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Setting up a business in Taiwan: the basics

by Daniel Chen

Taiwan ranks highly on both the World Economic Forum’s Global Competitiveness List and the World Bank’s Ease of Doing Business List.[1] With strong air, trade and freight links to China, Japan, Southeast Asia, and Silicon Valley, Taiwan is a convenient hub for doing business with the rest of Asia and abroad. It also has a sophisticated domestic transportation system. Taiwan is home to a robust research and development sector, advanced domestic infrastructure, a stable political climate and a free press, a sound legal framework, and a dynamic and educated workforce. These factors have recently led an increasing number of international businesses to choose Taiwan as their regional headquarters or regional hubs.[2]

Companies wishing to establish business operations in Taiwan typically form one of the following: a Representative Office, a Branch, a Limited Company, or a Company Limited by Shares. Set forth below is a brief introduction to each of these business forms and their typical business use.

Representative Office

Many foreign entities prefer to set up a Representative Office in Taiwan prior to making the more substantial commitment involved in establishing a branch or a subsidiary. Establishing a Representative Office is one of the easiest ways to establish a business presence in Taiwan. However, a Representative Office is very restricted in terms of the activities it can undertake. A Representative Office may operate in Taiwan only as the agent of its overseas principal and is not considered a separate legal entity. It may not engage in profit-seeking commercial activities nor act as principal in any domestic business transaction. A Representative Office is also not allowed to sell goods or provide services in Taiwan. Typically, a Representative Office functions as a sales or purchasing agent for international businesses which have no other presence in Taiwan. Representative Offices are also used to provide technical support and training as well as to oversee quality control in Taiwan.

Branch

A foreign company may also establish a Branch to conduct business in Taiwan. Like a Representative Office, a Branch is not considered an independent legal entity, and so does not need to have shareholders, directors, or supervisors, as would be the case with a subsidiary. The cost of corporate secretarial maintenance for a Branch, therefore, is lower than that of a subsidiary. The major benefit of establishing a Branch over a subsidiary is that all after-tax profit may be legally remitted to the home company overseas without incurring additional withholding taxes in Taiwan. The primary drawback of a Branch is that it is a legal extension of its foreign home company, and therefore the home company remains legally liable for all acts of the Branch. Branches are most appropriate in situations where considerable funds are to be expatriated to the foreign home company from Taiwan. Branches are also sometimes preferred in large public infrastructure projects as the Taiwan government and often commercial counterparties would like to have legal recourse to the assets of the foreign home company.

Limited Company

In addition to Representative Offices and Branches, which are merely local extensions of the foreign home company, foreign companies may also establish a legally distinct subsidiary in Taiwan. The simplest form of subsidiary is a Limited Company. Taiwan Limited Companies are similar in structure to US limited liability companies. Taiwan Limited Companies are organized by one or more members, with each member, in general, being only liable to the extent of his or her individual capital contribution. A Limited Company, as opposed to a Company Limited by Shares (described below), has more flexibility in terms of structuring its corporate governance. This flexibility, however, comes at the cost of a significant impediment to transfer of interests in a Limited Company. If a director of a Limited Company wishes to transfer his or her interest in such company, the transfer must be consented to by all other members of the company. Any other member of a Limited Company who wishes to transfer his or her interest in such company must have the transfer consented to by a majority of other members. Many foreign companies choose to set up their Taiwan subsidiaries as Limited Companies, if such subsidiaries are to be wholly-owned for the foreseeable future.

Company Limited by Shares

International investors and business people choose to set up a wholly-owned subsidiary as a Company Limited by Shares if there is the possibility of selling some part of their interests in the Taiwan subsidiary. A Company Limited by Shares is similar in form to a US corporation. Shareholder liability is limited to the amount of each shareholder’s capital contribution. A Company Limited by Shares is subject to certain corporate structural requirements: it must have shareholders (at least two individual shareholders or one juridical person shareholder), directors (at least three) and a supervisor (at least one). A Company Limited by Shares can, unlike a Limited Company, become a public company in Taiwan.


[1] See, Invest in Taiwan website: <<http://investtaiwan.nat.gov.tw/eng/show.jsp?ID=3&MID=2>>

[2]See, Starting a Business in Taiwan website: <<http://www.startabusinessintaiwan.tw/additional-resources/22-an-overview-of-taiwan/103-advantages-doing-business-taiwan>>

 

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