This article aims to assist the readers to understand how foreign companies can invest in Taiwan, by establishing a subsidiary, a branch office, or a representative office. Since gathering the required documents and information for setting up a legal entity in Taiwan are complicated, this article also guides foreign companies to prepare such documents and information in an understandable way.

Q 1. When foreign companies are investing in Taiwan, what forms can be used for running their business?

In general, foreign companies have to choose from one of the two forms, subsidiary or branch office, for running their business in Taiwan. 

A subsidiary is an entirely independent company to be established per Taiwanese laws. That being said, a subsidiary is an independent legal entity so that it may enjoy the same benefits like a Taiwan company under Taiwanese laws. In this context, foreign companies can freely decide whether they would like to use joint ventures to enter the Taiwanese market with Taiwanese companies or people as shareholders. However, a subsidiary's revenues in a given year will be subject to 20% corporate income tax first, and then additional 21% withholding tax when distributing its earnings. For any undistributed earnings, there will be extra 5% tax to be imposed.

A branch office will be belonged to the foreign company's headquarter. Unlike a subsidiary's independent status, a branch office is not an independent legal entity so that it may not have its own properties in Taiwan. A branch office can pay 20% corporate income tax and then directly wire the revenues back to its headquarter. That being said, the additional 21% withholding tax will not be applied. However, when foreign companies would like to enjoy more tax benefits granted by Taiwanese laws, setting up a subsidiary other than a branch office will be suggested because some tax benefits in Taiwan require independent legal status.

Q 2. Will there be any penalty when foreign companies doing business in Taiwan without establishing a subsidiary or a branch office?

Absent establishing a branch office, a foreign company may not conduct its business operation in the name of a foreign company in Taiwan. Any person who violates this provision will be subject to imprisonment no more than one year, a fine no more than NTD 150,000 in lieu of the imprisonment, or both. Should there arises any civil liabilities, such person other than the foreign company shall be responsible for them, and shall be jointly and severally liable if there are two violators. In addition, the authority shall enjoy the foreign company from using its name for doing business in Taiwan. See Article 371 of the Taiwanese Company Act.  Of course, establishing a subsidiary per Taiwanese laws will make business operation in Taiwan entirely legal since a subsidiary will be treated like a Taiwanese company.    

Q 3. What are the procedures to set up a foreign company's subsidiary?

The steps are as follows.

(1) Reserve a company's name in Chinese.

(2) Apply for a permission from the Department of Investment Review, Ministry of Economic Affairs.

(3) The prospective legal representative of the Taiwanese subsidiary shall come to Taiwan personally for opening a temporary bank account for the subsidiary.

(4) Wire the registered capital to the temporary bank account for the accountant's verification.

(5) Apply for the required business license.

(6) Convert the temporary bank account to formal bank account.

(7) Apply for a company tax ID. 

Q 4. With Taiwanese lawyers' assistance, what documents and information do foreign companies have to prepare for establishing a subsidiary in Taiwan?

As Taiwanese lawyers will assist foreign companies to set up a subsidiary in Taiwan step by step, foreign companies still need to provide Taiwanese lawyers with the following documents and information.

(1) Give your lawyers two or three Chinese company names you prefer. Or, you may authorize your lawyer to come up with some appropriate Chinese company names for you.

(2) Let your lawyers clearly know what type of business you would like to invest in Taiwan so that your lawyers will be able to check whether it falls into the scope of a negative investment list where foreign companies are prohibited from investment.

(3) Collect your foreign companies' registration records, such as certificate of incumbency, a copy of parent company's representative's passport, and a copy of subsidiary's representative's passport. Then follow your lawyers' instructions to certify them in front of Taipei Economic and Cultural Office, together with the required Power of Attorney.

(4) Let your lawyers know your foreign company's holding structure and the ultimate beneficial owners, if any.

(5) Let you lawyers know your business plan for your investment in Taiwan.

(6) Since the Taiwanese companies require stamps to complete legal documents, you have to authorize your lawyers to make stamps for you if you do not want to do it by yourself.

Q 5. What are the procedures to set up a foreign company's branch office?

The steps are as follows.

(1) Reserve a branch office's name in Chinese.

(2) Apply for branch office registration in front of the Administration of Commerce, Ministry of Economic Affairs. Here, there is no need to apply for a permission from the Department of Investment Review, Ministry of Economic Affairs, unless the capital involves Chinese, Hong Kong, or Macau elements.

(3) The prospective legal representative of the Taiwanese branch office shall come to Taiwan personally for opening a temporary bank account for the branch office.

(4) Wire the required operation capital for the accountant's verification.

(5) The prospective legal representative of the Taiwanese branch office shall come to Taiwan personally for applying for a company tax ID in front of the National Taxation Bureau, Ministry of Finance.

Q 6. With Taiwanese lawyers' assistance, what documents and information do foreign companies have to prepare for establishing a branch office in Taiwan?

Similar to setting up a subsidiary for foreign companies, Taiwanese lawyers will need foreign companies to provide the following documents and information.

(1) Let you lawyers know what company names in Chinese you prefer. Or, you may authorize your lawyer to get a suitable Chinese company name for you.

(2) Collect your foreign companies' registration records, articles of association, a board's resolution or shareholder's meeting minutes for setting up a branch office in Taiwan, a power of attorney for designating an agent for litigation and non-litigation matters, a power of attorney for mandating a manager for the branch office, and their passport copies. Then follow your lawyers' instructions to certify them in front of Taipei Economic and Cultural Office.

(3) Please note that the foreign companies registration records may encompass a full shareholders' list and a full directors' list along with their copies of passports. A diagram to show the foreign company's holding structure may also be required.

(4) Authorize your lawyers to make stamps for the branch office, the agent of litigation and non-litigation matters, and the manager if you have no stamps for them.

Q 7. When can foreign companies set up a representative office to simplify the complicated procedures regarding a subsidiary and a branch office?

Since setting up a subsidiary or a branch office might take more time and efforts to complete the complicated procedures, some foreign companies would like to set up a Taiwan representative office first to test the market waters, simplifying the procedures. A representative office may engage in activities such as signing contracts, bidding, giving a price quote, purchasing, and negotiating, if they aim to be expenditures, not related to profit seeking in Taiwan. See 100 Taichung District Court Yi (易) 3896 (2011) (purchasing products via a representative office in Taiwan and requesting the seller to deliver directly to a third country is not illegal). Therefore, foreign investors may use a representative office to act like an agent, seeking potential opportunities for its headquarter under the international trade context. A representative office may also serve as a research center or communication center for providing better services and establishing good network.   

However, a representative office cannot conduct business operation in Taiwan. Any profit seeking transactions, such as selling products or providing services, will not be allowed. For example, Taiwan High Court once found guilty of a defendant who acted as a Hong Kong company's representative in Taiwan for conducting copyright licensing business even though most of the licensing contracts were signed and completed overseas. The court reasoned that, based on the totality of circumstances, the defendant (a Japanese) was actually doing business in Taiwan, since all the business promotion, advertisement, enticing Taiwanese enterprises to sign licensing contracts, and after-sales services were conducted in Taiwan with lots of local employees' assistance. See 92 Taiwan High Court Shan-Yi (上易) 2625 (2003).

Read Part 1 of this article.