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In-depth treatment of selected topics in Taiwan law for legal professionals

New reporting requirement for Taiwanese companies

The recently amended Taiwan Company Act (2018) requires most companies to report their board members, registered managers, and major shareholders online by 31 January 2019. To report, log on to the Company Transparency Platform. This site is in Chinese only at the time of writing.

If the company’s registered representative (typically the chairman) is a foreign national without a Taiwan national health card or Digital Certificate IC card, the company will generally need to apply for a Business ID (公司工商憑證) card to use the Company Transparency Platform. Business ID cards can be applied for online from the Taiwan Ministry of Economic Affairs’ Certificate Authority. This site is currently only in Chinese. The company’s registered seals (chops) will be needed during the application process.

Private limited companies, closed companies, and companies limited by shares are subject to the reporting requirement unless they are an exempt business entity.

Business entities exempt from the reporting requirement include listed companies, reporting companies, branches of foreign companies, and representative offices.

Board members include directors and supervisors. Registered managers include the registered managers (such as the CEO or General Manager) of a Taiwan limited company or a company limited by shares. Companies do not need to report managers of branches.

A major shareholder is any shareholder who owns more than 10% of the company. Only one level of shareholders must be reported. Shareholders of parent or grandparent companies do not have to be reported

The following information must be reported about each individual:

  1. Names
  2. Nationality
  3. Date of birth or date of incorporation registration
  4. ID Number
  5. Shareholding or capital contribution

From 2020 on, these reports must be filed for the preceding calendar year between March 1st and March 31st of the following year. For example, you will need to report your company’s responsible persons and major shareholders in 2019 between March 1st and March 31st 2020.

Any changes to reported information must be reported within 15 days of the change.

Failure to report or false reports will trigger a letter to remedy the report by a deadline. Failure to remedy by deadline will result in a fine of NT$50,000 to NT$500,000. Failure to remedy after a second warning letter can result in a fine of NT$500,000 to NT$5 million. The director registered as the company’s representative is personally liable for these fines. In serious cases, the company’s registration can be revoked.

The new reporting requirement is part of Taiwan’s efforts to combat money laundering.

For questions about or assistance with reporting please contact Michael Fahey at mfahey@winklerpartners.com and Daniel Chen at dchen@winklerpartners.com.

Crowdfunding: a possible path for ICOs in Taiwan

Initial coin offerings (“ICOs”) have garnered a significant amount of recent media attention. Regulatory authorities, legislators, and legal practitioners, among others, are all involved in the ongoing discussions as to how ICOs are to be defined and regulated. While such discussions merit their own in-depth exposition and analysis, this article highlights a simple, pragmatic approach to providing a possible pathway for at least a subset of ICO transactions to move forward in Taiwan.

In Taiwan, the Financial Supervisory Commission (the “FSC”) has the authority to regulate any ICO it considers to involve an offering of securities to the public. The FSC has not delineated any specific test for determining whether an ICO would be deemed to be a public offering of securities. It would likely look to Taiwan Supreme Court Criminal Judgment No. 104-Tai-Shang-3215 (“Judgment 3215”) for guidance. Judgment 3215 sets out a test for securities broader than that in the analogous US case SEC v. W. J. Howey & Co., 328 U.S. 293, 301 (1946) and its progeny. Pursuant to Judgment 3215, an ICO would likely be considered a public offering of securities if the tokens or other digital rights being offered (i) had a stated value, (ii) were being purchased for investment purposes, and (iii) were tradable.

In our opinion, it is highly likely that the FSC would consider an enterprise raising funds through an offering of transferable tokens or other digital rights entitling the holder thereof to future distributions of enterprise profit as an offering of securities subject to regulation. In our experience, most enterprises that would wish to carry out such a fundraising effort do not meet the regulatory requirements to conduct a public offering in Taiwan or, even if they did meet such requirements, would likely find compliance with such requirements and navigation of the approval process overly burdensome and thus not cost-effective.

Observers in Taiwan have proposed that, at least with respect to smaller fundraising efforts, the FSC should allow enterprises wishing to conduct an ICO to avail themselves of Taiwan’s already established crowdfunding channels. The FSC has given no indications as to its determination on this proposal, but we remain hopeful that the FSC will allow certain ICOs to be conducted under the rubric of crowdfunding. Such a move would provide startup blockchain enterprises in Taiwan an additional capital raising option.

Interestingly, the FSC never directly promulgated crowdfunding regulations.  Instead, the FSC authorized the Taipei Exchange (the “TPEx”) to establish the Go Incubation Board for Startup and Acceleration Firms (the “GISA Board”) primarily to conduct equity crowdfunding activities.  The board allows small and medium-sized startups to conduct online fundraising activities in a cost and time effective manner. The GISA Board does not facilitate secondary market transactions. The TPEx operates the GISA Board pursuant to rules approved by the FSC.

The GISA Board began accepting registration applications in 2013. Since then, ninety-one (91) companies have successfully registered and forty-seven (47) companies are currently in the process of registration. In total, companies on the GISA Board have raised approximately NT$6.3 billion (approximately US$206.5 million) in funds.

In 2015, the FSC approved additional TPEx regulations that allowed private companies to establish crowdfunding platforms separate from the GISA Board. To date, Masterlink Securities Corp. and First Securities have each established their own online equity crowdfunding platforms (the “Crowdfunding Platforms”).

Over recent years, regulations governing crowdfunding offerings, whether conducted on the GISA Board or through Crowdfunding Platforms, have been relaxed. Such changes have allowed more companies and investors an opportunity to participate in crowdfunding offerings. GISA Board companies are no longer subject to a maximum capital threshold, and the maximum capital threshold for companies on the Crowdfunding Platforms has been raised from NT$30,000,000 to NT$50,000,000. The maximum annual investment limit per company has also been increased from NT$15,000,000 to NT$30,000,000 on both the GISA Board and Crowdfunding Platforms.

Given the interest in blockchain technologies and ICOs demonstrated by the Taiwanese media and government agencies, we are hopeful that the FSC can and will distinguish ICOs that are, in essence, securities offerings from those that have attributes more akin to currency or other digital assets. If this distinction can be made, Taiwan’s increasingly robust crowdfunding channels may become open for use by blockchain startups as a viable funding alternative. We continue to monitor the crowdfunding and ICO space and will keep our clients informed as to any significant developments.

For more information, please contact Gregory Buxton at gbuxton@winklerpartners.com.

Security interests in IP rights in Taiwan

Security interests in IP may be recorded with the Taiwan Intellectual Property Office (TIPO) as a pledge, either by the rights owner or by the pledgee. The recordal of IP security interests in Taiwan only applies to registered trademarks or granted patents. A pending trademark or patent application may not be the subject of a pledge. It should be noted that an unrecorded pledge may not be asserted against third parties. Also, where a pledge on IP rights is altered or extinguished, the same should also be recorded with the TIPO.

A short-form version security agreement is acceptable for recording a pledge. The value of the pledge must, however, be indicated in the agreement. The pledge documents need not be notarized or legalized.

In order to obtain a first priority security in IP rights, before recording a pledge, rights holders should first conduct searches for senior pledges on the register that may affect their rights. To maintain the validity of the IP rights pledged, the security agreement should specify which party is obligated to pay the renewal or annuity fees for said rights. A pledge of rights recorded with the TIPO remains effective in perpetuity unless it is terminated.

Acquiring a security interest in trademarks or patents by means of a pledge is a straightforward and inexpensive means of leveraging intellectual property assets in Taiwan.

For more information on patent matters in Taiwan, please contact Peter Dernbach at pdernbach@winklerpartners.com or Betty Chen at betty@winklerpartners.com.

Working in Taiwan as a creative professional part II: the Employment Gold Card for special professionals in culture and the arts

This is the second of two FAQs on how creative professionals can live and work in Taiwan after the Act for the Recruitment and Employment of Foreign Professionals came into force in February 2018.

Part I focused on how to obtain a freelance artist work permit. Part II focuses on how to obtain an Employment Gold Card as a special professional in the field of culture and the arts. Click on the question to be taken to the answer, click back to return to the list of questions.

1. What is the difference between the freelance artist work permit and an Employment Gold Card for a special professional in the field of culture and the arts?

2. What kinds of special professionals in the field of culture and the arts are eligible to apply for an Employment Gold Card?

3. What does cultural administration mean?

4. Is there a minimum salary requirement for special professionals in culture and the arts?

5. What are the basic qualifications for performing arts?

6. What international arts organizations, key positions, international arts events, and awards does the Ministry of Culture recognize for performing arts?

7. What are the basic qualifications for visual arts?

8. What international arts organizations, key positions, art events, recognized awards and international arts events does the Ministry of Culture recognize for visual arts?

9. What are the basic qualifications for publishing?

10. What international media/publishers, academic awards and literary awards, and international publishing events does the Ministry of Culture recognize for publishing?

11. What are the basic qualifications for motion pictures/television/popular music?

12. What is a Category I Film Award?

13. What are the basic qualifications for crafts?

14. What crafts competitions or organizations are recognized?

15. What are the basic qualifications for cultural administration?

16. How do I show outstanding performance in arts and culture to be recognized as a special professional in cultural administration?

17. What international arts and culture NGOs qualify?

18. What if I don’t meet any of the basic qualifications for recognition as a special foreign profession in culture and the arts?

19. What if my application is rejected? Are there any other paths to working in Taiwan as a professional in culture and the arts?

20. What are the benefits of obtaining an Employment Gold Card as a special professional in arts and culture?

21. Will I be eligible to enrol in Taiwan’s national health insurance program?

22. How many special professionals in the field of arts and culture have received Employment Gold Cards?

23. How do I apply?

24. What kind of documentation should I submit to show my qualifications?

25. Does my documentation to be translated into Chinese?

26. How long does the application process take?

27. Who will review my application?

28. Can I renew my Employment Gold Card?

29. Can I become a permanent resident based on an Employment Gold Card?

30. Where can I read the law and regulations myself?

31. Who can I contact in the government if I have questions?

32. If I obtain an Employment Gold Card overseas, how long do I have to enter Taiwan?

Special Professionals in Culture and the Arts FAQ

1. What is the difference between the freelance artist work permit and an Employment Gold Card for a special professional in the field of culture and the arts?

In general, the freelance artist work permit is for practicing artists. A special professional in the field of arts and culture could be an artist but more typically would be a professional with expertise in culture and the arts such as an event organizer, a NGO or government art administrator, or a literary agent. While there is some overlap, special professionals in culture and the arts encompass a broader range of professionals.

There are also some benefits to being a special professional that artists do not enjoy such as a possible income tax deduction and the ability to sponsor parents and grandparents for longer visitor visas. See Question 20 below.

An Employment Gold Card is also slightly more convenient because it combines a work permit, resident visa, and Alien Residence Certificate (ARC) on one card. As a result, the successful applicant does not need to make separate applications for a work permit, visa, and an ARC. In contrast, a freelance artist will need to make three separate applications.

2. What kinds of special professionals in the field of culture and the arts are eligible to apply for an Employment Gold Card?

Special professionals who work in the following fields are eligible:

(a) Performing Arts,

(b) Visual Arts,

(c) Publishing,

(d) Motion Pictures/Television/Popular Music,

(e) Crafts, and

(f) Cultural Administration

3. What does cultural administration mean?

Cultural administration means arts management or arts administration.

4. Is there a minimum salary requirement for special professionals in culture and the arts?

This has been the subject of some confusion. Unlike other kinds of special professionals, current or past salary is not a qualification for special professionals in culture and the arts. For example, one way that special professionals in finance or science and technology can qualify is to have or have had a monthly salary of at least NT$160,000. There is no equivalent salary qualification for being recognized as a special professional in culture and the arts.

5. What are the basic qualifications for performing arts?

(a) Membership in an international arts organization,

(b) Key position in government or a private organization related to culture or the arts,

(c) Key position at a leading arts or culture event,

(d) Recipient of recognized award,

(e) Judge on panel for recognized award, or

(f) Special approval by the Ministry of Culture.

6. What international arts organizations, key positions, international arts events, and awards does the Ministry of Culture recognize for performing arts?

The Ministry of Culture has listed examples here. These are non-exhaustive lists of examples. You can and should apply with similar organizations, positions, awards, or events. In general, alternatives will need to have a level of prestige and international recognition similar to those on the Ministry’s list of examples. Examples on the Ministry’s list include:

(a) American Theatre Wing (international arts organization),

(b) Manager (key position),

(c) Festival d’Avignon (international arts event)

(d) National Dance Award (award)

7. What are the basic qualifications for visual arts?

(a) Membership in an international arts organization,

(b) Key position in government or a private organization related to culture or the arts,

(c) Key position at a leading art event (such as major art exhibition or biennial),

(d) Recipient of recognized award,

(e) Judge on panel for recognized award, or

(f) Special approval by the Ministry of Culture.

8. What international arts organizations, key positions, art events, recognized awards and international arts events does the Ministry of Culture recognize for visual arts?

The Ministry of Culture has listed examples here. These are non-exhaustive lists of examples. You can and should apply based on similar organizations, positions, awards, or events. In general, alternatives will need to have a level of prestige and international recognition similar to those on the Ministry’s list of examples. Examples on the Ministry’s list include:

(a) National Endowment for the Arts (international arts organization),

(b) Director (key position),

(c) Art Taipei (event), or

(d) New York Arts Directors Club Annual Awards.

9. What are the basic qualifications for publishing?

(a) High level position at major international media company or publisher,

(b) Literary agent with at least 10 years of experience in publishing or mass media,

(c) PhD in publishing and an international academic award,

(d) National or international literary prize,

(e) Curator for major international publishing event, or

(f) Special approval by the Ministry of Culture.

10. What international media/publishers, academic awards and literary awards, and international publishing events does the Ministry of Culture recognize for publishing?

The Ministry of Culture has listed examples here. These are non-exhaustive lists of examples. You can and should apply based on other publishers, media, positions, awards, or events. In general, these alternatives will need to have a level of prestige and international recognition similar to those on the Ministry’s list of examples.

Please see Academia Sinica’s list of international academic research awards for awards recognized for purpose of qualification 9(c) PhD in publishing and international academic award. Examples on the Ministry’s list include:

(a) The Financial Times (media),

(b) Random House (publisher).

(c) Managing editor (key position), or

(d) Man Booker Prize (literary award).

11. What are the basic qualifications for motion pictures/television/popular music?

(a) Nominated for or received Category I Film Award,

(b) Nominated for or received Grammy or BRIT Award,

(c) Nominated for or received international television award such as Emmy, BAFTA, or Seoul Drama Award, or

(d) Special approval by the Ministry of Culture.

12. What is a Category I Film Award?

The Category I Film awards are:

(a) Cannes International Film Festival,

(b) Venice International Film Festival,

(c) Berlin International Film Festival, or

(d) Academy Awards.

13. What are the basic qualifications for crafts?

(a) Award in national or internationally recognized crafts competition,

(b) Recognized as a Living National Treasure by a recognized Taiwanese or international organization, or

(c) Special approval by the Ministry of Culture.

14. What crafts competitions or organizations are recognized?

The Ministry of Culture has listed examples here. The key point is that this is a non-exhaustive list of examples. You can and should try to have other awards or organizations recognized by the Ministry. In general, these will need to have a level of prestige and international recognition similar to those on the Ministry’s list of examples. Examples on the Ministry’s list include:

(a) Faenza Prize (competition award),

(b) The World Crafts Council (organization), or

(c) International Ceramics Competition Mino, Japan.

15. What are the basic qualifications for cultural administration?

(a) Position in a government department of arts and culture and evidence of outstanding performance in work related to arts and culture while holding the position,

(b) Expert or research position at a registered culture and the arts organization and evidence of outstanding performance in work related to arts and culture while holding the position,

(c) Position at an international arts and culture NGO involving arts and culture and evidence of outstanding performance in work related to arts and culture while holding the position, or

(d) Special approval by the Ministry of Culture.

16. How do I show outstanding performance in arts and culture to be recognized as a special professional in cultural administration?

Submit a letter of recommendation from the department, organization, or NGO.

17. What international arts and culture NGOs qualify?

See the list of UNESCO partnership NGOs here.

18. What if I don’t meet any of the basic qualifications for recognition as a special foreign profession in culture and the arts?

You can apply under the catch-all “Special approval by the Ministry of Culture” in each of six categories of special professionals in culture and the arts. This is to cover professionals in these fields who have other qualifications. Indicate on your application that you want the reviewing agencies to consult with the Ministry of Culture. See Question 27.

19. What if my application is rejected? Are there any other paths to working in Taiwan as a professional in culture and the arts?

Yes. If you are a practicing artist you may be able to qualify for the freelance artist work permit. Please see Part I of this FAQ. Otherwise you will need to find a qualified employer to hire you for Class A specialized (professional) or technical work if your background is in media, film, television, or arts management. If you are a practicing artist, a qualified employer can apply for a Class F artist work permit on your behalf. Please check the Workforce Development Agency’s EZ Work website for information on the requirements.

20. What are the benefits of obtaining an Employment Gold Card as a special professional in arts and culture?

(a) Ability to work in your field independently or change employers if you applied for the Employment Gold Card yourself rather than having an employer apply on your behalf,

(b) 50% deferrable income tax deduction on annual income over NT$3 million for first three years in Taiwan, and

(c) Ability to sponsor parents and grandparents for visits of up to one year.

Please see the Regulations Governing Reduction and Exemption of Income Tax of Foreign Special Professionals §3 for details of eligibility for the deferrable income tax deduction.

21. Will I be eligible to enrol in Taiwan’s national health insurance program?

Yes, but you will meet a six month residence period first if you do not have an employer. To meet the residence requirement, you must be physically present in Taiwan for a total of six months although you may make one trip abroad for no more than 30 days. The time spent abroad does not count toward the six months residence requirement.  If you are hired by an employer, you are immediately eligible for health insurance.

22. How many special professionals in the field of arts and culture have received Employment Gold Cards?

As of 5 October 2018, 22 Employment Gold Cards have been issued to special professionals in the field of Arts and Culture.

23. How do I apply?

You or your employer must apply online through the National Immigration Agency’s Employment Gold Card platform.

24. What kind of documentation should I submit to show my qualifications?

Please see the various documentary requirements here.

25. Does my documentation need to be translated into Chinese?

English language documents do not need to be translated. Documents in languages other than English or Chinese need to be translated into English or Chinese.

26. How long does the application process take?

The application review period is 30 days although this can be extended if more documents are required. In practice, it currently takes most applicants 2-3 months.

27. Who will review my application?

Applications are reviewed by the National Immigration Agency, the Ministry of Labor, and the Ministry of Foreign Affairs. In special cases, these reviewing agencies may consult with the Ministry of Culture.

28. Can I renew my Employment Gold Card?

Technically no. However, you can apply for a new Employment Gold Card before the current one expires. Your qualifications will be reviewed again.

29. Can I become a permanent resident based on an Employment Gold Card?

Yes. Currently you will become eligible to apply for permanent residence after five years of continuous residence based on a series of Employment Gold Cards. You must be present in Taiwan for at least 183 days each year. Your spouse and minor children will become eligible for permanent residence five years after you become a permanent resident if they meet the foregoing residence requirement.

30. Where can I read the law and regulations myself?

You can read the Act for the Recruitment and Employment of Foreign Professionals here. The articles that apply specifically to special foreign professionals are §4(2), §§7-9, and §13. You can read the basic qualifications for special professionals in culture and the arts here. Documentation requirements are here. The National Immigration Agency also has a helpful FAQ.

31. Who can I contact in the government if I have questions?

The current designated contact at the Ministry of Culture for a special professional in culture and the arts is:

(a) Ms.Chen Yu-qi (陳鈺淇): (02)8512-6772 for questions about qualifications.

The current designated contacts at the National Immigration Agency for Employment Gold Cards are:

(a) Mr. Yang Ying-cong (楊英聰): (02)2388-9393 #2558

(b) Ms. You Rui-zhu (游瑞珠): (02)2388-9393 #2403

The current designated contact at the Ministry of Labor for Employment Gold Cards is:

(a) Mr. Zhang Wei-zhao  (張維釗): (02)2380-1720

The current designated contact at the Ministry of Foreign Affairs for Employment Gold Cards is:

(b) Ms. Zhang Jia-hong (張嘉紘): (02)2343-2901

Please check this list of contact windows on the official website for the Act for the Recruitment and Employment of Foreign Professionals. The list also has email addresses.

32. If I obtain an Employment Gold Card overseas, how long do I have to enter Taiwan?

According to the Ministry of Foreign Affairs, you can enter (and re-enter) Taiwan so long as the Employment Gold Card is valid.

Working in Taiwan as a creative professional part I: the freelance artist work permit

This is the first of two FAQs on how creative professionals can live and work in Taiwan after the Act for the Recruitment and Employment of Foreign Professionals came into force in February 2018.

Part I focuses on how to obtain a freelance artist work permit. Part II focuses on how to obtain an employment gold card as a special professional in the field of culture and arts. Click on the question to be taken to the answer, click back to return to the list of questions.

Freelance Artist Work Permit FAQ

1. What kinds of artists are eligible to apply for a freelance artist work permit?

2. What about novelists, poets, and other literary writers?

3. What does Performing and Visual Arts include?

4. What other educational and experience requirements are there for a performing or visual artist?

5. What kind of work can I do as a freelance performing or visual artist?

6. What is publishing?

7. What other educational and experience requirements are there for an artist in the publishing field?

8. What kind of work can I do as an artist in publishing?

9. What are motion pictures/television/popular music?

10. What other educational and experience requirements are there for an artist in motion pictures, television, or popular music?

11. What awards are recognized by the Ministry of Culture for motion pictures, television, and popular music?

12. What kind of work can I do as an artist in motion pictures/television/popular music?

13. What does crafts include?

14. What other educational and experience requirements are there for an artist in crafts?

15. What kind of work can I do as an artist in crafts?

16. What if I do not have one of the required qualifications for performing and visual arts, publishing, motion pictures/television/popular music, or crafts?

17. What if my application is rejected? Are there any other paths to working in Taiwan as an artist?

18. Can residents of Hong Kong and Macau apply for the freelance artist work permit?

19. Will I be able to apply for residence based on a freelance artist work permit?

20. Will I be able to enroll in Taiwan’s National Health Insurance (NHI) program based on a freelance artist work permit?

21. Can I do other work to support myself?

22. Who reviews applications for freelance artist work permits?

23. What documents are required to apply?

24. How do I fill out the application?

25. What kind of documentation should I submit to show my qualifications?

26. Does my documentation such as diplomas, letters from former employers, or promotional materials need to be translated into Chinese?

27. How and where can I apply?

28. How long does the application process take?

29. Can I extend a freelance artist permit?

30. How many artists have received the freelance artist work permit?

31. What are their nationalities?

32. Where can I read the law and regulations myself?

33. Who can I contact in the government if I have questions?

1. What kinds of artists are eligible to apply for a freelance artist work permit?

A foreign national artist is eligible to apply if he or she has a track record in one of the following fields:

(a) Performing and Visual Arts,

(b) Publishing,

(c) Motion Pictures/Television/Popular Music,

(d) Crafts (Applied Arts), or

(e) Other artistic fields.

An artist who works in a field other than (a)–(d) above may make a special application for the freelance artist work permit for other artistic fields (e). Please also see the question about lack of required qualifications below. The Ministry of Culture has emphasized that it is flexible about both fields and qualifications, that it recognizes that the arts are always evolving, and that it will consider applications from artists who do not fall neatly into the categories described in (a) to (d) above.

2. What about novelists, poets, and other literary writers?

They are included in ‘Publishing’. See Question 6.

3. What does Performing and Visual Arts include?

They include:

(a) Music (other than popular music),

(b) Dance,

(c) Drama,

(d) Environmental arts, and

(e) Photography.

4. What other educational and experience requirements are there for a performing or visual artist?

One of the following:

(a) Ten years of experience with evidence of original and outstanding work,

(b) MA degree and five years of experience in the field,

(c) PhD and three years of experience in the field, or

(d) Original and outstanding work accompanied by a letter of recommendation or other documentation issued by an official agency in the artist’s home country.

5. What kind of work can I do as a freelance performing or visual artist?

In addition to creating, exhibiting, or performing works, an artist in this class can also do related work involving research, surveys, production, and promotion. The artist can also hold workshops, give lectures, act as a judge, do criticism, and participate in competitions. All work should be related to a performing or visual art.

6. What is publishing?

This is a broad category focused on the publication of literary or artistic works in print newspapers, magazines, or books. You can qualify if you are an author, critic, editor, or translator. Literary works expressly include graphic works.

You can also qualify if you a literary agent, exhibition planner, or researcher whose work involves print literature.

7. What other educational and experience requirements are there for an artist in the publishing field?

Eight years of experience in the field plus one of the following:

(a) Editor in chief or executive at major international print newspaper, magazine, or publisher,

(b) Winner of major international award for literature, or graphic literature or winner of major national prize in these fields in the writer’s country of origin, or

(c) Original and outstanding work in the field of publishing accompanied by a letter of recommendation or other documentation issued by an official agency in the writer’s home country.

8. What kind of work can I do as an artist in publishing?

You can create textual or pictorial works with artistic value, act as a literary agent, or edit or translate such works. You can also plan exhibits of the same and do related research. All ‘publishing’ work should be related to texts or pictorial works with artistic value.

9. What are motion pictures/television/popular music?

Artists in these fields are eligible to apply if the artist:

(a) Creates, produces, or performs in motion pictures or television, or

(b) Creates, produces, or performs popular music.

You may also be eligible to apply if you promote, give workshops on, lecture on or critique motion pictures, television, or popular music, or if you participate as a contestant or act as an agent in these fields. The freelance artist work permit is also available to those who work in management or technology related to these fields.

10. What other educational and experience requirements are there for an artist in motion pictures, television, or popular music?

You must have received or been one of the following:

(a) Nomination for a Taiwanese or international film, television, or popular music award or other award recognized by the Taiwan Ministry of Culture,

(b) Associate professor or above in a department of film, television, or popular music at a foreign university, or

(c) Head of a major international movie, television or record company.

11. What awards are recognized by the Ministry of Culture for motion pictures, television, and popular music?

Motion Pictures

Domestic

Competition awards at:

(a) Golden Horse Awards,

(b) Golden Harvest Awards for Outstanding Short Films,

(c) Taipei Film Festival,

(d) Kaohsiung Film Festival, or

(e) Taiwan International Documentary Festival.

International

(a) Competition or parallel selection awards at Category I or Category II International film festivals, or

(b) Competition awards at Category III or Category IV international film festivals.

The many international festivals currently recognized by the Ministry of Culture are listed here. Examples include Cannes International Film Festival (Category I), the Tribeca Film Festival (Category II ), the Sydney Film Festival (Category III), and the San Francisco International Lesbian and Gay Film Festival (Category IV).

Television

(a) Golden Bell Awards,

(b) International Emmy Awards,

(c) Seoul International Drama Awards,

(d) New York Festivals International Television & Film Awards,

(e) British Academy Television Awards, or

(f) AIB International Media Excellence Awards

Popular Music

(a) Grammy Awards,

(b) American Music Awards,

(c) BRIT Awards,

(d) MTV Europe Awards,

(e) Golden Melody Awards,

(f) Golden Indie Awards,

(g) NRJ Music Awards,

(h) Japan Record Awards,

(i) Billboard Music Awards,

(j) Juno Awards,

(k) Mercury Prize, or

(l) Golden Disc Awards.

12. What kind of work can I do as an artist in motion pictures/television/popular music?

You can:

(a) create, produce, perform in, or promote motion pictures, television, or popular music;

(b) hold workshops or give lectures related to motion pictures, television, or popular music;

(c) criticize and judge motion pictures, television, or popular music;

(d) act as an agent in the motion picture, television, or popular music business; or

(e) do management or technical work related to motion pictures, television, or popular music.

13. What does crafts include?

Crafts or applied arts means creating or teaching in any of the following mediums:

(a) Leather,

(b) Ceramic,

(c) Stone,

(d) Glass,

(e) Fiber (dying, weaving or knitting),

(f) Wood,

(g) Bamboo,

(h) Paper,

(i) Metal,

(j) Paint, or

(k) Mixed media.

14. What other educational and experience requirements are there for an artist in crafts?

You must have done, received or been one of the following:

(a) Nomination for a recognized Taiwanese or international crafts award,

(b) Associate professor or above in a department of crafts (applied arts) at an international university, or

(c) Original and outstanding work in the field of crafts accompanied by a letter of recommendation or other documentation issued by an official agency in the artist’s home country.

15. What kind of work can I do as an artist in crafts?

You can create works in any of the media listed in Question 13 or teach the craft.

16. What if I do not have one of the required qualifications for performing and visual arts, publishing, motion pictures/television/popular music, or crafts?

The Ministry of Culture will consider your qualifications on a special basis.

17. What if my application is rejected? Are there any other paths to working in Taiwan as an artist?

Yes. In this case, you will need to find a qualified employer to hire you to work as an artist. You can review the requirements on the Workforce Development Agency’s EZ Work Taiwan website.  Your employer may be able to obtain an exemption to some of the requirements through the Consultation Mechanism. Artist work permits can be issued for full time work and for one-off performances or events. In the case of full-time work, you will be able to apply for a visa and an ARC after the work permit is issued

18. Can residents of Hong Kong and Macau apply for the freelance artist work permit?

Yes.

19. Will I be able to apply for residence based on a freelance artist work permit?

Yes. You will need to first adjust your visa status with the Ministry of Foreign Affairs and then apply for an Alien Residence Certificate (ARC).

20. Will I be able to enroll in Taiwan’s National Health Insurance (NHI) program based on a freelance artist work permit?

Yes, but you will meet a six month residence period first if you do not have an employer. To meet the residence requirement, you must be physically present in Taiwan for a total of six months although you may make one trip abroad for no more than 30 days. The time spent abroad does not count toward the six months residence required.  If you are hired by an employer, you are immediately eligible for health insurance.

21. Can I do other work to support myself?

No. The holder of a freelance artist work permit can only work in his or her permitted field. For example, the artist cannot moonlight as a language teacher or a programmer on the side. This kind of work would be illegal and would result in a fine of NT$30,000 to NT$150,000. Any kind of illegal work will also result in automatic and largely unappealable deportation plus a re-entry ban.

22. Who reviews applications for freelance artist work permits?

The Ministry of Labor’s Workforce Development Agency reviews them, in consultation with the Ministry of Culture. The Ministry of Culture will review applications from artists in fields other than visual and performing arts, publishing, motion pictures/television/popular music, and crafts. It will also review qualifications that are unclear or do not fall into the required qualifications. State clearly in your application that you are applying in the ‘Other’ category or that you want a special review of your qualifications by the Ministry of Culture.

23. What documents are required to apply?

(a) Application Form

(b) Copy of passport

(c) Application fee (NT$500) receipt

(d) Documentation of required qualifications

(e) Other documents requested on a case by case basis

Typically any documents requested under (e) will be requested after you have filed an application with (a)-(d) above. Note that if documentation of your qualifications comes from overseas, you may be required to have your documents notarized and then certified (AKA ‘legalization/authentication) at a Taiwan embassy overseas. We understand that in practice notarization and legalization of documents is not usually required.

24. How do I fill out the application?

The application is very simple and largely self-explanatory. There are a few fields that you may need help with.

The ‘Intended work schedule in Taiwan’ field should be a couple of sentences explaining what you will be doing in Taiwan and how often. In practice, a simple statement of how often the artist will perform and participate in related events like workshops has worked.

The ‘Expected result and benefits’ should be another simple, general statement about how the artist’s work will benefit Taiwan and contribute to international cooperation between artists. You might mention the contribution you can make in introducing Taiwanese artists to international artists and audiences if you are able to introduce Taiwanese artists to your network overseas. Again this statement should be no more than two or three sentences.

‘Branch code’ on the second page means the post office branch you used to pay the application fee by postal remittance.

The ‘Manpower Agent’ referred to on the second page is the name of the immigration agent you have retained (if any) to file your application. Your agent will fill this section in.

25. What kind of documentation should I submit to show my qualifications?

This depends greatly on what kind of artist you are and which qualification you are trying to show. You will need to submit copies of your diploma(s) and letters from former employers to demonstrate that you meet the education and experience requirements. In practice, there is some flexibility about demonstrating experience. For example, letters from employers such as schools where the artist taught in her field in combination with letters from other band members have been used to document experience.

We also understand that evidence of awards for your work is considered to be important. It can be a good idea to submit a letter from the organization that made the award explaining who it is, the nature of the award, and its significance. You may also want to submit promotional materials and coverage in print media.

A supporting letter of recommendation from a reasonably well known Taiwanese artist can also be helpful.

You should not submit a large number of documents or feel that you need every one of the documents listed above. The objective is to clearly show that you have any required educational credentials and a proven track record in your field.

It is of course essential that all documents and information be genuine and truthful. Submitting false documents can result in criminal charges of forgery and false representations to the government. You will also make it more difficult for other artists to live and work in Taiwan in the future.

26. Does my documentation such as diplomas, letters from former employers, or promotional materials need to be translated into Chinese?

Yes but these translations do not have to be complete translations. Translations of key sections related to educational credential, experience, originality, and quality of work are enough.

27. How and where can I apply?

You can apply online on the Ministry of Labor’s EZ Work Permit site. The site is poorly designed and has imperfect English. Nonetheless it is usable with some patience. The site is bilingual once you have registered an account.

If you have trouble, take your application documents to the Taiwan Ministry of Labor Workforce Development Agency’s office in Taipei and apply in person. The address is:

10F, No. 39 Zhonghua Road Section 1, Taipei City, Taiwan

It is also possible to apply by mail if you are in Taiwan. You will need to pay the fee by means of a postal remittance from a Taiwan post office.

28. How long does the application process take?

In practice, it takes most applicants two or three months to gather the documents. It takes seven working days to process an online application if the Workforce Development Agency does not ask you for additional documents. Many candidates are asked for additional documents though.

29. Can I extend a freelance artist work permit?

Yes. A freelance artist work permit can be extended for up to three years. You will need to show evidence that you have been active and productive in your particular field during the original work permit period. In general, you should apply for an extension during the four months before your work permit expires.

30. How many artists have received the freelance artist work permit?

18 (October 31 2018).

31. What were their nationalities?

1. Japan: 2

2. Malaysia: 6

3. Philippines: 1

4. US: 3

5. India:  1

6. France: 1

7. Bhutan: 1

8. Hong Kong: 1

8. Others: 3

32. Where can I read the law and regulations myself?

You can read the Act for the Recruitment and Employment of Foreign Professionals here. The freelance artist work permit is covered in Article 10. There is also a useful Examination Manual for work permit applications under the Act for the Recruitment and Employment of Foreign Professionals. As of this writing the Examination Manual is available only in Chinese: 外國專業人才延攬及僱用法工作許可(審查作業手冊).

You can read the regulations governing applications for the freelance artist work permit here.

33. Who can I contact in the government if I have questions?

The current designated contacts at the Ministry of Labor for freelance artists are:

(a) Mr. Zheng Zhe-xin (鄭哲欣) for questions about the laws and regulations. (02)8995-6177.

(b) Mr. Huang Hu-qun (黃胡群) for questions about the application process. (02)2380-1722.

The current designated contact at the Ministry of Culture for freelance artists is:

(a) Ms. Wang Meng-zhe (汪孟哲). (02)8512-6772.

Please check this list of contact windows on the official website for the Act for the Recruitment and Employment of Foreign Professionals. The list also has email addresses.



Best practices to avoid trade secret theft

For companies taking a long-term view of protecting their intellectual property rights, trade secrets may offer an appealing alternative to a patent-based approach. Each option comes with its own tradeoffs. A patent provides its owner with an enforceable monopoly on the patented innovation, but only for a limited time, after which the owner will lose any special right to the invention or method disclosed in the patent. This is often the best option, especially for innovations which could soon become obsolete, or which are likely to be discovered by other parties. On the other hand, trade secrets have no expiry date, and the owner retains an exclusive right as long as the innovation can be kept secret from other parties. There is also no need to register trade secrets with the authorities in order to gain protection, whereas patents are only awarded after an application process that is often lengthy, complicated, and expensive. But trade secrets have their downsides as well, most notably that another party which independently arrives at the same discovery has every right to make use of it.

Although trade secrets might be a more suitable long-term strategy than patents for many companies, they are often overlooked or poorly understood, and many companies which rely on trade secrets may not be taking adequate steps to protect them. In some cases the lack of sufficient protective steps may even mean that the innovation in question will not meet the legal definition of a trade secret, and will not be protected as one under the law. This can be seen by looking at the way trade secrets are defined under Taiwanese law.

An innovation must meet the following three criteria to be considered a trade secret under Taiwan’s Trade Secrets Act:

(1)   It must not be known to persons generally involved in the field.

(2)   It must have economic value, actual or potential, due to its secretive nature.

(3)   Its owner must have taken reasonable measures to maintain its secrecy.

The first two requirements may seem obvious. It is the third requirement that can create problems for a company trying to protect its trade secrets. Due to the requirement imposed by the third part of the definition, a company which has not taken “reasonable measures” to maintain secrecy does not have a trade secret at all, and its innovation will not be protected by the Trade Secrets Act. So what would constitute a “reasonable measure” in this context?

Many companies may not have considered whether their protective measures would be considered reasonable under the Trade Secrets Act, and these same companies may unfortunately fall short when putting protective measures in place. In many cases the only step taken to protect a trade secret will be the use of a non-disclosure agreement (NDA). While an NDA is certainly a good idea, there are additional, relatively easy steps that can be taken to increase protection. This is where best practices come into play. These could include any or all of the following:

  • Ensuring that the trade secret is protected using adequate, demonstrable security measures.
  • Using password protection on computers and electronic files containing information pertaining to the trade secret.
  • Protecting access to the premises with measures such as card-based entry, a front desk with receptionists controlling access to the office, etc.
  • Having a clear, written internal policy for trade secret protection, including regular training sessions or workshops to ensure that all employees are aware of proper procedures.
  • Taking measures to prevent employees from compromising security by downloading unauthorized software, bringing sensitive documents home with them, or using personal USB drives and other storage devices, etc.

This list is by no means exhaustive, and in fact there is no list of requirements for meeting the definition of “reasonable measures”.[1] That said, failure to implement any measures of this kind could be used as evidence to show that the protected information was never a trade secret to begin with, having failed to meet the third requirement under the law that there must be “reasonable measures to maintain its secrecy.” Clearly an NDA is not always going to be enough.

There is another major benefit to implementing best practices: aside from just meeting the legal standard of having “reasonable measures” in place, such best practices could also prove to be indispensable tools for proving that theft of trade secrets has indeed occurred when an alleged breach being considered by a court. For example, password protection for electronic files also brings the possibility of tracking exactly who had access to the relevant information and when. Records of this kind could make all the difference when trying to prove that a specific individual engaged in trade secrets theft. And simply allowing all employees to have unmonitored, unfettered access to trade secrets could make it virtually impossible to prove who might have leaked the information.

One important exception to all of the foregoing which should be mentioned: for foreign nationals doing business in Taiwan with trade secrets in play, there is a further issue that the Trade Secrets Act relies on reciprocity when it comes to protection of a foreign party’s trade secrets. In particular, consider the following at Article 15:

A foreign national’s trade secret(s) will not receive protection in the R.O.C., if the foreign national’s home country has not signed a bilateral trade secrets protection treaty or agreement with the R.O.C., or does not provide protection to trade secrets owned by R.O.C. nationals according to the laws and regulations of the foreign national’s home country.

In other words: if you are a foreign national, all of your attempts at best practices may be in vain if your home jurisdiction does not have a bilateral trade secrets agreement with Taiwan, or does not protect the trade secrets of Taiwanese nationals. In such a situation, your trade secrets will not be protected in Taiwan, even if you take all the proper precautions outlined above.[2] For this reason, it is recommended that foreign nationals in particular seek out legal advice when using trade secrets in Taiwan. There may be other options to consider in this situation, but they would need to be determined on a case-by-case basis with the advice of a lawyer.

Clearly, trade secrets protection can present difficult problems. But by taking simple precautions, and by hiring legal specialists to formulate an appropriate regime of trade secrets protection for your company, major disasters can be avoided. And when it comes to issues involving trade secrets protection, preventing bad outcomes before they arise is inevitably safer, less stressful, and above all cheaper than dealing with a trade secrets breach after the fact.

For more information about trade secrets protection and other intellectual property matters in Taiwan, please contact Christine Chen at cchen@winklerpartners.com.

Legal intern Wolf Cho contributed to this article.


[1] For an example of this, see 104年度智訴字第14號, in which the court held that reasonable protective measures had been implemented, including the use of confidentiality agreements, the use of document shredders, and a system of graded levels of confidentiality for internal documents, with corresponding restrictions to access.

[2] See, for example, 96年度抗字第1641號 (Interlocutory Appeal), in which the Taiwan High Court stated that the appellant’s status as a British Virgin Islands company combined with the absence of any reciprocal arrangement for trade secrets protection between Taiwan and the British Virgin Islands meant that the appellant’s trade secrets would not be afforded protection in Taiwan.

Mass layoffs in Taiwan: Additional insights for employers

As we mentioned in our previous article, “Mass layoffs in Taiwan: A guide for employers”, when an employer needs to dismiss a certain amount of its Taiwan workforce over a defined period of time, it must comply with the provisions of the Act for Worker Protection of Mass Redundancy (the “MRA”). Any employer who does not follow the procedures under the MRA may be subject to administrative fines of up to NT$500,000. As a follow-up to that article, we provide below some additional insight regarding the mass layoff process based on our recent experience of handling such cases.

Required notification and calculation of the notice period

An employer seeking to implement a mass layoff plan (a “Plan”) shall notify the relevant authorities/agencies or personnel at least 60 days prior to the proposed termination date. However, in addition to the procedures required by the MRA, an employer shall provide 10 to 30 days of advance notice to individual terminated employees based on their years of service, pursuant to the Labor Standards Act (the “LSA”).

An employer shall also notify the local labor authority and public employment services institution at least 10 days prior to the proposed termination date, according to the Employment Service Act (the “ESA”). The calculation for determining when the termination report should be submitted is slightly different than that for the 60-day notification period mentioned above in that the first day is the date the termination takes effect. If the last date in that period, the date requiring submission, is a holiday, it would automatically carry over to the next day. For example, if employees are scheduled to be terminated on 20 February, the first date to start the calculation of the 10 days would be 21 February. In general, the last day for the employer to submit the report should be 12 February; however, if that day is a Sunday, the employer may complete the submission no later than Monday, 13 February.

Submission of required documents and negotiations

The Plan shall provide detailed information regarding the layoff and relevant evidence, such as financial statements, to justify the layoffs. This evidence may also be provided after the initial submission of the Plan. If employers cannot produce such evidence, they may provide a written explanation instead.

If an agreement is not reached by the employer and the employees within 10 days from the day that notification has been given, the relevant local labor authority will invite both sides to form a negotiation committee in order to finalize the terms of the Plan. In our experience, this 10-day period is not a hard and fast rule (at least for the Taipei City Government). In circumstances in which the employer can provide written evidence that it has been trying to negotiate with the terminated employees, intervention by the labor authority is less likely. In practice, such evidence is usually in the form of meeting minutes. The minutes submitted in the final stage, once negotiations have concluded, must be sufficient to prove that both parties have reached a mutual agreement and should contain an acknowledgement that the terminated employees have agreed to the formula used to calculate their severance package. Each employee must sign the minutes to show his/her express consent to their content. An attendance sheet bearing the signatures of the representative of the employer and all employees is also required.

Employment counseling for terminated employees

After the Plan is filed with the local labor authorities, the public employment services institution will ask the employer if the terminated employees require employment counseling. This is a procedural inquiry made of every company subject to mass redundancy and is not compulsory. It offers the terminated employees a chance to better understand Taiwan’s employment counseling resources. The process involves an informational session at the company’s offices, during which the presenters introduce employment resources, such as counseling services, employment insurance, channels for job hunting, and others. They also hold a Q&A session to respond to employee’s questions regarding issues related to unemployment benefits and other services.

Employer’s post-termination obligations

Employers shall issue involuntary termination certificates. Service certificates may also need to be provided if the terminated employees ask for them. The involuntary termination certificate is required for employees looking to register for job placement, apply for unemployment benefits, and obtain vocational training. The service certificate lists the employee’s job title, their years of service, the nature of the job, and their salary. Please note that employers may not record any negative information regarding the employee on the service certificate.

Tips for negotiating with terminated employees

The employers may terminate employees at the end of the 60-day notice period under the MRA, provided that the laid-off employees are all issued statutory entitlements under the LSA and Labor Pension Act (the “LPA”). The MRA merely imposes an obligation on employers to negotiate the severance package with the employees; there is no punishment for employers who are unable to ultimately reach a better deal with the employees. Employers should however be reminded that unhappy employees may challenge the termination’s legal basis through official complaint, mediation or even bring a suit.

To avoid such risks, employers can of course offer a more generous severance package than that mandated by the LSA and LPA if they believe that their legal basis for the layoff is not strong enough or if they wish to facilitate a more efficient mass layoff process and reduce the risk of future disputes arising. However, as the MRA does not require the employer to provide the employees with a better deal when a mass redundancy occurs, it is important for the employer to acknowledge that it’s not wise to show all of their cards at the very beginning of the negotiations. In our experience, such a move leads to deadlock and requires much more effort to reach a settlement with the employees.

For more information on Taiwan employment matters, please contact Christine Chen at cchen@winklerpartners.com or on +886 (0) 2 2311 8307.

2017 Data protection enforcement decisions by Taiwan’s Financial Supervisory Commission

Taiwan’s Financial Supervisory Commission (the “FSC”) continues to be the only regulatory agency in Taiwan that regularly publishes its data protection enforcement decisions. This update summarizes the FSC’s 2017 data protection decisions. Please see this feature from last year that explains Taiwan’s data protection regulatory regime and discusses the FSC’s 16 decisions between 2012 and 2016.

The FSC issued 13 data protection enforcement decisions in 2017 after issuing seven such decisions in 2016 and none in 2015. All 13 of the 2017 decisions were against insurance businesses, and 11 of these decisions imposed fines ranging from NT$300,000 (c. US$10,000) to NT$700,000 (c. US$23,000). It should be noted that most of the decisions also included violations of Taiwan’s Insurance Act in addition to data protection violations. As a result, the fines include penalties for violations of not only the Insurance Act, but also Taiwan’s Personal Information Protection Act (“PIPA”) without a breakdown. The decisions also included orders to remedy the violations. Typically, the FSC gave the insurance businesses one to three months to remedy.

Eleven of the 13 decisions involved failures to implement appropriate security measures to protect personal information under Article 27(1) of the PIPA. More specifically, the FSC repeatedly cited insurance businesses for violations of its standards for appropriate security measures at financial institutions. These standards are set out in the Financial Supervisory Commission’s Regulations Governing Security Measures for Personal Information Files at Designated Non-Public Agencies (the “FSC Security Measures Regulations”).[1]

For example, an insurance brokerage was cited for the following violations:

  1. Failure to establish a security auditing mechanism for personal information (FSC Security Measures Regulations §13); and
  2. Failure to establish a record keeping mechanism for deletion of personal information and cessation of processing or use of personal information (FSC Security Measures Regulations §14(2)).

The FSC’s almost exclusive focus on security measures in 2017 contrasts with enforcement decisions from 2012-2016 where decisions were more evenly divided between data breaches, notice/consent failures, and inadequate security measures.[2]

This focus on appropriate security measures is consistent with the approach of other Taiwanese regulators in the past year or so. For example, the Ministry of Economic Affairs’ Investment Commission now sometimes requires foreign investors in sensitive industries to produce personal information security plans as part of the foreign investment approval process.

It is also worth mentioning that the FSC is far from alone in having issued regulations on personal information security standards. As of this writing, there are 34 such regulations issued by various sectorial regulators pursuant to Article 27(3) of the PIPA. Notable examples include personal information security standards for:

  1. Telecommunications enterprises, cable network operators, and television stations;
  2. Tourist hotels; and
  3. Power and gas companies.

Currently, these security standards are something of a regulatory blind spot for international businesses since very few have been translated into English.


[1] 金融監督管理委員會指定非公務機關個人資料檔案安全維護辦法

[2] In addition to the security measure enforcement decisions, there was also one data breach case involving negligent disclosure of insurance policy information to third parties as well as one inadequate notice case in 2017.

How the Company Act amendments will affect your Taiwan business

On 6 July, 2018, Taiwan’s legislature enacted 148 amendments to the Company Act (the “Act”). The effective date of the amended Act is 1 November 2018.

In this article, we highlight certain amendments which we expect to have a significant impact on our clients’ operations in Taiwan. We have organized these amendments into the following categories:

  1. Increased Flexibility in Equity Fundraising and Related Shareholder Arrangements;
  2. Relaxed Corporate Governance Formalities;
  3. Enhanced Substantive Shareholder Protections;
  4. More Appropriate Treatment of Foreign Companies;
  5. Increased Corporate Transparency;
  6. More Flexible Employee Equity Incentive Arrangements; and
  7. Increased Dividend Distribution Options.

1. Increased Flexibility in Equity Fundraising and Related Shareholder Arrangements

Prior to recent amendments, the Act posed a number of difficulties for companies engaged in equity financing. The Act previously contained a rule requiring a company to issue all of its existing authorized shares before it could authorize and issue new shares. This rule has been eliminated making it procedurally easier for companies to issue new equity capital.

The amended Act has also expanded the types of equity shares that may be issued. Private companies may now issue preferred shares with special voting, veto, and other control rights. A private company will now also be able to issue shares without par value, provided that all of the company’s shares are issued without par value.

In a related amendment, the new Act allows for further individual tailoring of corporate control by permitting voting agreements and voting trusts among shareholders. It is important to note that the amended Act clearly permits restrictive voting arrangements with respect to the election of directors and supervisors as well as voting arrangements concerning certain other company matters. This amendment was a direct legislative response to the majority view in Taiwan’s courts that voting agreements among shareholders regarding elections of directors and supervisors were unenforceable except in the limited case of a closed company.

2. Relaxed Corporate Governance Formalities

The amended Act eliminates a number of cumbersome corporate governance formalities and simplifies others. As amended, the Act does not require wholly owned, incorporated subsidiaries to appoint a minimum of three directors. Now, one director will suffice. Additionally, wholly owned subsidiaries are no longer required to have supervisors.

Corporate governance meetings have also been simplified. Shareholder meetings of a private company may be held by video conference in lieu of a physical meeting, provided that the company’s articles of incorporation expressly permit such video conference meetings. Private company boards may also pass written resolutions in lieu of holding meetings, provided that (i) written board resolutions are expressly permitted by the company’s articles of incorporation and (ii) all directors have agreed to the use of such written resolutions. We expect these meeting-related changes to be particularly welcomed by the many international businesses with wholly owned, incorporated subsidiaries in Taiwan.

3. Enhanced Substantive Shareholder Protections

While reducing some of the more ineffectual corporate formalities, the new Act introduces improvements in substantive shareholder protection. The amended Act permits a majority of shareholders to call a shareholders meeting with three months’ advance notice. Previously, shareholder meetings had to be called by the board unless the shareholders had received approval from the company’s relevant regulator to call a shareholders meeting directly.

Rules for shareholder meeting notices have also changed. The types of matters which must be explicitly set forth and explained in a shareholder meeting notice in order to be properly brought before shareholders for discussion or resolution at a meeting was expanded in the revised Act to include matters relating to (i) capital reductions; (ii) going private transactions; (iii) waiver of certain director non-compete obligations; and (iv) capitalization of profits and capital surpluses. Such measures are intended to prevent management from introducing unexpected meeting agenda items and otherwise concealing the nature of the business to be transacted at shareholder meetings.

4. More Appropriate Treatment of Foreign Companies

One of the more important features of the amended Act is the elimination of the recognition system for foreign companies. So long as a foreign company has been duly established in its home jurisdiction, such company now automatically has legal personhood in Taiwan without the need to make a special application for recognition from the Taiwan government. This amendment has the very practical and beneficial result that all properly established foreign companies will be recognized in Taiwan, thus eliminating the personal risk and liability that a representative of an unrecognized foreign company would incur if he or she were to act on behalf of an unrecognized foreign company.

The amended Act creates another benefit specifically for foreign companies. While foreign companies are still required to register Chinese names, they may now also register a name in a foreign language and enjoy certain exclusive rights to the use of that name in Taiwan. We strongly encourage all foreign companies operating in Taiwan to register their foreign language name after the amendments come into force.

5. Increased Corporate Transparency

In an effort to increase corporate transparency, the revised Act prohibits the issuance of bearer shares. Existing bearer shares may remain in circulation; however, when any holder of bearer shares exercises its rights with respect thereto, the issuing corporation must exchange such shares for registered shares. In addition, the amended Act requires corporations to make annual reports of major shareholders (defined as a shareholder holding 10% or more of a corporation’s outstanding shares), directors, and officers. Corporations must also file to update such reports within 15 days of any change.

We note that a controversial requirement to report ultimate beneficial owners was not included in the revised Act. We continue to watch this particular issue with interest.

6. More Flexible Employee Equity Incentive Arrangements

The new Act improves the ability of companies to create and manage an employee equity incentive plan. The amendments allow companies to repurchase previously issued shares and use the resulting treasury shares as employee equity compensation. Private companies may also now directly issue new restricted shares to employees.

The amended Act introduces further flexibility with respect to which employees can be included in equity incentive plans. Under the new Act, a company’s articles of incorporation may provide that existing incentives such as warrants and subscription rights can be issued to the employees of affiliated companies, including holding companies, subsidiaries, and other affiliates.

7. Increased Dividend Distribution Options

Another positive change found in the amended Act is the flexibility for a company to provide for annual, semi-annual, or quarterly dividend distributions in its articles of incorporation.

Overall, the changes made to the Company Act have reduced unnecessary corporate formalities while enhancing flexibility around shareholder and financing arrangements. While no date has been given, we expect most amendments will go into effect in early 2019. The new major shareholder reporting requirements may be implemented even earlier in light of an upcoming international anti-money laundering review scheduled for this fall.

If you have any questions as to how the amendments may affect your business in Taiwan, please contact Daniel Chen at dchen@winklerpartners.com and Gregory Buxton at gbuxton@winklerpartners.com.

Associates Michael Fahey, Brian Yang and trainee lawyer Pei-hsu Wu contributed to this article.

Could Taiwan’s new regulatory sandbox spur innovation in its financial services industry?

The Financial Technology Development and Innovative Experimentation Act, passed by Taiwan’s Legislative Yuan in January of this year, aims to foster a positive environment for new and untested forms of financial technology, also known as “fintech.” The Act provides for the creation of a regulatory sandbox, following in the footsteps of the UK, Singapore, Australia, and Hong Kong. The sandbox would allow fintech startups a period of up to three years to develop and test out their products or services, while avoiding the risks associated with such development or endangering the rights and interests of financial consumers.

Thus far, two companies have submitted a complete application package to participate in the sandbox, but around 40 potential applicants have approached the competent authority designated by the Act, the Financial Supervisory Commission (FSC), with queries regarding the sandbox. Most of these are simply inquiring about the application requirements and process; however, over ten have received guidance from the FSC and will likely apply in the future. Applicants include companies engaging in a wide range of financial technology development, such as blockchain cross-border remittance technologies, P2P online lending platforms, investment robo-advisors, online insurance, cryptocurrency platforms, and others.

In this article, we provide a general overview on the Act, highlighting key provisions related to participation in the regulatory sandbox.

As mentioned above, the competent authority designated in the Act is the FSC, which is responsible for the creation of a unit dedicated to reviewing all applications, determining the effectiveness and feasibility of each innovative experimentation plan being applied for, and overseeing the progress of each plan once it has been approved.

Chapter II of the Act indicates the required documentation for applying to take part in the sandbox. This includes an application form, information regarding the individual, sole proprietorship or partnership, or legal person applying for the sandbox, and an innovative experimentation plan, which should illustrate the innovativeness of the technology, indicate the source of funds for the project, and potential risks and risk management mechanisms, among others. Supplemental documentation may also be requested by the FSC.

The FSC, in its review of an applicant’s filing package, will determine whether 1) the project involves financial businesses that require its permission, approval, or concession; 2) the project is innovative; 3) the project can increase the efficiency of financial services, reduce costs, or enhance the interests of financial consumers or enterprises; 4) potential risks have been assessed and response mechanisms have been prepared; and 5) protection measures and compensation for participants (those consumers that have chosen to take part in the experimentation) have been prepared. The review process may take up to 60 days, and may include adjusting the content of the plan being applied for, limiting the eligibility of participants, adding requirements, and exempting the plan from certain regulations. Any application that is approved by the FSC will be disclosed on its website, and this disclosure will include the applicant’s name, the duration and scope of the experimentation, the regulations that the project is exempted from, and other relevant information.

Once the experimentation by an approved applicant is underway, the FSC will continue to play a supervisory role, and maintains the right to periodically check the progress of any project. Furthermore, it has full discretion in revoking its approval of a project that it determines could be adverse to the market or to the interests of the participants, goes beyond the scope approved of by the FSC, or violates any additional requirements or obligations established by the FSC or any of the provisions of the Act. The length of the experimentation is limited to one year, but a six month extension may be applied for. In cases in which the experimentation involves amending existing laws, the duration may be extended up to three years, longer than that of other countries’ sandboxes.

The Act also contains a number of articles protecting participants in the sandbox, including ensuring that the financial product or service contract entered into by the applicant and participant is fair and drafted in good faith, and providing for a dispute resolution channel, in accordance with the Financial Consumer Protection Act.

The final section of the Act lists the specific regulations that experimentation approved by the FSC is exempt from. This includes provisions of the Banking Act, the Trust Enterprise Act, the Act Governing Electronic Payment Institutions, and the Securities and Exchange Act, among others. Nevertheless, sandbox applicants will not be exempt from the provisions of the Money Laundering Control Act, the Terrorism Financing Suppression Act, and other related laws and regulations.

Based on the success of other fintech sandbox schemes worldwide (90 percent of applicants participating in the first round of the UK’s version have gone on to market, for example), there are high hopes that such a system can foster much-needed innovation in Taiwan’s finance industry as well. As with similar regulations, knowledge of the application process, as well as of the relevant restrictions and exemptions once an application is approved, are essential to ensuring an applicant’s successful navigation of the sandbox.

For more information on Taiwan’s fintech regulations, please contact Christine Chen at cchen@winklerpartners.com.

 

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