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Taiwan

Executive Summary

Taiwan is an important market for regional and global trade and investment. Taiwan is one of the world’s top 25 economies in terms of gross domestic product (GDP) and serves as the United States’ 8th largest trading partner according to 2021 statistics. An export-dependent economy of 23.5 million people with a highly skilled workforce, Taiwan is at the center of regional high-technology supply chains due to advanced capabilities to develop products for industries such as semiconductors, 5G telecommunications, AI, and the Internet of Things (IoT). Taiwan is also a central shipping hub in East Asia. The Taiwan authorities continue to actively launch initiatives to partner with foreign investors to foster resilient, diverse supply chains in the Indo-Pacific.

Taiwan welcomes and actively courts foreign direct investment (FDI) and partnerships with American and other foreign firms. Taiwan President Tsai Ing-wen’s administration seeks to promote economic growth by increasing domestic investment and FDI. Taiwan authorities offer investment incentives and aim to leverage Taiwan’s strengths in advanced technology, manufacturing, and R&D. Some Taiwan and foreign investors regard Taiwan as a strategic location to insulate themselves against potential supply chain disruptions caused by regional trade frictions and the COVID-19 pandemic.

In January 2019, the Taiwan government launched three investment promotion programs, including a reshoring initiative to lure Taiwanese companies to shift production back to Taiwan from the People’s Republic of China (PRC). The Taiwan government extended these investment incentives to the end of 2024 to support its domestic economy and counter the adverse impact from COVID-19. Over the past few years, Taiwan has witnessed increases in greenfield investments by foreign firms, including from companies trying to reduce their over-reliance on PRC supply chains and from firms in the offshore wind sector.

Taiwan’s finance, wholesale and retail, and electronics sectors remain top targets of inward FDI. Taiwan attracts a wide range of U.S. investors, including in advanced technology, digital, traditional manufacturing, and services sectors. The United States is Taiwan’s second-largest single source of FDI after the Netherlands, through which some U.S. firms also choose to invest. In 2020, according to U.S. Department of Commerce data, the total stock of U.S. FDI in Taiwan reached US $31.5 billion. U.S. services exports to Taiwan totaled US $10.2 billion in 2021. Leading services exports from the United States to Taiwan were intellectual property, transport, and financial services.

Structural impediments in Taiwan’s investment environment include the following: excessive or inconsistent regulation; market influence exerted by domestic and state-owned enterprises (SOEs) in the utilities, energy, postal, transportation, financial, and real estate sectors; foreign ownership limits in sectors deemed sensitive; and regulatory scrutiny over the possible participation of PRC-sourced capital. Taiwan has among the lowest levels of private equity investment in Asia, although private equity firms are increasingly pursuing opportunities in Taiwan’s market. Foreign private equity firms have expressed concern over the lack of transparency and predictability in the investment approvals and exit processes and regulators’ reliance on administrative discretion when rejecting certain transactions. Private equity entry and exit challenges are especially apparent in sectors that are deemed sensitive for national security reasons, but still permit foreign ownership.

Taiwan has strived to enact relevant regulation to fight climate change. Taiwan set a goal for renewable energy sources to provide 27 gigawatts (GW) of capacity by 2025. Taiwan aims to phase out nuclear power by 2025 and derive 20 percent of its power supply from renewable sources (mainly solar and offshore wind installation). Taiwan industry continues to question the feasibility for Taiwan to phase out nuclear power by 2025 and increase the use of liquified natural gas (LNG) and renewables.

Labor relations in Taiwan are generally harmonious. The current Tsai administration made improving labor welfare one of its core priorities.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 25 of 180 http://www.transparency.org/research/cpi/overview 
Global Innovation Index 2020 N/A https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 31,544 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2020 N/A https://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

Taiwan has 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/Download.ashx?u=LzAwMS9hZG1pbmlzdHJhdG9yLzEwL3JlbGZpbGUvMC8xMjk1LzM3NGExNjVjLWM5MzAtNDYxZS1iYjViLTA3ODkzYjNlNWVhMi5kb2M%3d&n=M2ZjMzZmMDItZjVjOC00ZjU2LThiMTctZmM3Y2EzMTE1MDRhLmRvYw%3d%3d&icon=.doc Some of these SOEs are large in scale and exert significant influence in their industries, especially monopolies such as Taiwan Power (Taipower) and Taiwan Water. CPC Corporation (formerly China Petroleum Corporation) controls over 70 percent of Taiwan’s retail gasoline market. The most recent privatization took place in 2014, when the Aerospace Industrial Development Corporation (AIDC) was successfully privatized through a public listing on the TWSE. Taiwan authorities retain control over some SOEs that were privatized, including 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 Transport Corp., and eight public banks. In 2020 (latest data available), the 17 SOEs together had a net income of NTD 258 billion (US $9.2 billion), down 21 percent from the NTD 325 billion (US $11.6 billion) in 2019. The SOEs’ average return on equities continued to decline from a recent peak of 11.13 percent in 2015 to 6.67 percent in 2020. These 17 SOEs employed a total of 120,606 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. Still, authorities may retain managerial control through senior management appointments, which may change with each administration. Each SOE operates under the supervising ministry’s authority, 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 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’s central and local government entities, and SOEs are all covered by the WTO’s Agreement on Government Procurement (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 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.

8. Responsible Business Conduct

The Taiwan public has high expectations for and is sensitive to responsible business conduct (RBC), in part due to concerns about such issues as food safety and environmental pollution. Taiwan authorities actively promote RBC. MOEA and the FSC issued guidelines on ethical standards and internal control mechanisms to urge businesses to take responsibility for the impact of their activities on the environment, consumers, employees, and communities. Although not a member of the United Nations, Taiwan pledged on its own initiative to uphold international human rights conventions. In December 2020, Taiwan’s Cabinet released the National Action Plan on Business and Human Rights (NAP) in an aim to provide better protections for human rights in the workplace. Taiwan’s labor law provides a minimum age for employment of 15 but has an exception for work by children younger than 15 if they have completed junior high school and the competent authorities have determined the work will not harm the child’s mental and physical health. The law prohibits children younger than 18 from doing heavy or hazardous work. Working hours for children are limited to eight hours per day, and children may not work overtime or on night shifts. There is no reported RBC related to forced labor or child labor issues.

The TWSE conducts an annual review of the corporate governance performance of all publicly listed companies. To promote more profit-sharing with employees, Taiwan’s Securities and Futures Act mandates that all publicly listed companies establish a compensation committee. In November 2018, the Act was amended to require all publicly listed companies to disclose average employee compensation and wage adjustment information. Taiwan Depository & Clearing Corporation, a government-run securities depository of Taiwan, in 2020 launched Taiwan ESG Dashboard to encourage sustainable investing and enhance companies’ performance on ESG issues. In 2021, 30 Taiwan companies were included in the Dow Jones Sustainability World Index. Taiwan ranks fourth among 12 Asian markets in the Corporate Governance Watch 2020 report, behind only Australia, Hong Kong, and Singapore. There are also independent NGOs and business associations promoting or monitoring RBC in Taiwan.

In August 2020, the FSC announced that it will implement the “Corporate Governance 3.0–Sustainable Development Roadmap” for the TWSE listed companies. All TWSE-listed companies are required to appoint a chief corporate governance officer. They must complete the carbon footprint verification and disclosure by 2027, and all the certification by 2029. Starting in January 2022, 42 listed petrochemical companies and 44 financial institutions were required to obtain third-party assurance for sustainability reporting. The FSC also mandates greenhouse gas emissions disclosure in annual reports beginning in 2023 for all steel and cement companies, as well as listed companies with paid-in capital of over US $360 million (NTD 10 billion).

Taiwan does not participate in the Extractive Industries Transparency Initiative. Taiwan authorities encourage Taiwan firms to adhere to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas, and many Taiwan-listed companies have voluntarily enclosed conflict minerals free statement in their annual social responsibility reports. Taiwan has a private security industry. Taiwan is not a signatory of The Montreux Document on Private Military and Security Companies, nor a participant in the International Code of Conduct for Private Security Service Providers’ Association (ICoCA.)

9. Corruption

10. Political and Security Environment

Taiwan is a young and vibrant multi-party democracy. The transitions of power in both local and presidential elections have been peaceful and orderly. There are no recent examples of politically motivated damage to foreign investment.

11. Labor Policies and Practices

The Tsai Ing-wen administration has made improving labor welfare one of its core priorities. Minimum monthly wage has been consistently raised since 2017 and reached US $890 (NTD 25,250) in 2022. Affected by the global pandemic, Taiwan’s unemployment rate in 2021 edged up to 3.64 percent. Taiwan Ministry of Labor (MOL) data show that 53 percent of Taiwan’s population aged above 15 years is at least college-educated. Taiwan’s female worker participation rate is 51.4 percent, similar to neighboring countries’ figures. According to the MOL, informal employment hit a record high at 799,000 labors in 2020, accounting for 7.0 percent of total employment.

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 2020, 15.8 percent of its population were 65 years old or above, up from 10.6 percent in 2009. Taiwan’s total fertility rate in 2020 was 0.99, marking the first time it went under one and remaining one of the lowest in the world. As of December 2021, there were 669,992 foreign laborers in Taiwan, of which 443,104 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.

MOL data indicated that, while labor shortage rates remained stable at around three 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 the 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 the foreign workers ceiling for specific industries, but across the board, the ceiling remained at 40 percent of total employees. Taiwan businesses consistently urge the authorities to ease work visa requirements to recruit foreign professionals, especially the skilled white-collar labor in the ICT sector. However, wage growth in Taiwan, compared with neighboring economies, poses a challenge for talent recruitment and retention. Taiwan issued 40,993 working permits to foreign professionals in 2021, with 20 percent to individuals from Japan, followed by 15.9 percent from Malaysia, and 8.3 percent from the United States. 26.7 percent of foreign professionals work in the manufacturing industry.

Private companies are not required to hire 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. Due to the global pandemic, 58,731 employees suffered from unpaid leave in 2021. 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 to attract or retain investment.

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 protects the right to join independent unions, conduct legal strikes, and bargain collectively. Labor unions have become more active in Taiwan over the past decade, and the Collective Agreement Act outlines the negotiation mechanism for collective bargaining to protect labor’s interests in the negotiations. The majority of labor unions exist in the manufacturing sector. The authorities provide financial incentives to enterprise unions to encourage negotiation of “collective agreements” with employers that detail their employees’ immediate labor rights and entitlements. No strike has initiated/conducted in 2020-21 due to the stringent economic impact by the global pandemic. Taiwan’s labor authorities have announced the increasing frequency and coverage of labor inspections. Since 2019, government incentives for business growth and industrial development have incorporated the labor inspection record as a core evaluating item for the applying entities. Violating employers will not be eligible for tax reduction or grants. The Labor Incident Act of 2020 mandates the establishment of special labor courts, which helps accelerates dispute resolution and reduces financial cost for labor filing employment lawsuits. In December 2020, Taiwan implemented the Middle-aged and Elderly Employment Promotion Act to promote employment opportunities for employees aged above 45 years.

14. Contact for More Information

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

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