foreign parties came into force on April 15, 2019. Under very limited circumstances, a court can set aside an arbitration award.

Bankruptcy Regulations

Thailand’s bankruptcy law is modeled after that of the United States. The law authorizes restructuring proceedings that require trained judges who specialize in bankruptcy matters to preside. According to the law, bankruptcy is defined as a state in which courts permit the distribution of assets belonging to a debtor among the creditors within the parameters of the law. Thailand’s bankruptcy law allows for corporate restructuring similar to U.S. Chapter 11 and does not criminalize bankruptcy. The law also distinguishes between secured and unsecured claims, with the former prioritized. While bankruptcy is under consideration, creditors can request the following ex parte applications from the Bankruptcy Court: an examination by the receiver of all the debtor’s assets and/or that the debtor attend questioning on the existence of assets; a requirement that the debtor provide satisfactory security to the court; and immediate seizure of the debtor’s assets and/or evidence in order to prevent the loss or destruction of such items.

The law stipulates that all applications for repayment must be made within one month after the Bankruptcy Court publishes the appointment of an official receiver. If a creditor eligible for repayment does not apply within this period, the creditor forfeits his/her right to receive payment or the court may cancel the order to reorganize the business. If any person opposes a filing, the receiver shall investigate the matter and approve, partially approve, or dismiss the application. Any objections to the orders issued by the receiver may be filed with the court within 14 days after learning of the issued order.

Within bankruptcy proceedings, it is also possible to undertake a “composition” in order to avoid a long and protracted process. A composition takes place when a debtor expresses in writing a desire to settle his/her debts, either partially or in any other manner, within seven days of submitting an explanation of matters related to the bankruptcy or during a time period prescribed by the receiver. After the proposal for a composition has been submitted, the receiver calls for a meeting among creditors to consider whether or not to accept the proposal. If the proposal is accepted, the court will approve the composition in order to legally execute the proposal; however, it will only do so if the proposal includes clear provisions for the repayment of debts.

The National Credit Bureau of Thailand (NCB) provides the financial services industry with information on consumers and businesses. The NCB is required to provide the financial services sector with payment history information from utility companies, retailers and merchants, and trade creditors.

Investment Incentives

The Board of Investment:

The Board of Investment offers investment incentives to qualified domestic and foreign investors. To upgrade the country’s technological capacity, the BOI presently gives more weight to applications in high-tech, innovative, and sustainable industries. These include digital technology, “smart agriculture” and biotechnology, aviation and logistics, automation and robotics, medical and wellness tourism, and other high-value services.

The most significant privileges offered by the BOI for promoted projects include: corporate income tax exemptions; tariff reductions or exemptions on imports of machinery used in the investment; tariff-free treatment on imported raw materials used in production for export.

• corporate income tax exemptions; tariff reductions or exemptions on imports of machinery used in the investment; tariff-free treatment on imported raw materials used in production for export.
• permission to own land; permission to bring foreign experts; and visa and work permit facilitation.

Investment projects with a significant R&D, innovation, or human resource development component may be eligible for additional grants and incentives. Moreover, grants are provided to support targeted technology development under the Competitive Enhancement Act. BOI offers a one-stop service to expedite multiple business processes for investors.

For additional information, contact the Office of Board of Investment on 555 Vibhavadi-Rangsit Road, Chatuchak, Bangkok 10900 and telephone at +662-553-8111 or website at www.boi.go.th.

Office of the Eastern Economic Corridor:

Thailand’s flagship investment zone, the “Eastern Economic Corridor (EEC),” spans the provinces of Chachoengsao, Chonburi, and Rayong (5,129 square miles). The EEC leverages the developed infrastructure networks of the adjacent Eastern Seaboard industrial area, Thailand’s primary investment destination for more than 30 years. The Thai government foresees the EEC as a primary investment and infrastructure hub in ASEAN and a gateway to east and south Asia. Among the EEC development projects are: smart cities; an innovation district (EECi); a digital park (EECd); an aerotropolis (EEC-A); a medical hub (EECmd); and other state-of-the-art facilities. The EEC is targeting twelve key industries:

• Next-generation automotive
• Intelligent electronics
• Advanced agriculture and biotechnology
• Food processing
• Tourism
• Advance robotics and automation
• Integrated aviation industry
• Medical hub and total healthcare services
• Biofuels and biochemicals
• Digital technology
• Defense industry
• Human resource development

The EEC Act authorized investment incentives and privileges. Investors can obtain long-term land leases of 99 years (with an initial lease of up to 50 years and a renewal of up to 49 years). The EEC Act shortens the public-private partnership approval process to approximately nine months.

The BOI works in cooperation with the EEC Office. BOI offers corporate income tax exemptions of up to 13 years for strategic projects in the EEC area. Foreign executives and experts who work in targeted industries in the EEC are subject to a maximum personal income tax rate of 17 percent.

For additional information, contact the Eastern Economic Corridor Office at 25th floor, CAT Tower, 72 Soi Wat Maungkhae, Charoenkrung Road, Bangrak, Bangkok 10500, telephone at +662-033-8000 and website at https://eng.eeco.or.th/en.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Industrial Estate Authority of Thailand (IEAT), a state-enterprise under the Ministry of Industry, develops suitable locations to accommodate industrial properties. IEAT has an established network of industrial estates in Thailand, including Laem Chabang Industrial Estate in Chonburi Province and Map Ta Phut Industrial Estate in Rayong Province in Thailand’s eastern seaboard region, a common location for foreign-owned factories due to its proximity to seaport facilities and Bangkok. Foreign-owned firms generally have the same investment opportunities in the industrial zones as Thai entities. While the IEAT Act requires that in the case of foreign-owned firms, the IEAT Committee must consider and approve the amount of space/land bought or leased in industrial estates, in practice, there is no record of disapproval for requested land. Private developers are heavily involved in the development of these estates.

The IEAT currently operates 14 estates, plus 45 more in conjunction with the private sector, in 16 provinces nationwide. Private-sector developers independently operate over 50 industrial estates, most of which have received promotion privileges from the Board of Investment. Amata Industrial Estate and WHA Industrial Development are Thailand’s leading private industrial estate developers. Most major foreign manufacturing investors, including U.S. manufacturers, are located in these two companies’ industrial estates and in the eastern seaboard region.

The IEAT has established 12 special IEAT “free trade zones” reserved for industries manufacturing exclusively for export. Businesses may import raw materials into, and export finished products from, these zones free of duty (including value added tax). These zones are located within industrial estates and many have customs facilities to speed processing. The free trade zones are located in Chonburi, Lampun, Pichit, Songkhla, Samut Prakarn, Bangkok (at Lad Krabang), Ayuddhya, and Chachoengsao. In addition to these zones, factory owners may apply for permission to establish a bonded warehouse within their premises to which raw materials, used exclusively in the production of products for export, may be imported duty-free.

The Thai government also established Special Economic Zones (SEZs) in ten provinces bordering neighboring countries: Tak, Nong Khai, Mukdahan, Sa Kaeo, Trad, Narathiwat, Chiang Rai, Nakhon Phanom, Songkhla, and Kanchanaburi. Business sectors and industries that can benefit from tax and non-tax incentives offered in the SEZs include logistics; warehouses near border areas; distribution; services; labor-intensive factories; and manufacturers using raw materials from neighboring countries. These SEZs support Thai government goals for closer economic ties with neighboring countries and allow investors to tap into abundant migrant labor; however, these SEZs have proven less attractive to overseas investors due to their remote locations far from Bangkok and other major cities.

In 2019, Thai Customs implemented three measures to improve trade and customs processing efficiency: Pre-Arrival Processing (PAP); an “e-Bill Payment” electronic payment system; and an e-Customs system that waives the use of paper customs declaration copies. The measures comply with the World Trade Organizations (WTO) Trade Facilitation Agreement (TFA), adopted in February 2016, which requires WTO members to adopt procedures for pre-arrival processing for imports and to authorize electronic submission of customs documents, where appropriate. The measures have also improved Thailand’s ranking in the World Bank’s “Doing Business: Trading Across Borders 2020” index.

Performance and Data Localization Requirements

The Thai government does not have specific laws or policies regarding performance or data localization requirements. Foreign investors are not required to use domestic content in goods or technology, but the Thai government has encouraged such an approach through domestic preferences in government procurement proceedings.

There are currently no requirements for foreign IT providers to localize their data, turn over source code, or provide access to surveillance. However, the Thai government in 2019 passed new laws and regulations on cybersecurity and personal data protection that have raised concerns about Thai authorities’ broad power to potentially demand confidential and sensitive information. IT operators and analysts have expressed concern with private companies’ legal protections, ability to appeal, or ability to limit such access. IT providers have expressed concern that the new laws might place unreasonable burdens on them and have introduced new uncertainties in the technology sector. As of March 2020, the government is still in the process of considering and implementing regulations to enforce laws on Cyber Security and Personal Data Protection.

Thailand has implemented a requirement that all debit transactions processed by a domestic debit card network must use a proprietary chip.

Real Property

Property rights are guaranteed by the Constitution. While the government provides fair compensation in instances of expropriation, Thai policy generally does not permit foreigners to own land. There have been instances, however, of granting such permission to foreigners under certain laws or ministerial regulations for residential, business, or religious purposes. Foreign ownership of condominiums and buildings is permitted under certain laws. Foreigners can freely lease land. Relevant articles of the Civil and Commercial Codes do not distinguish between foreign and Thai nationals in the exercise of lease rights. Secured interests in property, such as mortgage and pledge, are recognized and enforced. Unoccupied property legally owned by foreigners or Thais may be subject to adverse possession by squatters who stay on that property for at least 10 years.

IP Enforcement

The National Committee on Intellectual Property Policy sets Thailand’s overall Intellectual Property (IP) policy. The National Committee is chaired by the Prime Minister with two Deputy Prime Ministers as vice chairs. Eighteen heads of government agencies serve as Committee members. In 2017, this Committee approved a 20-year IP Roadmap to reform the country’s IP system.

The Department of Intellectual Property (DIP) is responsible for IP-related administration, including registration and recording of IP rights and coordination of IP enforcement activities. DIP also acts as the secretary of the National Committee on Intellectual Property Policy.

Patents and Trademarks

Thailand is a member of the Patent Cooperation Treaty (PCT). Thailand’s patent regime generally provides protection for most new inventions. The process of patent examination through issuance of patents takes on average six to eight years. The patenting process may take longer for certain technology sectors such as pharmaceuticals and biotechnology. In order to address the long patent pendency and backlogs, DIP hired 91 patent and trademark examiners in recent years. While the patent backlogs decreased from prior years in 2018, volumes increased again in 2019. As of September 2019, approximately 19,000 patent applications were pending examination, according to DIP.

The Thai government is in the process of preparing two amendments to the Patent Act. The first amendment, which concerns streamlining of the patent examination process, is pending review by the Council of the State as of April 2020. This amendment is expected to be adopted by the Parliament by the end of 2020. A second amendment to the Patent Act will authorize Thailand’s accession to the “Hague Agreement Concerning the International Registration of Industrial Designs.” The draft of this second amendment is expected to be submitted to the Council of State after the Council completes its review of the first amendment.

Thailand protects trademarks, traditional marks, and sound marks. As a member of the “Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks” (Madrid Protocol). Thailand allows trademark owners to apply for trademark registrations in Thailand directly at DIP or through international applications under the Madrid Protocol. DIP historically takes 10 to 14 months to register a trademark. More than 46,000 trademark applications were pending examination at the end of 2019.

Copyrights

As Thailand is a member of the “Bern Convention,” copyright works are protected automatically. However, copyright owners may record their works with DIP to establish proof of ownership. Thailand joined the Marrakesh Treaty to Facilitate Access to Published Works for Persons Who Are Blind, Visually Impaired or Otherwise Print Disabled in January 2019. The Guidelines on Use of Copyright Works for the Benefits of Disabled Persons is available on the DIP website, Thai language only (http://www.ipthailand.go.th/th/dip-law-2/item/notificatioofmoc_disableperson2019.html).

In addition, Thailand is in the process of a two-phase amendment of the Copyright Act. The first phase will enhance protections of copyrights in the digital environment and prepare Thailand for accession to the WIPO Copyright Treaty. The second phase will prepare Thailand for accession to the WIPO Performances and Phonograms Treaty. The first-phase draft is undergoing a legal review by the Council of State, after which it will be submitted to the Parliament. The second amendment remains in the drafting process.

DIP recently adopted a new system of voluntary registration of copyright (collective management) agents to curb illegal activities of rogue agents. To register, an agent must meet certain qualifications and undergo prescribed training. The roster of registered agents along with associated licensed copyrights is available on the DIP website. The Thai government amended the Computer Crime Act in 2017 to add IPR infringement as a predicate offense under the Act’s Section 20. This enables IP rights-holders to file requests to either DIP or the Ministry of Digital Economy and Society for removal of online IPR-infringing content from computer systems or for disabling access.

Geographical Indications

Thailand’s Geographical Indications (GI) Act has been in force since April 2004. Thailand protects GIs, which identify goods by their specific geographical origins. The geographical origins identified by a GI must be directly attributable to the reputation, qualities, or characteristics of the good. In Thailand, a registered trademark does not prevent a similar geographical name to be registered as a GI.

Intellectual Property Rights

In 2017, Thailand was placed on the USTR Special 301 Watch List. Thailand has one physical market, Patpong Market in Bangkok, listed in the USTR’s 2019Review of Notorious Markets.

Thailand has taken the following steps recently to improve IP enforcement: provided ex-officio authority for border enforcement officials to inspect in-transit goods; set enforcement benchmarks; published monthly enforcement statistics online; and stepped up efforts to investigate IP cases. Thailand’s Central Intellectual Property and International Trade Court (CIPIT) is the first instance of a court having jurisdiction over both civil and criminal intellectual property cases and civil international trade cases for all of Thailand. The Court of Appeal for Specialized Cases hears appeals from the CIPIT, including administrative appeals from DIP that already received a first instance decision from the CIPIT.

For additional information about national laws and points of contact at local IP offices, please see the DIP website at https://www.ipthailand.go.th/en/  and WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

The Thai government maintains a regulatory framework that broadly encourages and facilitates portfolio investment. The Stock Exchange of Thailand, the country’s national stock market, was established under the Securities Exchange of Thailand Act B.E. 2535 in 1992. There is sufficient liquidity in the markets to allow investors to enter and exit sizeable positions. Government policies generally do not restrict the free flow of financial resources to support product and factor markets. The Bank of Thailand, the country’s central bank, has respected IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.

Credit is generally allocated on market terms rather than by “direct lending.” Foreign investors are not restricted from borrowing on the local market. In theory, the private sector has access to a wide variety of credit instruments, ranging from fixed term lending to overdraft protection to bills of exchange and bonds. However, the private debt market is not well developed. Most corporate financing, whether for short-term working capital needs, trade financing, or project financing, requires borrowing from commercial banks or other financial institutions.

Money and Banking System

Thailand’s banking sector, with 15 domestic commercial banks, is sound and well-capitalized. As of December 2019, the non-performing loan rate was low (around 2.98 percent industry wide). The ratio of capital funds/risk-weighted assets (capital adequacy) was high (19.61 percent). Thailand’s largest commercial bank is Bangkok Bank, with assets totaling USD 100 billion as of December 2019. The combined assets of the five largest commercial banks totaled USD 450 billion, or 69.39 percent of the total assets of the Thai banking system, at the end of 2019.

In general, Thai commercial banks provide the following services: accepting deposits from the public; granting credit; buying and selling foreign currencies; and buying and selling bills of exchange (including discounting or re-discounting, accepting, and guaranteeing bills of exchange). Commercial banks also provide credit guarantees, payment, remittance and financial instruments for risk management. Such instruments include interest-rate derivatives and foreign-exchange derivatives. Additional business to support capital market development, such as debt and equity instruments, is allowed. A commercial bank may also provide other services, such as bank assurance and e-banking.

Thailand’s central bank is the Bank of Thailand (BOT), which is headed by a Governor appointed for a five-year term. The BOT serves the following functions: prints and issues banknotes and other security documents; promotes monetary stability and formulates monetary policies; manages the BOT’s assets; provides banking facilities to the government; acts as the registrar of government bonds; provides banking facilities for financial institutions; establishes or supports the payment system; supervises financial institutions manages the country’s foreign exchange rate under the foreign exchange system; and determines the makeup of assets in the foreign exchange reserve.

Apart from the 15 domestic commercial banks, there are currently 11 registered foreign bank branches, including three American banks (Citibank, Bank of America, and JP Morgan Chase), and four foreign bank subsidiaries operating in Thailand. To set up a bank branch or a subsidiary in Thailand, a foreign commercial bank must obtain approval from the Ministry of Finance and the BOT. Foreign commercial bank branches are limited to three service points (branches/ATMs) and foreign commercial bank subsidiaries are limited to 40 service points (branches and off-premise ATMs) per subsidiary. Newly established foreign bank branches are required to have minimum capital funds of 125 million baht (USD 4.03 million at end of 2019 exchange rates) invested in government or state enterprise securities, or directly deposited with the Bank of Thailand. The number of expatriate management personnel is limited to six people at full branches, although Thai authorities frequently grant exceptions on a case-by-case basis.

Non-residents can open and maintain foreign currency accounts without deposit and withdrawal ceilings. Non-residents can also open and maintain Thai baht accounts; however, in an effort to curb speculation, in July 2019 the Bank of Thailand capped non-resident Thai baht deposits to 200 million baht across all domestic bank accounts. Any deposit in Thai baht must be derived from conversion of foreign currencies, receipt of payment for goods and services, or capital transfers. Withdrawals are freely permitted. Since mid-2017, the BOT has allowed commercial banks and payment service providers to introduce new financial services technologies under its “Regulatory Sandbox” guidelines. Recently introduced technologies under this scheme include standardized QR codes for payments, blockchain funds transfers, electronic letters of guarantee, and biometrics.

Thailand’s alternative financial services include cooperatives, micro-saving groups, the state village funds, and informal money lenders. The latter provide basic but expensive financial services to households, mostly in rural areas. These alternative financial services, with the exception of informal money lenders, are regulated by the government.

Foreign Exchange and Remittances

Foreign Exchange

There are no limitations placed on foreign investors for converting, transferring, or repatriating funds associated with an investment; however, supporting documentation is required. Any person who brings Thai baht currency or foreign currency in or out of Thailand in an aggregate amount exceeding USD 15,000 or the equivalent must declare the currency at a Customs checkpoint. Investment funds are allowed to be freely converted into any currency.

The exchange rate is generally determined by market fundamentals but is carefully scrutinized by the BOT under a managed float system. During periods of excessive capital inflows/outflows (i.e., exchange rate speculation), the central bank has stepped in to prevent extreme movements in the currency and to reduce the duration and extent of the exchange rate’s deviation from a targeted equilibrium.

Remittance Policies

Thailand imposes no limitations on the inflow or outflow of funds for remittances of profits or revenue for direct and portfolio investments. There are no time limitations on remittances.

Sovereign Wealth Funds

Thailand does not have a sovereign wealth fund and the Bank of Thailand is not pursuing the creation of such a fund. However, the International Monetary Fund has urged Thailand to create a sovereign wealth fund due to its large accumulated foreign exchange reserves (USD 224.3 billion as of December 2019).

Thailand’s 56 state-owned enterprises (SOEs) have total assets of USD 422 billion and a combined net income of USD 8.3 billion (end of 2018 figures, latest available). They employ around 270,000 people, or 0.7 percent of the Thai labor force. Thailand’s SOEs operate primarily in-service delivery, in particular in the energy, telecommunications, transportation, and financial sectors. More information about SOEs is available at the website of the State Enterprise Policy Office (SEPO) under the Ministry of Finance at www.sepo.go.th .

A 15-member State Enterprises Policy Commission, or “superboard,” oversees operations of the country’s 56 SOEs. In May 2019, the Development of Supervision and Management of State-Owned Enterprise Act B.E. 2562 (2019) went into effect. The law aims to reform SOEs and ensure transparent management decisions. The Thai government generally defines SOEs as special agencies established by law for a particular purpose that are 100 percent owned by the government (through the Ministry of Finance as a primary shareholder). The government recognizes a second category of “limited liability companies/public companies” in which the government owns 50 percent or more of the shares. Of the 56 total SOEs, 43 are wholly-owned and 13 are majority-owned. Twelve of these companies are classed as limited liability companies. Five are publicly listed on the Stock Exchange of Thailand: Thai Airways International Public Company Limited; Airports of Thailand Public Company Limited; PTT Public Company Limited; MCOT Public Company Limited; and Krung Thai Bank Public Company Limited. By regulation, at least one-third of SOE boards must be comprised of independent directors.

Private enterprises can compete with SOEs under the same terms and conditions with respect to market share, products/services, and incentives in most sectors, but there are some exceptions, such as fixed-line operations in the telecommunications sector.

While SEPO officials aspire to adhere to the OECD Guidelines on Corporate Governance for SOEsno level playing field exists between SOEs and private sector enterprises, which are often disadvantaged in competing with Thai SOEs for contracts.

Generally, SOE senior management reports directly to a line minister and to SEPO. Corporate board seats are typically allocated to senior government officials or politically-affiliated individuals. Privatization Program

The 1999 State Enterprise Corporatization Act provides a framework for conversion of SOEs into stock companies. Corporatization is viewed as an intermediate step toward eventual privatization. (Note: “corporatization” describes the process by which an SOE adjusts its internal structure to resemble a publicly-traded enterprise; “privatization” denotes that a majority of the SOE’s shares is sold to the public; and “partial privatization” refers to a situation in which less than half of a company’s shares are sold to the public.) Foreign investors are allowed to participate in privatizations, but restrictions are applied in certain sectors, as regulated by the FBA and the Act on Standards Qualifications for Directors and Employees of State Enterprises of 1975, as amended. However, privatizations have been on hold since 2006 largely due to strong opposition from labor unions.

A 15-member State Enterprises Policy Commission, or “superboard,” oversees operations of the country’s 56 SOEs. In May 2019, the Development of Supervision and Management of State-Owned Enterprise Act B.E. 2562 (2019) went into effect. The law aims to reform SOEs and ensure transparent management decisions; however, privatization is not part of this process.

The Thai government has committed to implement the UN Guiding Principles on Business and Human Rights (UNGP).

On October 29, 2019, Thailand’s Cabinet adopted the country’s first National Action Plan on Business and Human Rights (NAP on BHR). The NAP aims to prevent adverse effects of business operations on human rights. Regional consultations and discussions with various stakeholders during the drafting process of the NAP (2016-2019) identified four priority areas: 1) labor; 2) community, land, natural resource and environment; 3) human rights defenders; and 4) cross border investment and multinational enterprises.

The Ministry of Industry has joined the National Human Rights Committee, the Ministry of Justice, the Ministry of Foreign Affairs, the Ministry of Commerce, the Federation of Thai Industries, the Thai Bankers Association, the Thai Chamber of Commerce, and the Global Computing Network of Thailand in signing a memorandum of cooperation to advance implementation of the UNGP.

In May 2019, Thailand’s capital market regulator, the Securities and Exchange Commission (SEC), and the National Human Rights Commission of Thailand signed an MO]U to uphold UNGP principles. The Ministry of Industry’s Department of Industrial Works encourages the private sector to implement its Corporate Social Responsibility (CSR-DIW) standards to achieve ISO 26000 standards (an international standard on CSR). I

There are several local NGOs that promote and monitor responsible business conduct. Most such NGOs operate without hindrance, though a few have experienced intimidation as a result of their work. International NGOs continue to call on the Thai government and Thai companies to act more responsibly with respect to human and labor rights.

Transparency International’s Corruption Perceptions Index ranked Thailand 101st out of 180 countries with a score of 36 out of 100 in 2019. According to some studies, a cultural propensity to forgive bribes as a normal part of doing business and to equate cash payments with finders’ fees or consultants’ charges, coupled with the relatively low salaries of civil servants, encourages officials to accept gifts and illegal inducements. U.S. executives with experience in Thailand often advise new-to-market companies that it is far easier to avoid corrupt transactions from the beginning than to stop such practices once a company has been identified as willing to operate in this fashion. American firms that comply with the strict guidelines of the Foreign Corrupt Practices Act (FCPA) are able to compete successfully in Thailand. U.S. businessmen say that publicly affirming the need to comply with the FCPA helps to shield their companies from pressure to pay bribes.

Thailand has a legal framework and a range of institutions to counter corruption. The Organic Law to Counter Corruption criminalizes corrupt practices of public officials and corporations, including active and passive bribery of public officials. The anti-corruption laws extend to family members of officials and to political parties.

Thai procurement regulations prohibit collusion amongst bidders. If an examination confirms allegations or suspicions of collusion among bidders, the names of those applicants must be removed from the list of competitors.

Thailand adopted its first national government procurement law in December 2016. Based on UNCITRAL model laws and the WTO Agreement on Government Procurement, the law applies to all government agencies, local authorities, and state-owned enterprises, and aims to improve transparency. Officials who violate the law are subject to 1-10 years imprisonment and/or a fine from Thai baht 20,000 (approximately USD 615) to Thai baht 200,000 (approximately USD 6,150).

Since 2010, the Thai Institute of Directors has built an anti-corruption coalition of Thailand’s largest businesses. Coalition members sign a Collective Action Against Corruption Declaration and pledge to take tangible, measurable steps to reduce corruption-related risks identified by third party certification. The Center for International Private Enterprise equipped the Thai Institute of Directors and its coalition partners with an array of tools for training and collective action.

Established in 2011, the Anti-Corruption Organization of Thailand (ACT) aims to encourage the government to create laws to combat corruption. ACT has 54 member organizations drawn from the private, public, and academic sectors. Their signature program is the “integrity pact.” Drafted by ACT and the Finance Ministry and based on a tool promoted by Transparency International, the pact forbids bribes from signatory members in bidding for government contacts. Member agencies and companies must adhere to strict transparency rules by disclosing and making easily available to the public all relevant bidding information, such as the terms of reference and the cost of the project.

Thailand is a party to the UN Anti-Corruption Convention, but not the OECD Anti-Bribery Convention.

Thailand’s Witness Protection Act offers protection (to include police protection) to witnesses, including NGO employees, who are eligible for special protection measures in anti-corruption cases.

Resources to Report Corruption

Contact at government agency or agencies responsible for combating corruption:

International Affairs Strategy Specialist
Office of the National Anti-Corruption Commission
361 Nonthaburi Road, Thasaai District, Amphur Muang Nonthaburi 11000, Thailand
Tel: +662-528-4800
Email: TACC@nacc.go.th

Contact at “watchdog” organization:

Dr. Mana Nimitmongkol
Secretary General
Anti-Corruption Organization of Thailand (ACT)
44 Srijulsup Tower, 16th floor, Phatumwan, Bangkok 10330
Tel: +662-613-8863
Email: mana2020@yahoo.com

On March 24, 2019, Thailand held its first national election since the 2014 military coup that ousted democratically elected Prime Minister Yingluck Shinawatra. On June 5, the newly-seated Parliament elected coup leader General Prayut Chan-o-cha to continue in his role as Prime Minister.

Violence related to an ongoing ethno-nationalist insurgency in Thailand’s southernmost provinces has claimed more than 7,000 lives since 2004. Although the number of deaths and violent incidents has decreased year-over-year, efforts to end the insurgency have so far been unsuccessful. The government is currently engaged in confidence-building measures with the leading insurgent group. Almost all attacks have occurred in the three southernmost provinces of the country.

In 2019, 38.18 million people were in Thailand’s formal labor pool, comprising 57 percent of the total population. Thailand’s official unemployment rates stood at 1.0 percent at the end of 2019, slightly less than 1.1 percent the previous year. Unemployment among youth (15-24 years old) is around 5.2 percent, while the rate is only 0.5 percent for adults over 25 years old. Well over half the labor force (54.3 percent) earns income in the informal sector, including through self-employment and family labor, which limits their access to social welfare programs. (Note: These statistics do not take into account the impact of the coronavirus pandemic, the long-term impact of which on the Thai labor force is difficult to ascertain. End note.)

The Thai government is actively seeking to address shortages of both skilled and unskilled workers through education reform and various worker-training incentive programs. Low birth rates, an aging population, and a skills mismatch, are exacerbating labor shortages in many sectors. Despite provision of 15 years of free universal education, Thailand continues to suffer from a skills mismatch that impedes innovation and economic growth. Thailand has a shortage of high-skill workers such as researchers, engineers, and managers, as well as technicians and vocational workers.

Regional income inequality and labor shortages, particularly in labor-intensive manufacturing, construction, hospitality and service sectors, have attracted millions of migrant workers, mostly from neighboring Burma, Cambodia, and Laos. In 2019, the International Organization for Migration estimated Thailand hosted 4.9 million migrant workers, or 13 percent of country’s labor force. Although an increasing number of migrant laborers are documented, many continue to work illegally. As of 2019, approximately 3.8 million formerly undocumented migrant workers had been regularized.

Employers may dismiss workers provided the employer pays severance. Where an employer temporarily suspends business, in part or in whole, the employer must pay the employee at least 75 percent of his or her daily wages throughout the suspension period.

Among wage and salary workers, 3.5 percent are unionized and only 34 out of 77 provinces have labor unions. Thai law allows private-sector workers to form and join trade unions of their choosing without prior authorization, to bargain collectively, and to conduct legal strikes, although these rights come with some restrictions. Noncitizen migrant workers, whether registered or undocumented, do not have the right to form unions or serve as union officials. Migrants can join unions organized and led by Thai citizens.

In 2019 the government issued a new regulation to ensure that seasonal employees in agriculture, fishing, forestry, and husbandry businesses have access to the government’s accident compensation fund. Additional information on migrant workers issues and rights can be found in the U.S. Trafficking in Persons Report, as well as the Labor Rights chapter of the U.S. Human Rights report.

Under an agreement with the Thai government, the U.S. International Development Finance Corporation (DFC, formerly the Overseas Private Investment Corporation) can provide equity investments, debt financing, partial credit guarantees, political risk insurance, grants and private equity capital to support U.S. and other investors and their investments. DFC also can provide debt financing, in the form of direct loans and loan guarantees, of up to USD one billion per project for business investments, preferably with U.S. private sector participation, covering sectors as diverse as tourism, transportation, manufacturing, franchising, power, infrastructure, and others. DFC political risk insurance is also available for currency inconvertibility, expropriation, and political violence for U.S. and other investments including equity, loans and loan guarantees, technical assistance, leases, and consigned inventory or equipment. Grants, a new tool for DFC, are available for projects that are already reasonably developed but need additional, limited funding and specific work — for example technical, environmental and social-risk (E&S) screening, or legal advice — in order to be bankable and eligible for DFC financing or insurance. In addition, DFC supports twelve private equity funds that are eligible to invest in projects in Thailand. In all cases, DFC support is available only where sufficient or appropriate investment support is unavailable from local or other private sector financial institutions.

http://data.imf.org/regular.aspx?key=60587804 

U.S. Embassy Bangkok
Economic Section
BangkokEconSection@state.gov