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Does abolishment of the recognition system allow foreign companies to freely obtain property in Taiwan?

by Christine Chen and Brian Yang

Since the amended Company Act came into force, foreign companies that were organized and incorporated in accordance with the laws of a foreign country have legal capacity in Taiwan. Without having to be recognized or establish a branch, a foreign company now enjoys the same rights and obligations as a domestic company, including the right to file a complaint. As such, foreign companies that are the victim of fraud will be able to file criminal litigation seeking relief in Taiwan. However, foreign companies that wish to sign contracts, make price quotations, or engage in price negotiations, bids, and procurement projects, should still establish a Taiwan representative office, while those that wish to conduct business in Taiwan should establish a branch office.

However, of the various rights an unrecognized foreign company can now enjoy, do these include the right to acquire or set up rights in real property? Prior to the 2018 amendments, an unrecognized foreign company without a Taiwan branch could not acquire real estate, or mortgage or pledge personal property. Now, foreign companies, within the extent permitted by law, have the same legal capacity as domestic companies. Although the same scope of activities representative offices and branches can undertake still apply, there remain some questions as to whether an unrecognized foreign company can directly exercise the above-mentioned property rights. We inquired with the competent authorities about this issue and received replies addressing the following topics:

Registration of Property Rights (including registration as title holder and registration of mortgages)

Prior to 2018’s amendments, foreign legal persons who wished to acquire or register real property rights needed to be recognized in accordance with the laws of Taiwan and were required to attach their recognition certificate to the application. The Ministry of the Interior has indicated, however, that foreign companies no longer need to undergo the recognition process to obtain such rights.

Nonetheless, the “Operation Directions for Foreigners to Acquire Land Rights in the Republic of China” amended on 21 March 2019 and letters of interpretation issued by the competent authority still require foreign companies attach their registration documents and that they do so in the name of the head company. A foreign company still needs to establish at least a branch in Taiwan before it can apply for real property registration, and would need its responsible person in Taiwan to file the application on its behalf. This means, that in principle a foreign company can purchase property without a Taiwan branch, but in reality they are still required to form a branch to register their real property rights. We urge the government to revise the Operation Directions for Foreigners to Acquire Land Rights in the Republic of China to remove this restriction.

Registration of Mortgages in Personal Property

Before the Company Act amendments took force, unrecognized foreign legal persons were not permitted to register mortgages in personal property, except in cases where Taiwan had signed a treaty with the home jurisdiction of the foreign legal person containing special provisions that allow for such registration. Now, the Financial Supervisory Commission has explained, a foreign company can register mortgages in personal property in its own name without needing to be recognized by the government. The “evidentiary documentation for contract parties” required for registration will instead be determined by the registration authority on a case-by-case basis. Other than foreign companies, there are no special regulations for other forms of foreign legal person. Registration of mortgages in personal property by non-company foreign legal persons is governed by other legislation, which requires that they first obtain legal personhood.

Pledges of Personal Property

Previously, unrecognized foreign companies had no legal capacity and thus had no rights to pledge personal property. The Ministry of Economic Affairs has stated that now, foreign companies have legal capacity without being recognized by the Taiwan government. Therefore, recognition is no longer required to make pledges.

Although foreign companies have legal capacity without being recognized under the new amendments, a foreign company that has not established a branch cannot acquire or set up rights in real property. The regulations need to be revised to remove this minor administrative obstacle. We believe that such revisions will go some way to making Taiwan an even more attractive place to purchase property.

For more information on this topic, please email Christine Chen at cchen@winklerpartners.com.

 

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