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.