Attitude toward 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 Taiwan’s low levels of domestic private investment, which on average grew only 2.8 percent per year over the last five years. Taiwan has pursued various measures to attract FDI from both foreign companies and Taiwan firms operating overseas. A network of science and industrial parks, export processing 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.
Taiwan maintains a negative list of industries closed to foreign investment for reasons the authorities assert relate 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 industries is available at http://www.moeaic.gov.tw/system_external/ctlr?PRO=LawsLoad&lang=1&id=32.
At the end of 2015, accumulated FDI stock in Taiwan totaled approximately USD 137 billion, according to Taiwan’s Ministry of Economic Affairs (MOEA) foreign investment approval data. However, discrepancies exist between Taiwan official data and the 2015 World Investment Report of the United Nations Conference of Trade and Development (UNCTAD), which calculated Taiwan’s net FDI stock at a much lower USD 68 billion as of 2014. The Taiwan authorities assert that the difference was due to UNCTAD’s deduction of outward remittances of profits by foreign investors, in addition to foreign investors’ ability to easily obtain low-cost financing directly from within Taiwan.
Other Investment Policy Reviews
Taiwan has been a member of the WTO since 2002. In September 2014, the WTO conducted the third 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/tp402_e.htm
The OECD and UNCTAD have not conducted investment policy reviews of Taiwan.
Laws/Regulations on Foreign Direct Investment
Regulations governing FDI principally derive from the Statute for Investment by Foreign Nationals and the Statue for Investment by Overseas Chinese. These two laws permit foreign investors to transact either in foreign currency or the New Taiwan Dollar (NTD). The laws 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.
Amendments the Legislative Yuan passed in June 2015 to investment-related statutes clarified investment review criteria for mergers and acquisition transactions. Other amendments were proposed in 2015 but were not passed, including one that would replace a pre-investment approval requirement with a post-investment reporting system for investments under a USD 1 million threshold. Ex ante approval would still be required for investments in restricted industries and those exceeding the threshold. In 2015, Taiwan authorities ceased consideration of a private equity investment’s impact on capital markets and resulting thin capitalization as review criteria. Other criteria remain listed on the Ministry of Economic Affairs (MOEA) Investment Commission’s Frequently Asked Questions website (located in Chinese only at http://www.moeaic.gov.tw/system_external/ctlr?PRO=FAQLoad&id=464).
In recent years, the Taiwan authorities revised rules to improve the business climate for startups. With the goal of developing Taiwan into a startup hub in Asia, Taiwan launched an entrepreneur visa program allowing young foreign entrepreneurs to remain in Taiwan if they raise minimum funding of NTD 2 million (USD 66,000). Taiwan has initiated rules to enable intellectual property (IP) rights holders to use IP as collateral in obtaining bank loans, and this and other rules would apply to foreign investors.
Please refer to the “Doing Business” section of the MOEA’s Invest in Taiwan Center website, which provides useful information for foreign investors:
The Investment Commission website lists the rules, regulations, and required forms for seeking foreign investment approval: http://www.moeaic.gov.tw/
The MOEA operates a business registration website that describes the process: https://onestop.nat.gov.tw/oss/web/Show/engWorkFlow.do
Approval from the Investment Commission is required before proceeding with business registration. After receiving an approval letter from the Investment Commission, an investor can apply for capital verification and may 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 it can start recruiting and hiring employees.
The MOEA Department of Investment Services’ (DOIS) Invest in Taiwan Center serves as Taiwan’s investment promotion agency and provides streamlined procedures for foreign investors. DOIS services are available to all foreign investors.
For the manufacturing, construction, and mining industries, the MOEA defines small and medium-sized enterprises (SMEs) as companies with less than NTD 80 million (USD 2.5 million) of paid-in capital and fewer than 200 employees. For all other industries, SMEs are defined as having less than NTD 100 million (USD 3.1 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. Foreign firms may pay a fee to obtain a guarantee from the Fund. Taiwan’s National Development Fund has set aside NTD 10 billion (USD 330 million) to invest in SMEs.
MOEA’s Invest in Taiwan Center website provides information about government programs to attract foreign investment. The Statute for Industrial Innovation provides the legal basis for offering tax credits for companies’ research and development (R&D) expenditures. MOEA also runs several research and development subsidy programs. MOEA’s current target industries for investment are offshore wind energy, logistics, electric passenger and cargo vehicles, information services, mobile broadband services, digital content, semiconductor equipment, biotechnology, and electronic materials.
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 as local firms unless otherwise specified in relevant regulations. Taiwan sets foreign ownership limits in certain industries, such as a 60 percent limit on direct foreign ownership of wireless and fixed line telecommunications firms, and a 49 percent limit on direct foreign investment in that sector. State-owned Chunghwa Telecom Co., which controls 97 percent of the fixed line telecom market, maintains a 55 percent limit on indirect foreign investment and a 49 percent limit on direct foreign investment. 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. 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. 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. For Taiwan-flagged merchant ships, foreign investment is limited to 50 percent for Taiwan shipping companies operating international routes.
Since 2009, Taiwan has gradually been relaxing restrictions on investments from the People’s Republic of China (PRC) in some sectors as cross-Strait relations have improved. 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 investors, however, continue to be prohibited from serving as a Taiwan company’s Chief Executive Officer, although a PRC board member may retain management control rights of a Taiwan company. In June 2013, Taiwan and the PRC signed the cross-Strait Agreement on Trade in Services under the Economic Cooperation Framework Agreement (ECFA), but legislative review of the services agreement has stalled due to public opposition in Taiwan. As of early 2016, regulators were assessing whether to relax rules regarding PRC investment in portions of Taiwan’s integrated circuits sector, and separately the Legislative Yuan was reviewing legislation that would create an oversight mechanism for cross-Strait agreements.
There are currently no privatization program is in progress. Taiwan’s most recent privatization, of the Aerospace Industrial Development Corporation (AIDC) in 2014, included institution of a foreign ownership ceiling of 10 percent due to the sensitive nature of the defense sector.
Screening of FDI
The 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 NTD 500 million (USD 18 million) obtain approval at the Investment Commission staff-level between two and four days. Investments between NTD 500 million and NTD 1.5 billion (USD 50 million) in capital take three to five days to screen and the approval authority 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 (USD 50 million), or for mergers, acquisitions, and spin-offs, screening takes 10 to 20 days and includes review by relevant supervisory ministries and final approval from 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 screening process has provided Taiwan’s regulatory agencies opportunities to attach conditions to investments in order to mitigate concerns about ownership, structure, or other factors. Screening also may 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, including PRC-source capital. To ensure monitoring of PRC-source investment in line with Taiwan law and public sentiment, Taiwan’s National Security Bureau has participated in every investment review meeting since April 2014 regardless of the size of the investment.
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. 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.
U.S. investors have expressed concerns about a lack of transparency, consistency, and predictability in the investment review process, particularly with regard to transactions involving private equity investment. Current guidelines on foreign investment state that private equity investors seeking to acquire companies in “important industries” must provide, for example, a detailed description of the investor’s long term operational commitment and the investment’s impact on sector competition. Investors have experienced lengthy review periods for private equity transactions.
Taiwan’s Fair Trade Act was enacted in 1992. Taiwan’s Fair Trade Commission examines business practices that might impede fair competition.