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 limiting public spending and its low levels of private investment. 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 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.
Taiwan launched a reshoring incentive program in 2019 to attract Taiwan firms operating in the PRC to return to Taiwan and 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 services and employee recruitment. For investments over New Taiwan Dollar (NTD) 500 million (US $16.7 million), authorities will assign a dedicated project manager to facilitate the investment process. DOIS services are available to all foreign investors. The Centre’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 with a relaxed visa and work permit issuance process and tax incentives. As of December 2022, 6,571 foreigners have received the Taiwan Employment Gold Card , a government initiative to attract highly skilled foreign talent to Taiwan (https://goldcard.nat.gov.tw/en/).
Taiwan maintains a list of industries closed to foreign investment due to national security and environmental protection concerns as reported by local authorities. These exclusions apply to various sectors, including public utilities, power distribution, natural gas, postal service, telecommunications, mass media, and air and sea transportation. Railway transport, freight transport by small trucks, pesticide manufactures, real estate development, brokerage, leasing, and trading are open to foreign investment. The list of restricted investment sectors, last updated in 2018, is available at http://www.moeaic.gov.tw/download-file.jsp?do=BP&id=ZYi4SMROrBA= .
Taiwan authorities have been actively promoting the “5+2 Innovative Industries” and six strategic industries development program to accelerate industrial transformation that would boost domestic demand and external market expansion. Target industries include smart machinery, biomedicine, IoT, green energy, national defense, advanced agriculture, circular economy, and semiconductors, among other key sectors. Taiwan authorities also offer subsidies for the research and development expenses for Taiwan-foreign partnership projects. 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.
The American Chamber of Commerce in Taiwan (AmCham Taiwan) meets regularly with Taiwan agencies such as the National Development Council (NDC) to promote the resolution of concerns highlighted in the AmCham Taiwan’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 regarding private equity investment transactions. 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 to advance opposition to private equity rather than foster transparent dialogue. Private equity transactions and other previously approved investments have, in the past, attracted the scrutiny of the Legislative Yuan – Taiwan’s legislative body – including committee-level resolutions opposing specific transactions.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign entities are entitled to establish entities, 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. For instance, Chunghwa Telecom, which controls 92 percent of the fixed-line telecom market, has a 49 percent limit on direct foreign investment and a 60 percent limit on overall foreign investment when including indirect ownership, in addition to a Taiwan identity document requirement for its Chairman position. There is also 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. However, in practice, this kind of foreign 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, as well as a 49 percent limit for high-speed rail services. These foreign ownership limits also apply for 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. 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.
The Investment Commission screens applications for FDI, mergers, and acquisitions. Taiwan operates a two-track inbound FDI screening mechanism: one track for screening inbound investment from the PRC (excluding Hong Kong and Macau) and another for screening inbound investments from rest of the world. Taiwan authorities claim that 95 percent of investments are not subject to Taiwan’s list of excluded industries, and that investments, with capital less than US $17.6 million (NTD 500 million), can obtain approval at the Investment Commission staff level within two to four days. Investments between US $16.7 million (NTD 500 million) and $50 million (NTD 1.5 billion) take three to five days to screen. The approval authority for these types of transactions rests with the Investment Commission’s executive secretary. For investments exceeding NTD 1.5 billion, involving cross-border mergers and acquisitions or other special situations, screening takes at least 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 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 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.
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. In 2021, the Investment Commission tightened the definition of a “PRC Investor,” which includes any company located in any “third area” that is invested by PRC persons with a stake of 30 percent or more, or any PRC person(s) that has effective control over the company. In addition, the 30 percent shareholder threshold must be examined on each offshore holding level, rather than being calculated as the ultimate shareholder percentage in a third-area company by one or more PRC persons. Consequently, the new administrative rules have become stricter since it is increasingly possible to regard a third-area company as a PRC investor. 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
The Ministry of Economic Affairs (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 application review period for company registration has been shortened 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 and granted decisions within five to seven business days. Since 2017, foreign investors’ company registration applications are processed by the MOEA’s Central Region Office. In 2021, MOEA revised certain rules to allow foreign investors to convert an existing representative office into a branch office. Further details about business registration process can be found in Invest Taiwan Center’s business one-stop service request website at https://investtaiwan.nat.gov.tw/smartIndexPage?lang=eng&menuNum=28 .
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.
In recent years, Taiwan authorities have 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 allowing foreign entrepreneurs to remain in Taiwan if they meet one of the following requirements: raise at least NTD 2 million (US $70,400) 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. Starting from 2019, startup entrepreneurs can use intellectual property (IP) as collateral to obtain bank loans, which applies to foreign investors. In July 2021, the Taiwan authorities further relaxed the criteria and introduced more tax and social security measures to attract more foreign professionals working in Taiwan. By the end of 2022, more than 6,700 people had obtained the Employment Gold Card, which 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.
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 NTD 100 million (US $3.5 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 US $350 million (NTD 10 billion) to invest in SMEs.
Outward Investment
The PRC used to be the top destination for Taiwan companies’ overseas investment given the low manufacturing costs. With rising U.S. – PRC trade tensions, Taiwan authorities have intensified their efforts to assist diversification efforts for Taiwan firms by either encouraging them to relocate back to Taiwan or move to other markets, including in Southeast Asia. The Tsai administration launched the New Southbound Policy to enhance Taiwan’s economic connections with 18 countries in Southeast Asia, South Asia, and the Pacific. In 2022, Taiwan companies’ investment in the 18 countries totaled US $5.2 billion while investment in the PRC continued to decline. The Taiwan authorities seek investment agreements with these countries to incentivize Taiwan firms’ investment in those markets. MOEA 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. In May 2022, Taiwan authorities amended the National Security Act and the Act Governing Relations between the People of the Taiwan Area and the Mainland Area to mandate prior approval for travel to the PRC if the individual had been commissioned by Taiwan authorities to engage in businesses involving Taiwan’s core technologies. The National Science and Technology Council is still reviewing comments from relevant stakeholders before it finalizes the regulations for this amendment.