Invest Asia Group in Taiwan
Last Update: 13th September 2020
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Taipei 101 Tower in Taipei, Taiwan
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Taiwan is a highly developed island located off the eastern coast of the People's Republic of China. With a population of close to 24 million people, Taiwan is one of the most densely populated places in the world and its world class capital of Taipei is popular among expats.
Since the end of the Chinese Civil War in 1949, the Republic of China retreated to Taiwan and embarked upon a number of different policies to develop the economy. Taiwan, through land reform policies and replacing the agrarian economy with light industry followed by privatization experienced rapid economic growth. This was known as the 'Taiwan Miracle' and Taiwan was classified as one of the Four 'Asian Tigers' including Hong Kong, Singapore and South Korea. Nowadays, Taiwan offers a vibrant, democratic economy with multiple investment opportunities available for international investors.
Since the end of the Chinese Civil War in 1949, the Republic of China retreated to Taiwan and embarked upon a number of different policies to develop the economy. Taiwan, through land reform policies and replacing the agrarian economy with light industry followed by privatization experienced rapid economic growth. This was known as the 'Taiwan Miracle' and Taiwan was classified as one of the Four 'Asian Tigers' including Hong Kong, Singapore and South Korea. Nowadays, Taiwan offers a vibrant, democratic economy with multiple investment opportunities available for international investors.
Taiwan: Overview
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Taiwan has an overall area of 35,808 square kilometres with mountain ranges along the Eastern coast. The urbanized population is located along the Western Coast in the main cities of Taipei, Kaohsiung, Tainan and Taichung, among others.
Following the retreat to Taiwan by the Kuomintang (KMT) at the conclusion of the Chinese Civil War, the Nationalist Government imposed Martial Law in Taiwan from 1949 to 1987 while new policies were implemented. Through land reforms, a commitment to education, implementing a new currency (New Taiwan Dollars) and an import substitute policy were some of the major changes embarked upon. Outsourcing from more developed countries to Taiwan further developed the economy. During the 1970s, some major shocks impacted Taiwan through the expulsion from the United Nations (due to People's Republic of China), oil crisis and the United States no longer recognizing Taiwan diplomatically. However, through the 'Ten Major Construction Projects' (highways, railways, airports, shipyard, nuclear power plant etc.), the economy stabilized and continued its economic growth from the 1980s onwards as Taiwan developed as a democracy. |
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Administrative Divisions of Taiwan
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Within Taiwan, there are 22 administrative divisions with 19 of these located on the main island of Taiwan with the other 3 located on the islands surrounding the main island of Taiwan. Details of these are as follows:
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Taipei City
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Major Taiwan Cities
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As per the special municipalities within Taiwan, each city is different and offers foreign investors different opportunities depending upon preferences.
Along the Eastern coast of Taiwan, the largest county is Yilan County, located on the North-Western coast of Taiwan. |
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Business Operations in Taiwan
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Operating a business in Taiwan presents an array of opportunities as well as challenges. Aside from obvious business related risks, understanding and working within a foreign system presents numerous challenges to investors.
However, with a relevant strategy, professional advice and local team, these risks can be mitigated. Whilst details can be relatively complex, we’ve summarized accordingly so readers can gain an understanding of the different options and processes involved in operating a business in Taiwan. |
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Forming a Company in Taiwan
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Establishing a company in Taiwan is a fairly straightforward process and the simplicity largely depends upon your specific business objectives. There are a few different options for investors with most investors opting to utilize the services of a consulting company in setting up the structure and gaining a foothold within the Taiwanese business community.
Within Taiwan, foreign investment is permitted in the vast majority of sectors/industries aside from those specifically noted on the negative investment list. According to the Taiwan Company Act, four types of companies are allowed to be formed as follows:
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Taiwan Subsidiary Company
For foreign investors looking to establish a limited company within Taiwan, a subsidiary company is often most popular but requires a lot more processes to establish (compared to representative offices and foreign branches). Foreign Investors can form different types of subsidiary companies per the following options:
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Taiwan Partnership Company
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In regards to setting up a Taiwan Partnership Company, foreign investors have the option to set up either a sole proprietorship or a general proprietorship. Partnership companies do not have any minimum capital requirements, however, foreign investment approval is required (per the requirements of a subsidiary company).
Taiwan Representative Office Company
A Taiwan Representative Office Company is an ideal option for a company that wants to establish in Taiwan with limited exposure before committing more permanently with another company structure. It's very straightforward and easy to incorporate but there are restrictions on what activities the company can conduct legally.
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Taiwan Foreign Branch Company
Foreign Companies that are incorporated outside of Taiwan can choose to establish as a branch office to operate within Taiwan. However, there are restrictions for this type of company whereby branch offices are unable to conduct any transactions unless obtaining a recognized certificate and successfully completing the necessary procedures for a branch office registration.
Company Formation Procedure
For the purposes of this example, we will outline the necessary steps to incorporate as a subsidiary (as this is typically the recommended option). Overall summarized details are as follows (specifics can also be provided upon request):
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International Investors
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Whilst there are certain restrictions, international investors/companies can operate businesses in Taiwan and are welcome (outside of the restricted industries). Moreover with continual/ongoing reforms, the number of restricted industries that foreign investors are able to operate is continually being reduced on an annual basis to make Taiwan a liberal & transparent economy to operate in.
Corporate Taxes
There are a number of different corporate taxes within Taiwan and tax rates depend upon resident vs non-resident companies. With effect from the 1st January 2018, the CIT rate in Taiwan is 20%. However, for profit-seeking companies with less than TWD 500,000 of taxable income, the CIT rate is 18% in 2018, 19% in 2019, and 20% in 2020 if the companies taxable income exceeds TWD 120,000. Companies within Taiwan are taxed per their worldwide income and up to 120,000 TWD is tax exempt.
Alternatively, non resident companies are taxed only on income derived from Taiwan sources whilst non-resident companies with fixed place of business or business agents within Taiwan are taxed the same way as resident companies. Further details are outlined below. |
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Taiwan Tonnage Tax System
Qualified Companies with head office located within Taiwan (and engage in maritime transport) can choose to be taxed under the Taiwan Tonnage Tax System. This is where a calculated lump sump tax is based on the net tonnage of fleet. After being approved to be taxed under this specific tax system, companies cannot switch back to the regular tax system until after ten years. Profit Retention Tax Furthermore, an extra profit retention tax is imposed on earnings of a corporation (of which aren't distributed by the end of the following year). The profit retention tax is 5% and Taiwan branches of foreign companies are not liable to profit retention taxes. Income Basic Tax Both Taiwan Resident Companies and Non-Resident Companies (with head office or business agent based in Taiwan) should calculate the Income Basic Tax, above the exempted level. The Income Basic Tax (IBT) within Taiwan is 12%. |
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Where to establish
This depends upon your business type and goals for doing business in Taiwan. Taipei is the largest city and offers the best opportunities for customer-facing businesses but is more expensive than other cities and not necessarily suitable for manufacturing.
A number of manufacturing & industrial companies choose to establish in Kaohsiung in the South-West of Taiwan. Please advise your business type and specific goals for Taiwan when contacting our team. Tax-Friendly Policies
Yes – a number of tax-friendly investment policies exist within Taiwan to encourage investment within some specific sectors as well as certain industries. Further details can be provided upon request, based upon your specific inquiry.
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Financial Markets in Taiwan
Taiwan's Financial Markets are safe, stable and considered among some of the best throughout Asia. With the third highest central bank reserves in Asia, non performing loans below 0.5% and focus on self-preservation, has contributed a wealthy economy. A brief overview of the Taiwan Stock Exchange is outlined below:
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Taiwan Stock Exchange Corporation (TWSE)
The Taiwan Stock Exchange Corporation (TWSE) operates the Taiwan Stock Exchange, which is located within the iconic Taipei 101 building in Central Taipei. In terms of listings - as at June 2020, there are 944 companies listed on the Taiwan Exchange across a variety of sectors. The main internationally viewed index is the TAIEX (also known as the TSEC index) - which is a cap-weighted index consisting of all listed companies on the TSE.
Taiwan Listed Securities
On the TSE, there are a number of different listed securities available to trade including the following:
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Other ways to get exposure to Taiwan Stocks
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Aside from the aforementioned ways to gain exposure to Taiwanese companies on the TWSE/via Taiwan Listed Securities, investors also have options to invest in Index Funds and Taiwanese stocks listing in international markets. There are a few different Taiwan related Exchange Traded Funds (ETFs) and some of the larger individual Taiwan stocks listing on American stock exchanges include Taiwan Semiconductor Manufacturing (TSM) and Chunghwa Telecome (CHT), among others.
Most brokers will offer access to Taiwan exposure ETFs and individual stocks listed on the US bourses. Some Taiwan ETFs offered worldwide include iShares MSCI Taiwan ETF (EWT) and Franklin FTSE Taiwan ETF (FLTW). Despite the size of Taiwan, it's lack of natural resources and potential conflicts /diplomatic challenges with People's Republic of China, Taiwan has proven itself to operate as a successful economy enriching its population and will continue to do so. |
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Foreign Exchange
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During certain periods of Taiwan's history, capital controls and restrictions were used, however, in its recent history, Taiwan has an 'open' economy with reduced foreign exchange limitations. In regards to trade, investment transactions and insurance there are no foreign exchange limitations and the same applies for repatriation of capital/profits from investment (provided the investment was pre-approved). Fund transfers in NTD are not permitted outside of Taiwan.
Moreover, there are no foreign exchange limitations for inward or outward remittances (between NTD and overseas currency) whilst other inward/outward remittances (for business) are subject to USD $50 million per annum limit if involving exchange. Lower amounts are relevant to individual investors/non-residents and further details can be provided upon request. |
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Commodities
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Being an export oriented economy with few natural resources, Taiwan heavily relies on running a trade surplus with many economies, including the USA and China. Due to its natural resource limitations, Taiwan imports a number of different commodities.
Some of the top commodities Taiwan imports include:
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In terms of exports, Taiwan exports a number of different commodities including:
In addition, whilst the above raw materials are considered large scale commodity exports, they pale in comparison to the other notable exports that Taiwan specializes in producing worldwide (with the annual total value being substantially higher than raw material commodities outlined above). Some of these other exports include the following:
Within Taiwan, there is the Taiwan Futures Exchange (TAIFEX) which offers products across 8 x different classes including:
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Cryptocurrency in Taiwan
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As at early 2020, there are no specific cryptocurrency laws within Taiwan (outside of security tokens offerings laws)., however, Bitcoin ATMs were banned as the Taiwanese government doesn't view Bitcoin/cryptocurrency as currency - the only legal fiat currency within Taiwan is the New Taiwan Dollar that can be used for purchasing goods or services.
Nonetheless, Taiwan is a liberal, innovative economy and cryptocurrency is widely used throughout including at shops and convenience stores. There are no restrictions or regulations on cryptocurrency exchanges, trading or mining cryptocurrency and in stark contrast to the People's Republic of China, it offers a similar crypto friendly environment (such as South Korea/Japan) in East Asia. |
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Property in TaiwanAs a member of the Four Asian Tigers, the Taiwanese economy has grown rapidly over the past few decades, resulting in an expensive property market. However, like most markets - it's varied and there are substantial differences between apartment prices in central Taipei compared to Kaohsiung and other cities within Taiwan. Apartments in Taipei are at a similar level to other capital cities across the region whilst other cities in Taiwan are much cheaper, in comparison. Therefore, the best way to analyse the property market is on a city by city basis as opposed to all of Taiwan.
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International Investors & Taiwanese Property
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Foreigners can purchase property in Taiwan, however, approval needs to be provided by the Taiwan government. To get approval, the potential purchase needs to be registered with the Taiwan Ministry of Economic Affairs (MOEA) and is conditional based on reciprocity. For example, if Taiwanese citizens are permitted to invest in the home country of potential purchaser, reciprocity applies. Moreover, foreign purchasers can only buy land for personal, investment & social welfare purposes.
Homebuyers are required to register with the corresponding Land Registration Office (LRO) when purchasing a property/ownership change. At the LRO, a certificate will be provided listing the purchase/transfer date, property size & owner of the land/building and title of the lien (if applicable). The actual registration process is normally undertaken via a land notary and typically one business day to change the property title after filing with the LRO. Overall, it usually takes 5 business days to complete everything. |
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Property Taxes
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The property market in Taiwan is disjointed with substantial price differences between Central Taipei and less expensive other cities.
When purchasing property in Taiwan there are a number of fees & taxes associated in doing so.
In addition to transaction related fees, there are also ongoing annual fees for maintaining a property within Taiwan including:
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Best Locations to Purchase Property
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The Taiwan Property market is segmented with pricing in Taipei being substantially different to counties in Eastern Taiwan. (Taipei is one of the world's more expensive cities). The more popular cities to purchase property in Taiwan include the following options:
During Q1 2020, all of Taiwan's major cities experienced price gains (yoy), excluding Taipei. Details as follows:
Overall, many analysts view pricing in Taipei as unjustifiably high compared to the rest of Asia but ultimately, it depends upon the reasoning and purposes for the purchase. |
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Venture Capital/Private Equity in Taiwan
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Venture Capital in Taiwan developed in line with Japan during the late 1990s and into the 21st century with the creation of internationally recognized technology giants including TSM and Hon Hai Precision. With the rapid development of the People's Republic of China and the substantial investor monies flooding in, Taiwan has been overlooked in many instances but still remains an attractive option for both venture capital and private equity seeking to invest in a highly developed, innovative economy.
In addition to some of the late 90s success stories, some other recent popular Taiwanese startups include:
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Profit from the Asian Century with IAG.
eCommerce Property Financial Assets Offshore Consulting
