2009 Investment Climate Statement - Taiwan
Taiwan officially welcomes foreign direct investment. Taiwan’s science-based industrial parks, export processing zones, and free trade zones offer streamlined procedures. Taiwan has made significant improvement in protecting intellectual property.
As part of its efforts to improve the investment climate, Taiwan no longer has a list of permitted investments, but maintains a "negative" list of industries closed to foreign investment to maintain security and environmental protection. Liberalization has reduced that list to less than one percent of manufacturing categories and less than five percent of service industries. The latest significant liberalization took place in February of 2003 when alcohol production, agricultural production, fishing, and animal husbandry were opened to foreign investors. To live up to its WTO accession commitments, Taiwan opened private production of cigarettes in 2004 without any foreign ownership limit. Railway transport, freight transport by small trucks, pesticide manufacture, real estate development, brokerage, leasing, and trading are all completely open to foreign investment. After its accession to the WTO in January 2002, Taiwan started permitting imports of gasoline and liquid natural gas (LNG) by the private sector, without any foreign ownership restriction. It also permitted private wine and cigarette imports. In April 2004, Taiwan dropped mining and ordinary trucking services from the negative list but added single-axle truck leasing which was deleted in May 2008.
Most foreign ownership limits have been removed. The foreign ownership limit on wireless and wireline telecommunications firms is 60%, including a direct foreign investment limit of 49%. For state-owned Chunghwa Telecom Co., which controls 97% of the fixed line telecom market, the limit on direct and indirect foreign investment was raised from 49% to 55% in December 2007, including a direct foreign investment limit of 49%. There is a 20% limit on foreign direct investment on cable television broadcast services, but foreign ownership of up to 60% is allowed through indirect investment via a Taiwan entity. Foreign investors now control three of the five largest cable TV networks in Taiwan. Foreign ownership limits are 49.99% for satellite television broadcasting services and piped distribution of natural gas and 49% for high-speed railways. A 50% foreign ownership limit remains on Taiwan-flagged merchant ships, power transmission and distribution, ground-handling firms, air-cargo terminals, air-catering companies, and air-cargo forwarders. The 50% foreign ownership limit for ground-handling firms, air-cargo terminals, air-catering companies, and air-cargo forwarders was removed for investors from WTO members in November 2001. In July 2007, the foreign ownership limit on airline companies was raised from 33.33% to 49.99%, with a separate limit of 25% for any single foreign investor.
Regulations governing foreign direct investment principally derive from the Statute for Investment by Foreign Nationals (SIFN) and the Statute for Investment by Overseas Chinese (SIOC). These two laws permit foreign investors to use either foreign currencies or NT dollars. In mid-2006, Taiwan authorities started permitting NT dollar loans obtained from local banks to serve as sources of foreign direct investment. Companies with foreign ownership below one-third are exempt from limitations on the negative list. Both the SIFN and the SIOC specify that foreign-invested enterprises must receive the same regulatory treatment accorded local firms. Foreign companies may invest in state-owned firms undergoing privatization and are eligible to participate in publicly-financed research and development programs.
The Investment Commission (IC) of the Ministry of Economic Affairs screens applications for investment, acquisitions, and mergers. According to the IC, approximately 98% of projects with an investment value less than NT$500 million (US$15.4 million at an exchange rate of NT$32.5 per US$) are excluded from the negative list; the IC estimates that approval for these projects is generally granted within two working days at the IC division chief level. For investments in the range of NT$500 million (US$15.4 million) to NT$1,500 million (US$46.2 million) excluded from the negative list, approval authority rests with the IC Executive Secretary and normally is granted within three working days. Approval of investments in industries above NT$1,500 million or on the negative list requires two weeks, because those investments must be referred to the relevant supervisory ministries and require approval of the IC Chairman or IC Executive Secretary. Investments involving mergers and acquisitions, however, require screening at the monthly meeting of an inter-ministerial commission.
Taiwan offers incentives to encourage investment, including accelerated depreciation and tax credits for investments in emerging or strategic industries, pollution-control systems, production automation, and energy conservation. Equipment for R&D purposes can be brought into Taiwan duty-free. Other incentives include low-interest loans for developing new and/or cutting edge products, upgrading traditional industries, and importing automation or pollution-control equipment. A broad five-year tax holiday for new investments was re-instituted in January 1995. These incentives are currently set to expire in December 2009. At that time, Taiwan authorities plan to lower corporate income taxes and phase out the 10% tax on retained earnings. Incentives for manufacturing firms to locate factories in designated industrial parks include free rent for the first two years, a 40% discount on rent the next two years, and a 20% discount on rent in the fifth and sixth years. This program, nicknamed "the 006688 program", has been extended to December 2009. Under another incentive program, state-owned land is available for investors rent-free for the first four years and 50% off for the next six years. As part of its financial reform plan, Taiwan encourages and provides incentives for banks, insurance companies, securities firms, and financial holding companies to merge.
A new law to levy a ten-percent alternative minimum tax on business firms went into effect in January 2006. Since early 2005, Taiwan authorities have cut the number of industries entitled to tax incentives by one-third and doubled the thresholds in annual R&D expenses for tax offsets from NT$15–20 million (US$462 thousand to US$615 thousand) to NT$30–40 million (US$923 thousand to US$1.23 million). The tax credit for procurement of automation equipment has been lowered from 11% to 7%, and that for procurement of technologies reduced from 10% to 5%. The tax credit for projects in remote poor areas has been cut from 20% to 15%.
Conversion and Transfer Policies
There are relatively few restrictions on converting or transferring direct investment funds. Foreign investors with approved investments can readily obtain foreign exchange from a large number of designated banks. The remittance of capital invested in Taiwan must be reported in advance to the IC, but IC approval is not required. Declared earnings, capital gains, dividends, royalties, management fees, and other returns on investments can be repatriated at any time. For large transactions requiring the exchange of NT$ into foreign currency which could potentially disrupt Taiwan's shallow foreign exchange market, the central bank may require the transaction to be scheduled over several days. There is no written guideline on the size of such transactions, but amounts in excess of US$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 requiring exchange between NT dollars and the foreign currency. No prior approval is required if the cumulative amount of inward or outward remittances does not exceed the annual limit of US$5 million for an individual or US$50 million for a corporate entity.Total outbound investment may not exceed 40% of the investing company's net worth or paid-in capital (whichever is less), unless the company charter waived the 40% limit or unless such investment is approved by shareholders. A local company is not required to obtain prior approval for overseas investments; however, such an approval exempts the company from the annual capital outflow limit of US$50 million. Investments in China are subject to additional restrictions.
Taiwan has significantly relaxed restrictions on Taiwan direct investment in China down to a negative list covering 101 manufacturing products and 436 agricultural products. Taiwan has abolished a requirement for direct investment in China to go through a third jurisdiction and removed a direct investment limit of US$50 million. In August 2008, Taiwan set an annual ceiling of US$5 million on an individual's investment in China. The ceiling on small and medium enterprise investment in China was revised to the higher of either NT$80 million (US$2.5 million) or 60% of the investing firm's net worth. For large enterprises, the total China investment is subject to a cap of 60% of net worth. This cap, however, does not apply to foreign subsidiaries in Taiwan and Taiwan firms with operational headquarters located on the island. For investments below US$1 million, approval is not required, but investors must report the investment to the IC within six months. For investments between US$1 million and US$50 million, approval can be granted in two weeks. Taiwan authorities require an investor to submit a quarterly financial report if the cumulative investment in a project exceeds US$50 million (raised from US$20 million in August 2008.). Investors are encouraged to repatriate their capital and earnings.
Taiwan authorities have actively encouraged investment in Southeast Asia and India. Investments are also encouraged in a number of countries with which Taiwan has diplomatic relations, mainly in Central America. Incentives include loans and/or overseas investment insurance from Taiwan's Export-Import Bank.
Expropriation and Compensation
No foreign-invested firm has ever been nationalized or expropriated in Taiwan. No examples of "creeping expropriation" or official actions tantamount to expropriation have been reported. Under Taiwan law no venture with 45% or more foreign investment can be nationalized for a period of 20 years after the venture is established. Expropriation can be justified only for national defense needs, and "reasonable" compensation must be given.
Taiwan is not a member of the International Center for the Settlement of Investment Disputes or the New York Convention of 1958 on the recognition and enforcement of foreign arbitrage awards. Investment disputes with the Taiwan authorities are not common. Normally, Taiwan resolves disputes according to domestic laws and regulations.
Taiwan has comprehensive commercial laws, including the Company Law, Commercial Registration Law, Business Registration Law, and Commercial Accounting Law, as well as laws governing specific industries. Taiwan's Bankruptcy Law guarantees that all creditors have the right to share the assets of a bankrupt debtor on a proportional basis. Secured interests in property, both chattel and real, are recognized and enforced through a registration system.
Taiwan's court system is generally viewed as independent and free from overt interference by the other official branches. Judges are generally over-worked. In response to complaints about the slow pace of judicial decision-making, Taiwan authorities adopted measures in 2002 to monitor case processing time. Simplified courts have been set up to deal with minor cases that can be resolved quickly. The legislature enacted a bill to set up special courts for intellectual property rights (IPR) cases in March 2007, and the courts started reviewing cases in July 2008. The judgments of foreign courts with jurisdictional authority are enforced in Taiwan by local courts on a reciprocal basis.
Performance Requirements and Incentives
All of Taiwan’s performance requirements were removed in January 2002 upon Taiwan's WTO accession. Like domestic firms, foreign-invested companies must be located in areas zoned for appropriate industrial or commercial use. Taiwan does not require firms to transfer technology, locate in specified areas, or hire a minimum number of local employees as a prerequisite to investment.
Manufacturing firms located in export-processing zones and science-based industrial parks are required to export all of their production to obtain tariff-free treatment of production inputs. However, these firms may sell on the domestic market upon payment of relevant import duties.
In December 2008, Taiwan acceded to the WTO Government Procurement Agreement (GPA). The Legislative Yuan is expected to approve Taiwan's accession in the first half of 2009. As part of its WTO accession, Taiwan promised to phase out industrial offset requirements (IOR) for non-military public procurement upon signing the GPA, although it started reducing the IOR coverage of non-military procurements in 2004. Currently, only railway and power generation projects are subject to IOR. For these two categories, a contract of US$10 million or more triggers an offset obligation of at least 33%. For military procurements, the threshold is US$5 million, and the minimum offset obligation is 40%. In some military cases, the offset ratio has reached 70% due to legislative pressure. Since the first industrial offset contract (IOC) was signed in 1988, Taiwan has signed IOCs with 51 suppliers from 12 foreign countries. The commitment value of these contracts totals US$8.6 billion, and realized contracts amount to US$5.5 billion. Fifty percent of the total realized value was directed to transfer of technologies, 18% to foreign direct investment in Taiwan, 19% to procurement from Taiwan, 5% to trade promotion, 4% to personnel training, and 3% to assessment certification. Taiwan has published industrial offset rules in both Chinese and English, and has made them accessible to the public online.
Right to Private Ownership and Establishment
Private investors have the right to establish and own business enterprises, except in a limited number of industries involving national security and environmental protection. Private entities can freely acquire and dispose of interests in business enterprises. Private firms have the same access as state-owned companies to markets, credit, licenses, and supplies. Taiwan authorities have eliminated state-owned monopolies, except for power transmission.
Protection of Property Rights
Taiwan continues to improve its IPR legal regime and enforcement. The Ministry of Economic Affairs Intellectual Property Office (TIPO) and other relevant agencies have adopted programs to crack down on Internet and physical piracy. To streamline and improve the quality of judicial procedures in IP cases, in July 2008, the Judicial Yuan inaugurated a new Intellectual Property Court authorized to handle all new civil and administrative IP litigation, as well as appeals on criminal cases. The Ministry of Education (MOE) continues to implement and strengthen an IPR action plan that combats unauthorized textbook copying and illegal downloads on academic computer networks.
Taiwan has also amended the Patent Law and Copyright Law to extend the term of protection from 18 years to 20 years for some patents, and to define computer software as literary works. Taiwan has enacted an Optical Media Law to combat CD/DVD piracy. The law established a legal framework for regulation of CD manufacturing plants through licensing and use of Source Identification (SID) codes in production. Convicted violators may receive prison terms of up to three years and fines of up to NT$6 million (US$184,600). The Optical Media Law, together with effective enforcement, has led to a dramatic decrease in large-scale production of counterfeit CD products. Amendments to the Copyright Law in 2003 and 2004 made copyright infringement a public crime, increased penalties for counterfeiters, and made it illegal to tamper with technical protection measures.
The Pharmaceutical Law, as amended in 2004 and 2007, stiffened penalties for production, distribution and sale of counterfeit medicines. A 2005 amendment to the law authorized pharmaceutical data exclusivity for five years to prevent unfair commercial data use. This is the same data-exclusivity period as in the United States, although U.S. original-drug manufacturers complain that Taiwan authorities unfairly allow generic-pharmaceutical makers to apply for a license and a Bureau of National Health Insurance reimbursement price for their knock-off drugs even before the original drug's data-exclusivity period has expired. A June 2007 amendment to the Copyright Law subjects illegal file sharing, such as P2P, to a maximum jail term of two years.
Taiwan has established a dedicated Intellectual Property (IP) Police force comprising 220 officers and investigators. Their aggressive enforcement actions have led to a significant decrease in the number of counterfeit sales and other IP infringements. In 2007, U.S. Customs seized counterfeit goods from Taiwan valued at US$3.4 million, and seized counterfeits worth US$1.3 million in the first half of FY2008. Much of these products are not of Taiwan origin, but are transshipped through Taiwan from China and other locations.
Taiwan is facing a growing Internet-based piracy threat. Rights owners also continue to complain of poor protection on trade dress properties, such as unregistered marks, packing configurations, and outward appearance features.Transparency of the Regulatory System
Taiwan has a set of comprehensive laws and regulations regarding taxes, labor, health and safety.
Foreign investors note that in addition to tax incentives, Taiwan’s science-based industrial parks and export processing zones have simple and transparent bureaucratic procedures for the investment application process. Outside of these areas, the Department of Investment Services (DOIS) functions as the coordinator between investors and all agencies involved in the investment process. The Investment Commission (IC) is charged with reviewing and approving inbound and outbound investments.
Taiwan has simplified work-permit procedures for foreign white-collar employees. In March 2004, the Council of Labor Affairs (CLA) set up a single window to issue work permits for all white-collar workers. It takes 7 to 10 days for the CLA to issue work permits. The work permit may be extended indefinitely as long as the employer considers the employment necessary.
Taiwan has removed the job experience requirement for employment of foreign management professionals by global operational headquarters and R&D centers, as well as for firms in designated industries. White-collar workers with a master’s degree or above are not subject to any job experience requirement. Those with lower education levels are required to have job experience. Foreign white- and blue-collar workers have the right to obtain permanent residence status after they have legally stayed in Taiwan for seven consecutive years, with a minimum time of residence of 180 days per year in Taiwan. The seven-year requirement is waived for high-tech personnel and those who have made "significant contributions" to Taiwan.
The entry-visa issuance procedures for foreign white-collar workers who work for foreign-invested companies are relatively simple. A foreign executive who enters Taiwan with a tourist visa is no longer required to leave the island before the tourist visa can be changed to an employment visa. A foreign executive whose employment visa expires is not required to exit before renewing the visa.
Efficient Capital Markets and Portfolio Investment
A wide variety of credit instruments, all allocated on market terms, are available to both domestic- and foreign-invested firms. Legal accounting systems are largely transparent and consistent with international standards. The regulatory system is generally fair. Foreign portfolio investors are no longer subject to foreign ownership limits or investment fund limits. In recent years, Taiwan authorities have taken a number of steps to encourage a more efficient flow of financial resources and credit. The limit on NT dollar deposits that a branch of a foreign bank may take has been lifted. Non-residents are permitted to open NT dollar bank accounts subject to capital-flow controls which limit each remittance to US$100,000 per transaction. There are no restrictions on residents opening bank accounts overseas. Limits on branch banking have been lifted, although both foreign and domestic banks still need case-by-case approval to open new branches. A freeze on new bank branches to encourage consolidation in the banking industry was removed in 2007. Restrictions on capital flows relating to portfolio investment have been removed. The banking, insurance and securities industries have been liberalized and opened to foreign investment. Access to Taiwan's securities markets by foreign institutional investors has also been broadened.
Taiwan abolished a complicated regulatory system governing foreign portfolio investment in October 2003. Since then, any foreign institutional investor is allowed to enter Taiwan’s markets. Subsequent registration has replaced the need for prior approval. There is no minimum asset requirement. Investment and capital flows are not limited. On-shore foreign investors (like other residents) are still subject to annual capital flow limits of US$5 million for an individual foreign investor and US$50 million for an unregistered foreign company.
Taiwan has removed all legal limits on foreign ownership, except for investors from China, in nearly all companies listed on the Taiwan Stock Exchange (TAIEX). These exceptions include power distribution, telecommunications, mass media firms, and airline companies. There have been no reports of private or official efforts to restrict the participation of foreign-invested firms in industry standards-setting consortia or organizations.
Taiwan has a tightly regulated banking system. Since the mid-1980s, the financial sector as a whole has been steadily opening to private investment. The market share held by foreign banks was relatively small until four foreign banks and three foreign private equity funds completed their acquisitions of Taiwan banks in 2007. The market share of all foreign banks in Taiwan (including the seven acquired by foreign investors in 2007) increased from 8% in 2006 to 16% in 2008 in terms of assets, or from below 3% to 10.1% in terms of loans. The establishment of a number of new securities firms, banks, insurance companies, and holding companies has underscored this liberalization trend and enhanced competition. Over the past decade, nine state-owned banks have been privatized. The only Taiwan-based reinsurance company was privatized in 2002. State-controlled banks still dominate the banking sector, however, and hold a market share of 50% in terms of assets and 56% in terms of loans. This share has been falling in recent years as Taiwan has begun privatization efforts.
Taiwan is a relatively young multi-party democracy with democratic political institutions that are still evolving. The close margin in the 2004 presidential election resulted in an attack on election offices and several large-scale demonstrations. In early November 2008, the visit of Chen Yunlin, Chairman of the PRC's Association for Relations across the Taiwan Straits, triggered a series of protests and confrontations in Taipei. Nevertheless, these incidents and other protests were peacefully resolved in a short time. There have been no reports of politically motivated damage to foreign investment. Both local and foreign companies have, however, been subject to protests and demonstrations relating to labor disputes and environmental issues.
Taiwan has implemented laws, regulations, and penalties to combat corruption. The Corruption Punishment Statute and the criminal code contain specific penalties for corrupt activities. In January 2004, legislation doubled the penalties for corruption by financial personnel, including maximum jail sentences of up to ten years.
We are not aware of cases where bribes have been solicited for foreign investment approval.
The Government Procurement Law promulgated in 1998 and amended in February 2001 was an element of promised significant improvements upon WTO accession. The Public Construction Commission (PCC) publishes all major state procurement projects that require open bidding, in accordance with WTO transparency requirements. In early November 2008, the PCC submitted to the legislature for review a bill which would make key changes to the government procurement process. It would abolish the current minimum three-bidder requirement for government procurement projects. The bill also seeks to replace the minimum bid price with a “qualified bid price” to ensure the quality of procurement. According to the bill, a procurement agency may disqualify a bidder whose total bid price is lower than the project’s budgeted cost by a set ratio. In addition, to reinforce the contract dispute resolution mechanism, a contractor will be authorized to seek “arbitration” if the government procurement “mediation” procedure is not completed within six months due to the fault of the procuring agency. The PCC organizes inspection teams to monitor all public procurement projects both at the central and local levels, and publishes results of bidding and of inspections. A task force comprised of PCC staff and independent experts investigates complaints.
Authorities generally investigate allegations of corruption and take action to penalize corrupt officials. Since 2000, prosecutors have indicted 29,323 persons for corruption, including prominent personalities, 758 senior officials (department director level and above) and 678 elected officials. Indicted elected officials included 31 sitting and former legislators. In 2006, the Taiwan High Court upheld a district court's four-year jail sentence for a former speaker of the legislature on a charge of taking a NT$150 million (US$4.6 million) bribe. In 2007, prosecutors indicted a minister and a vice minister for receiving bribes, while district courts convicted another two vice ministers with jail terms of up to 16 years. In perhaps the most high-profile corruption case in Taiwan's history, the former president and a number of his family members and advisors have been charged with several counts of money-laundering and other corrupt practices. In early December 2008, the Taipei District Court sentenced former Ministry of Justice Investigation Bureau (MJIB) Director General to a ten-year jail term for leaking information related to this case to the former President.
Attempting to bribe, or accepting a bribe from, Taiwan officials constitutes a criminal offense, punishable under the Corruption Punishment Statute and the Criminal Code. The Corruption Punishment Statute also treats payment of a bribe to a foreign official as a criminal act and makes such a bribe subject to criminal prosecution. The maximum penalty for corruption is life imprisonment plus a maximum fine of NT$3 million dollars (US$92,300). In addition, the offender may be barred from holding public office. The assets obtained from acts of corruption may be seized and turned over to either the injured parties or the Treasury.
Bilateral Investment Agreements
Taiwan has concluded bilateral investment agreements with the following 26 countries: Argentina, Belize, Burkina Faso, Costa Rica, Dominica, El Salvador, Guatemala, Honduras, India, Indonesia, Liberia, Malaysia, Macedonia, the Marshall Islands, Nicaragua, Nigeria, Panama, Paraguay, the Philippines, Saudi Arabia, Senegal, Singapore, Swaziland, Thailand, Malawi, and Vietnam.
The terms of the 1948 Friendship, Commerce, and Navigation Treaty between the Republic of China and the United States are still in force, and under the terms of the agreement U.S. investors are generally accorded national treatment and are provided with a number of protections, including protection against expropriation. Taiwan and the United States also have an agreement, signed in 1952, pertaining to investment guarantees that serve as the basis for the U.S. Overseas Private Investment Corporation (OPIC) program in Taiwan. In September 1994, representatives of the United States and Taiwan signed a bilateral Trade and Investment Framework Agreement (TIFA) to serve as the basis for consultations on trade and investment issues.
OPIC and Other Investment Insurance Programs
OPIC programs are available to U.S. investors, though U.S. investors have never filed an OPIC insurance claim for an investment in Taiwan. Taiwan is not a member of the Multilateral Investment Guaranty Agency
The global economic downturn has dampened Taiwan's export-oriented economy and pushed up the unemployment rate to 4.64% in November 2008, the highest in four years. In the industrial sector, the number of blue-collar foreign workers increased 15% from 179,500 in 2003 to 206,500 in October 2008.
There are no special hiring practices in Taiwan. Employees are typically paid a one-month bonus at the end of the year. Benefits often include meals, transportation, and dormitory housing or related allowances. Dividend-sharing is common in high-tech industries. A standard labor insurance program is mandatory. The program provides paid maternity leave, a lump-sum or annuity retirement plan, and other benefits. A new retirement system implemented in July 2005 abolishes the voluntary retirement scheme under an old system which still covers 30% of total employment population. The old system grants employees voluntary retirement at age 55 with 15 years of service. Employees hired after July 2005 must join the new system, which, as of April 2008, sets retirement at age 65. The new system requires the employer to contribute six percent of an employee's monthly wage to accounts at designated banking institutions. The accounts follow employees as they move from one employer to another. A universal national health insurance system, to which employers contribute, covers all Taiwan residents.
Taiwan provides unemployment relief based on the Employment Insurance Law enacted in 2002. Alternatives for unemployment pay include a vocational training allowance for jobless persons and employment subsidies to encourage employment of jobless persons. The Labor Standards Law (LSL) sets a standard eight-hour workday and a biweekly maximum of 84 hours. The public sector and most private firms have adopted a five-day workweek. The LSL restricts child labor and requires employers to provide overtime pay, severance pay, and retirement benefits. The LSL covers both manufacturing and service sectors. Violators are liable to criminal penalties (jail terms) and administrative punishments (fines).
Minimum wages were last raised in July 2007. The minimum monthly wage is NT$17,280 (US$532) and the minimum hourly wage is NT$95 (US$2.90). Monthly manufacturing sector wages in the first nine months of 2008 averaged NT$44,746 (US$1,335) including overtime, allowances and bonuses, but the monthly wages are declining as a growing number of businesses practice leave without pay in light of the current economic slowdown.
Labor unions have become more active and independent since Taiwan’s martial law was lifted in 1987. Privatization and the new retirement system contributed to an increase in labor disputes over the past four years. Taiwan is not a member of the International Labor Organization (ILO) but adheres to the ILO Conventions in protection of worker’s rights.
Foreign-Trade Zones/Free Ports
The first free trade/free port zone began operation at Keelung, Taiwan’s northern port, in November 2004. Another four were established in 2005. These four are located at Taoyuan International Airport and the international harbors in Kaohsiung, Taichung, and Taipei. Taiwan authorities have relaxed restrictions on movement of merchandise, capital and personnel into and out of such zones. Foreign investors are accorded national treatment.
Foreign Direct Investment Statistics
Statistics on foreign direct investment in Taiwan are available from two sources. The Investment Commission (IC) publishes monthly and yearly foreign investment approval statistics by industry and by country. While these statistics do not correspond exactly to actual commitments of investment funds, post believes this data serves as a good proxy and provides data by industry and country of origin. The Central Bank of the ROC (Taiwan) (CBT) publishes foreign direct investment arrivals on a quarterly and yearly basis. CBT data, contained in balance-of-payments (BOP) statistics, are not further classified by industry or country.
As of the end of 2007, Taiwan's total stock of foreign direct investment stood at US$94 billion, valued at historical cost. This represents about 24.5% of Taiwan's 2007 GDP. Total FDI inflows for 2007, based on approvals, stood at US$15.4 billion, or about 4% of 2007 GDP.
As of December 2008, Taiwan's foreign exchange reserves stand at US$29 billion, the fourth highest in the world.
After growing 5.7% in 2007, Taiwan's economy fell into recession in the third quarter of 2008, declining 1.02% year-on-year. Official forecasts expect the trend to continue at least into the first half of 2009. Taiwan's real GDP growth is expected to set a seven-year low of 1.87% in 2008, when private consumption is forecast to post its first decline ever (of -0.3%). Private investment is also expected to post its first decline (-7.8%) in seven years. Inbound direct investment approved in October 2008 dropped 40%, after a 50% plunge in the first nine months of this year.
In recent years, foreign direct investment has shifted from capital-intensive high-tech industries to investments in the financial service sector. Approved direct investment in electronics industries (including communications, semiconductor, TFT-LCD and other optical electronic projects), which peaked at 47% as a percentage of total FDI in 2006, declined steadily to 22% in 2007 and 17% in the first half of 2008. Meanwhile, the percentage share for financial services increased to 34% in 2006, 33% in 2007 and 41.5% in the first half of 2008. Nearly 80% of the approved inbound direct investment in Taiwan’s electronics industries came from the United States, Europe and Japan. Over 70% of the approved inbound direct investment in the banking and insurance sector from the United States, Europe, and British territories in America.
According to official Taiwan statistics, approvals for U.S. investment from 1952 to 2007 totaled US$18.2 billion (US$16.4 billion according to official U.S. figures), or 19% of total foreign investment. These aggregate figures of investment stock are valued at historical cost. Of total U.S. investment, 30% was directed toward the electronics and electrical industries, and 50% toward the service sector. Approvals for Japanese investment amounted to US$15.4 billion, or 16% of total foreign investment, of which 33% was in electronics and electrical industries and another 33% in the service sector. In 2006 and 2007, new investment from Europe exceeded that of the United States and Japan due to a major holdings transfer by the Philips Company and a major acquisition by Standard Chartered Bank.
As the tables below indicate, significant FDI now comes from the tax havens of British Territories in America (BTA), which harbor a growing number of multinational corporations, including those with Taiwan roots. One quarter of the investment from the BTA was directed towards financial services and another quarter to the electronic and electrical industries.
As a relatively open and liberal economy, Taiwan receives foreign investment while its businesses invest overseas. According to balance-of-payments statistics compiled by the central bank, outbound direct investment has exceeded inbound direct investment every year since 1988. According to IC statistics, by 2007, cumulative approvals for outbound investments totaled US$120.2 billion. The main recipient of Taiwan investment has been China, which has received over half of Taiwan’s outbound investment. Approved investments in China increased by 30% in 2007 when 60% of Taiwan's new overseas investment went to China. It is estimated that Taiwan firms hold investments in excess of US$100 billion in China, much of which is not reported to Taiwan authorities.
Taiwan business firms have been relocating their production bases to China since the late 1980s. The WTO accession of China and Taiwan in 2002 prompted Taiwanese business firms to accelerate relocation to China to sharpen their competitive edge in exports. Taiwan factories based in China use the lower labor and land costs to process Taiwan-made production inputs into finished goods for exports to such industrial markets as the United States, Japan and Europe, and also for final sale in China. Rising labor and land costs in China have prompted some Taiwan firms to move from China to nations in South and Southeast Asia, including Vietnam. Many Taiwan firms have also shifted to producing higher value-added goods and higher-tech products in China.
Taiwan's annual registered direct investment across the Taiwan Strait grew from US$1.25 billion in 1999 to US$7.6 billion in 2006 and US$10 billion in 2007. As a result of this trend Taiwan factories, primarily those based in China and Vietnam, produced nearly 50% of export orders received by Taiwan companies’ headquarters by October 2008, up from 11.5% in early 2000. The ratio is closer to 85% for information technology (IT) firms. China, including Hong Kong, replaced the United States as Taiwan's largest export market in 2001, and its share of Taiwan's exports in the first 11 months of 2008 averaged 41%, compared to 12% for the United States and 11% for the European Union.
|Table 1: Foreign Investment Approvals by Year and by Area (1952-2007)|
|(Unit: US$ million)|
* British Territories in America
|Table 2: Foreign Investment Approvals by Industry and Area (1952-2007)|
|Electronic Parts & Components||2,244||2,123||1,888||7,167||100||1,238||14,759|
|Wholesale & Retail Trade||1,479||1,567||1,757||1,642||478||1,581||8,504|
|Computers, Electronic & Optical Products||984||1,240||1,793||273||277||1,207||5,774|
|Information & Communications||1,005||159||1,461||581||273||1,754||5,233|
|Professional and S&T Services||577||1,277||547||401||292||1,616||4,710|
|Non-metallic Mineral Products||271||314||47||2,731||81||261||3,705|
|Fabricated Metal Products||367||851||386||305||143||1,014||3,067|
|Lodging & Food Services||267||641||94||296||274||186||1,759|
|Transp. & Storage||78||92||126||95||173||766||1,330|
|(Unit: US$ million)|
|Table 3: Outbound Investment Approvals by Year and by Area (1952 -2007)|
|Table 4: Outbound Investment Approvals by Industry and by Area (1952-2007)|
|Electronic Parts &Components||10,361||443||1,312||2,748||1,254||16,118|
|Computers, Electronic & Optical Products||10,078||185||1,105||569||919||12,856|
|Wholesale & Retail Trade||2,088||1,433||1,079||425||1,301||6,327|
|Fabricated Metal Products||4,342||81||181||229||181||5,014|
|Transp. Equipment & Parts||2,160||55||175||174||382||2,946|
|Information & Communications||692||190||826||79||553||2,341|
|Transp. & Storage||481||165||105||234||1,102||2,087|
|Table 5: Major U.S. Investors in Taiwan|
|U.S. Investor/Local Investment||Major Products|
Amkor Technology/Amkor Technology Taiwan
|Integrated circuit packaging & testing|
|AIG/Yageo Corp.||Electronic components|
|Far East Air Transport Corp.||Airlines|
|Nan Shan Life Insurance Co.||Insurance|
|Pruco Insurance Group/Masterlink Securities Co.||Securities|
|Corning Inc./Corning Glass Taiwan Co., Ltd.||Substrate glass for TFT/LCD|
|GTE-Verizon/ Taiwan Fixed Network Telecom|
|Taiwan Cellular Corp.||Fixed-line and mobile phone service|
|Carlyle Group/Eastern Technology||Cable TV|
|Ta Chong Commercial Bank||Banking|
|Ensite Limited (Ford Motor)/ Ford Lio Ho Motor Co.||Autos|
|Texas Instruments Inc./Texas Instruments Taiwan Ltd.||Semiconductors|
|E.I. Dupont De Nemours/Dupont Taiwan Ltd.||Industrial,electronic,agricultural goods|
|IBM Corp./IBM Taiwan Ltd.||Computers: sales & service|
|AETNA Life Insurance Co.Taiwan Branch||Insurance|
|View Sonic Co./Taiwan PCS Network Inc.||Mobile phone service|
|UPS International/ UPS, Taiwan Branch||Worldwide express service|
|Intel Inc./Intex. Co.||ADSL chipset|
|Applied Materials Ltd./Applied Materials Taiwan Ltd.||Semiconductor manufacturing equipment|
|General Motors Co./Yulon GM Motor Co.||Auto assembly & sales|
|GE Consumer Finance/Cosmos Bank||Banking|
|Jabil Circuit Inc./Taiwan Green Point Enterprise Co.||Telecom components|
|Citibank/Citibank (Taiwan) Bank of Overseas Chinese||Banking|
|Oaktree Capital Management Co./ Fu Sheng Industrial Co.||Golf club head and compressor|
|Fairchild Semiconductor Co./System General Corp.||Power management products|
|AIU Insurance Co./Central Insurance Co.||Insurance|
|Table 6: Major Japanese Investments in Taiwan|
|Japanese Investors/Investment||Major Products|
|Toppan Printing Co./Toppan (Taiwan) Co.||Electronics|
|Toppan CFI (Taiwan) Co.||Color filter sales & production|
|Nippon Sheet Glass Co./Taiwan Auto Glass Industry Co.Nippon Sheet Glass (Taiwan) Ltd.||Auto glass and substrate glass|
|Asahi Glass Co. (AGC)/Asahi Glass (Taiwan) Co.||Substrate glass|
|NTT DoCoMo/Far Eastone Telecom. Co.||Phone service|
|Taiwan Shinkansen Corp./Taiwan High Speed Rail Corp.||High speed rail|
|Nissan Motor/Yulon Motor||Autos|
|Toyota Motor/Kuozui Motor||Autos|
|Panasonic Corporation./Panasonic Taiwan Co., Ltd.||Electrical appliances|
|Hitachi Co./Taiwan Hitachi Co., Ltd.|
|Kaohsiung Hitachi Electronics Co., Ltd.||Electrical appliances & components|
|Yamaha Motor Co., Ltd./Yamaha Motor Taiwan Co., Ltd.||Motorcycles|
|Sankyo Co./Sankyo Co. Taipei||Pharmaceuticals|
|Idemitsu Co./Shinkong Idemitsu Corp.||Petrochemicals|
|Mitsui Co./Mitsui (Taiwan)||Trading|
|Takashimaya Co./Ta-ya Takashimaya Department Store||Department Store|
|Sumitomo Co./Sumitomo (Taiwan)||Trading|
|Toshiba Co./Toshiba Compressor (Taiwan)||Compressors|
|Sadagawa Steel Co./Sheng Yu Steel Co.||Steel|
|Shin-Etsu Handotai Co./Shin-Etsu Handotai Taiwan Co.||Semiconductor|
|Sumco Techxiv Co./Formosa Sumco Technology Co.||Silicon wafer|
|Mitsui Mining & Smelting Co./Taiwan Copper Foil Co.||Copper foil|
|Kirin Brewery Co./Taiwan Kirin Co.||Beer sales|
|Nomura Securities/Taishin Financial Holdings||Banking|
|Shinsei Bank/Jih Sun Financial Holdings||Banking|
|Nippon Life Insurance Co./Shin Kong Financial Holdings Co.||Banking|
|Table 7: Major European Investments in Taiwan|
|European Investors/Investment||Major Products|
|Cerberus Investments Co./Cerberus Asset Management Co.||Asset management|
|Goldman Sachs/Goldman Sachs, Taipei branch||Securities underwriting|
|Deutsche Telecom/Eastern Broadband Telecom||Fixed-line service|
|Volkswagen Ag/Ching Chung Motor Co.||Autos|
|Dresdner Bank Ag/Grand Cathay Securities||Securities|
|Imperial Chemical Inc./ICI Taiwan Ltd.||Chemicals|
|N.V. Philips/Philips Electronics(Taiwan)||Electronics|
|Alcatel Co./Alcatel Taisel Co.||Switch boards|
|Horwood Investment/Chi Mei Industry Co.||Petrochemicals|
|H.S. Development & Finance/ChinaTrust Commercial Bank||Banking|
|Qimonda Inc./Inotera Co.||DRAM|
|Isenbourg-sgp, Lda/RT-Mart International Ltd.||Shopping malls|
|Standard Chartered Bank/Standard Chartered Bank, Taiwan||Banking|
|SKF Co./ABBA Liner Tech Co.||Ball screw, liner guideway|
|Longreach Edith Investment Co./En Tie Commercial Bank||Banking|
|CVC Capital/NienMade Enterprise Co.||Custom-made shutter/blinds|
|CMA CGM/CNC Line||Shipping service|