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. Despite the global economic recession caused by the COVID-19 pandemic, Taiwan’s domestic private investment registered 19 percent y-o-y growth in 2021 due to continuous reshoring of investment by overseas Taiwan companies since late 2018. Taiwan has pursued various measures to attract FDI from both foreign companies and Taiwan firms operating overseas. A network of science and industrial parks, technology industrial zones, and free trade zones aims to expand trade and investment opportunities by granting tax incentives, tariff exemptions, low-interest loans, and other favorable terms. Incentives tend to be more prevalent for investment in the manufacturing sector. In January 2019, Taiwan launched a reshoring incentive program to attract Taiwan firms operating in the PRC to return to Taiwan.
Thus far, Taiwan has received favorable responses from Information Communication Technology (ICT) manufacturers. The Ministry of Economic Affairs (MOEA) Department of Investment Services (DOIS) Invest in Taiwan Center serves as Taiwan’s investment promotion agency and provides streamlined procedures for foreign investors, including single-window and employee recruitment services. For investments over US $17.6 million (New Taiwan Dollar NTD 500 million), Taiwan authorities will assign a dedicated project manager for the investment process. DOIS services are available to all foreign investors. The Center’s website contains an online investment aid system (https://investtaiwan.nat.gov.tw/smartIndexPage?lang=eng ) to help investors retrieve all the required application forms based on various investment criteria and types.
Taiwan also passed the Foreign Talent Retention Act to attract foreign professionals using relaxed visa and work permit issuance process and tax incentives. As of December 2021, 3,927 foreigners received the Taiwan Employment Gold Card, a government initiative to attract highly skilled foreign talent to Taiwan (https://goldcard.nat.gov.tw/en/ ). The Taiwan Employment Gold Card also includes a residency permit for the applicant and his/her immediate relatives (parents, spouse, children), a work permit for three years, an alien resident certificate, and a re-entry permit. The Employment Gold Card policy helped alleviate recruiting companies’ liability in work permit applications and associated administrative expenditures. The MOEA is also in the process of drafting a proposed amendment to the Statute for Investment by Foreign Nationals, which would replace the existing pre-approval investment review process with an ex-post reporting mechanism and strengthen investment screening in industries of national security concern.
Taiwan maintains a negative list of industries closed to foreign investment in sectors related to national security and environmental protection, including public utilities, power distribution, natural gas, postal service, telecommunications, mass media, and air and sea transportation. These sectors constitute less than one percent of the production value of Taiwan’s manufacturing sector and less than five percent of the services sector. Railway transport, freight transport by small trucks, pesticide manufactures, real estate development, brokerage, leasing, and trading are open to foreign investment. The negative list of investment sectors, last updated in February 2018, is available at http://www.moeaic.gov.tw/download-file.jsp?do=BP&id=ZYi4SMROrBA=.
The Taiwan authorities actively promote a “5+2 Innovative Industries” and six strategic industries development program to accelerate industrial transformation. Target industries under this campaign include smart machinery, biomedicine, IoT, green energy, national defense, advanced agriculture, circular economy, and semiconductors. The Taiwan authorities also offer subsidies for the research and development expenses for partnerships with foreign firms. Taiwan’s central authorities take a cautious approach to approving foreign investment in innovative industries that utilize new and potentially disruptive business models, such as the sharing economy.
Taiwan’s authorities regularly meet with foreign business groups. For example, Taiwan’s National Development Council (NDC) meets with the American Chamber of Commerce in Taiwan (AmCham Taiwan) to discuss AmCham Taiwan’s annual White Paper. Some U.S. investors have expressed concerns about a lack of transparency, consistency, and predictability in the investment review process, particularly regarding private equity investment transactions. U.S. investors claim to experience lengthy review periods for private equity transactions that involve redundant inquiries from the MOEA Investment Commission and its constituent agencies. Some U.S. investors report that public hearings convened by Taiwan regulatory agencies about specific private equity transactions appear to promote opposition to private equity rather than foster transparent dialogue. Private equity transactions and other previously approved investments have, in the past, attracted Legislative Yuan scrutiny, including committee-level resolutions that opposed specific transactions.
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, similar with local firms, unless otherwise specified in relevant regulations. Taiwan sets foreign ownership limits in certain industries, such as a 60 percent limit on foreign ownership of wireless and fixed-line telecommunications firms, including a direct foreign investment limit of 49 percent in that sector. State-controlled Chunghwa Telecom, which controls 92 percent of the fixed-line telecom market, maintains a 49 percent limit on direct foreign investment and a 60 percent limit on overall foreign investment, including indirect ownership. There is a 20 percent limit on foreign direct investment in cable television broadcasting services, but foreign ownership of up to 60 percent is allowed through indirect investment via a Taiwan entity. However, in practice, this kind of investment is subject to heightened regulatory and political scrutiny. In addition, there is a foreign ownership limit of 49.99 percent for satellite television broadcasting services and piped distribution of natural gas and a 49 percent limit for high-speed rail services. These foreign ownership limits also apply to all public switched telecommunications resources (“PSTN”) that use telecommunications resources. The foreign ownership cap on airport ground services firms, air-catering companies, aviation transportation businesses (airlines), and general aviation businesses (commercial helicopters and business jet planes) is less than 50 percent, with a separate limit of 25 percent for any single foreign investor. Foreign investment in Taiwan-flagged merchant shipping services is limited to 50 percent for Taiwan shipping companies operating international routes.
Taiwan has opened more than two-thirds of its aggregate industrial categories to PRC investors, with 97 percent of manufacturing sub-sectors and 51 percent of construction and services sub-sectors open to PRC capital. PRC nationals are prohibited from serving as chief executive officer in a Taiwan company, although a PRC board member may retain management control rights. The Taiwan authorities regard PRC investment in media or advanced technology sectors, such as semiconductors, as a national security concern. The Cross-Strait Agreement on Trade in Services and the Cross-Strait Agreement on Avoidance of Double Taxation and Enhancement of Tax Cooperation were signed in 2013 and 2015, respectively, but have not taken effect. Negotiations on the Agreement on Trade in Goods with the PRC were halted in 2016.
Taiwan’s Investment Commission screens applications for FDI, mergers, and acquisitions. Taiwan authorities claim that 95 percent of investments not subject to the negative list and, with capital less than US $17.6 million (NTD 500 million), obtain approval at the Investment Commission staff level within two to four days. Investments between US $17.6 million (NTD 500 million) and US $53 million (NTD 1.5 billion) in capital take three to five days to screen. The approval authority for these types of transactions rests with the Investment Commission’s executive secretary. For investment in restricted industries, in cases where the investment amount or capital increase exceeds NTD 1.5 billion, or for mergers, acquisitions, and spin-offs, screening takes 10 to 20 days and includes review by relevant supervisory ministries. Final approval rests with the Investment Commission’s executive secretary. Screening for foreign investments involving cross-border mergers and acquisitions or other special situations takes 20-30 days, as these transactions require interagency review and deliberation at the Investment Commission’s monthly meeting.
The investment screening process provides Taiwan’s regulatory agencies opportunities to attach conditions to investments to mitigate concerns about ownership, structure, or other factors. Screening may also include an assessment of the impact of proposed investments on a sector’s competitive landscape and the rights of local shareholders and employees. Screening is also used to detect investments with unclear funding sources, especially PRC-sourced capital. To ensure monitoring of PRC-sourced investment in line with Taiwan law and public sentiment, Taiwan’s National Security Bureau participates in every investment review meeting regardless of the size of the investment. Blocked deals in recent years reflected the authorities’ increased focus on national security concerns beyond the negative-list industries. Taiwan authorities also review proposals to prevent illegal PRC investment via third-areas or through dummy accounts.
Foreign investors must submit an application form containing their funding plan, business operation plan, entity registration, and documents certifying the inward remittance of investment funds. Applicants and their agents must provide a signed declaration certifying that any PRC investors in a proposed transaction do not hold more than a 30 percent ownership stake and do not retain managerial control of the company. When an investment fails review, an investor may re-apply when the reason for the denial no longer exists. Foreign investors may also petition the regulatory agency that denied approval or may appeal to the Administrative Court.
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 Taiwan’s trade policies and practices. Related reports and documents are available at: https://www.wto.org/english/tratop_e/tpr_e/tp477_crc_e.htm
MOEA took steps to improve the business registration process, including finalizing amendments to the Company Act to make business registration more efficient. Since 2014, Taiwan shortened the application review period for company registration to two days. Applications for a taxpayer identification number, labor insurance (for companies with five or more employees), national health insurance, and pension plans can be processed at the same time for approval within five to seven business days. Since January 2017, MOEA’s Central Region Office processes foreign investors’ company registration applications.
In recent years, the Taiwan authorities revised rules to improve the business climate for startups. To develop Taiwan into a startup hub in Asia, Taiwan authorities launched an entrepreneur visa program to permit foreign entrepreneurs to remain in Taiwan if they meet one of the following requirements: raise at least US $70,400 (NTD 2 million) in funding, hold patent rights or a professional skills certificate; operate in an incubator or innovation park in Taiwan; win prominent startup or design competitions, or receive grants from the Taiwan authorities. Since in 2019, startup entrepreneurs – including foreign investors – can use intellectual property (IP) as collateral to obtain bank loans. In July 2021, the Taiwan authorities further introduced additional tax and social security measures to attract foreign professionals to Taiwan.
Further details about Taiwan’s business registration process can be found in Invest Taiwan Center’s business one-stop service request website at https://onestop.nat.gov.tw/oss/web/Show/engWorkFlowEn.do . The Investment Commission website lists the rules, regulations, and required forms for seeking foreign investment approval: https://www.moeaic.gov.tw/businessPub.view?lang=en&op_id_one=1
Approval from the Investment Commission is required for foreign investors before proceeding with business registration. After receiving an approval letter from the Investment Commission, an investor can apply for capital verification and then file an application for a corporate name and proceed with business registration. The new company must register with the Bureau of Labor Insurance and the Bureau of National Health Insurance before recruiting employees.
For the manufacturing, construction, and mining industries, the MOEA defines small and medium-sized enterprises (SMEs) as companies with less than US $2.8 million (NTD 80 million) of paid-in capital and fewer than 200 employees. For all other industries, SMEs are defined as having less than US $3.5 million (NTD 100 million) of paid-in capital and fewer than 100 employees. Taiwan runs a Small and Medium Enterprise Credit Guarantee Fund to help SMEs obtain financing from local banks. Firms established by foreigners in Taiwan may receive a guarantee from the Fund. Taiwan’s National Development Fund has set aside NTD 10 billion (US $350 million) to invest in SMEs.
The PRC used to be the top destination for Taiwan companies’ overseas investment given the low cost of factors of production there, such as wages and land. Since rising trade tensions between the United States and the PRC in 2018, the Taiwan authorities have intensified their efforts to assist Taiwan firms to diversify production by either relocating back to Taiwan or to other markets, including in Southeast Asia. The Tsai administration launched the New Southbound Policy to enhance Taiwan’s economic engagement with 18 countries in Southeast Asia, South Asia, and the Pacific. In 2021, Taiwan companies’ investment in the 18 countries totaled US $5.8 billion. The Taiwan authorities seek investment agreements with these countries to incentivize Taiwan firms’ investment in those markets. Invest Taiwan Center provides consultation and loan guarantee services to Taiwan firms operating overseas. Taiwan’s financial regulators have urged Taiwan banks to expand their presence in Southeast Asian economies either by setting up branches or acquiring subsidiaries.
According to the Act Governing Relations between the People of the Taiwan Area and the Mainland Area, all Taiwan individuals, juridical persons, organizations, or other institutions must obtain approval from the Investment Commission to invest in or have any technology-oriented cooperation with the PRC. The Taiwan authorities maintain a negative list for Taiwan firms’ investment and have special rules governing technology cooperation in the PRC. The Taiwan authorities, Taiwan companies, and foreign investors in Taiwan are increasingly vigilant about the threat of IP theft and illegal talent poaching in key strategic industries, such as the semiconductor industry.