Doing Business in Taiwan Guide_2011_PWC

www.pwc.com/tw

Take a fresh look Doing business in Taiwan An introductory guide for investors planning to enter or do business in Taiwan.

April 2011

Chairman's welcome Welcome to the updated 2011 edition of PwC Taiwan's guide to Doing Business in Taiwan.

With the progressive warming of relations between Taiwan and China, the international business community is taking a fresh look at Taiwan as an investment destination and a bridge to the world’s second largest economy.

Continued deregulation and streamlined procedures for setting up operations, along with improved IPR protection and a cut in the corporate tax rate to 17% (one of the lowest in Asia), have also contributed to making Taiwan a very attractive place for business investment.

To take advantage of the opportunities this presents, in the second half of 2010 the Taiwan government launched a major investment promotion campaign, and also established a one-stop service centre for foreign investors.

This introductory guide answers many of the questions facing prospective foreign investors and is a good starting point for organisations looking to conduct business in Taiwan.

PwC has long been advising foreign companies across all industries on how to establish themselves in Taiwan. With over 2,300 people in eight offices across Taiwan, we have a wealth of practical experience and expert knowledge of the issues faced by investors.

These resources, combined with our PwC network of member firms, allow us to provide the professional service support you need to thrive in Taiwan and the Greater China area.

We would be delighted to provide professional advice and assistance tailored to the specific needs of your business, and invite you to contact us for further information.

Albert Hsueh Chairman, PwC Taiwan

InvesTaiwan foreword As CEO of the InvesTaiwan Service Center, it is my pleasure to introduce this latest edition of PwC’s Doing Business in Taiwan guide.

With its concise format and focused content, this guide is an excellent introductory resource for prospective foreign companies considering to invest or do business in Taiwan.

But, you may ask, why Taiwan? As a growing number of multinational companies have discovered already, Taiwan offers many attractions to foreign investors, such as: • A strategic location at the economic centre of the Asia-Pacific region—the ideal choice for locating logistics centres and operational headquarters;

Should you decide to explore investment opportunities here further, the InvesTaiwan Service Center is ready to provide you with custom one-stop solutions to any investment obstacles you may encounter.

As a cabinet-level agency, our Center coordinates the services of different branches and levels of government to expedite your investment plans. Please visit us at http://investtaiwan.org.tw to learn more.

With trade and investment across the Taiwan Strait and within Asia-Pacific booming, these are exciting times for Taiwan and our region.

We look forward to seeing you here soon.

• An unrivalled platform for doing business with China; • A high-tech, innovation-driven economy with excellent fundamentals; • First-rate infrastructure and a highly skilled workforce; and • An excellent investment climate backed by pro-business policies and a robust legal framework.

Chueng-kuang Yen Chief Executive Officer

Contents Chapter

Page

1. Investment environment

8

2. Setting up and investing in Taiwan

20

3. Human resources

32

4. Accounting and audit

40

5. Business taxation

46

6. Personal taxation

64

7. Other taxes

72

Appendix A: Useful business contacts

78

Appendix B: About PwC

82

Third edition published in April 2011. This publication is based on the prevailing laws and practices in Taiwan as of the end of March 2011, and has been prepared as an introductory guide only. Professional advice should always be sought before acting on any information contained in this publication. Please see the general disclaimer on the back cover.

Chapter 1 Investment environment

8 | Doing Business in Taiwan

Taiwan is one of the world’s trading powerhouses and offers an attractive environment for foreign investment.

This chapter provides an overview of its business and investment climate.

For more detailed information, prospective investors are also recommended to consult the government's “Invest in Taiwan” website at http://investtaiwan.org.tw This chapter covers: • Location, people and language • History and political system • Cross-Strait relations • Economic profile • Banking and finance • Foreign exchange controls • International trade • Foreign investment • “Invest in Taiwan” promotion • Main regulatory bodies

Location, people and language Taiwan is an island nation situated off the southeast coast of China between Japan and the Philippines, offering a strategic location for businesses seeking access to East Asia and the Pacific. It comprises the main island of Taiwan, the islands of Penghu, Kinmen and Matsu, and a number of other islets. Its combined area is approximately 36,000 km2, which is similar in size to the Netherlands.

Home to some 23 million people, Taiwan is one of the most densely populated countries in the world, with around 640 people per km2. The majority of Taiwan’s population are of Han Chinese ancestry, the remainder composed of indigenous Austronesian peoples and recent immigrants.

Mandarin Chinese is the official language, but large segments of the population also speak Taiwanese (or Hokkien) and Hakka. The most popular foreign languages taught in Taiwan are English and Japanese. English is a compulsory subject from elementary school onwards, and proficiency levels are steadily improving.

PwC Taiwan | 9

History and political system Taiwan was colonised by the Dutch in the 17th century, followed by an influx of Han Chinese from southeast China. In 1662, Koxinga, the leader of a resistance movement against the Qing Dynasty, defeated the Dutch and established a base of operations on the island. Koxinga’s forces were later defeated by the Qing Dynasty, which ruled Taiwan for two hundred years before ceding the island to Japan at the end of the Sino-Japanese War in 1895.

Following the end of the Second World War, the Republic of China under the Kuomintang (KMT) became the governing polity on Taiwan. In 1949, after the Chinese civil war, the KMT withdrew to Taiwan and ruled it under martial law as a single-party state for forty years. From 1989, a series of constitutional reforms transformed Taiwan into a representative democracy, culminating in the firstever direct presidential election in 1996. Today Taiwan is one of the most democratic countries in Asia.

10 | Doing Business in Taiwan

Taiwan’s political structure consists of a president and vice-president directly elected by popular vote, along with five government branches—the Executive, Legislative, Judicial, Examination and Control Yuans. The president presides over the Executive Yuan (with a cabinet headed by a premier), which in turn reports to the Legislative Yuan (an elected parliament). Laws, statutes and special acts must be passed by parliament and then signed off by the president before they come into force.

The KMT and Democratic Progressive Party are the main political parties.

The KMT, which governed Taiwan for 55 years until 2000, regained the presidency in May 2008, at which time it also held a large legislative majority. The next parliamentary and presidential elections are scheduled to take place in early 2012.

Cross-Strait relations Taiwan’s unsettled political relationship with China has long been the cause of tension between the two sides and the subject of heated debate in Taiwan. The Republic of China (Taiwan’s official name) is not recognised by any major state as a

Taiwan is benefiting from closer economic ties with China sovereign entity separate from the People’s Republic of China (China’s official name). Taiwan currently has formal diplomatic relations with just 23 small countries.

traded across the Taiwan Strait, with scope for more to follow over the next few years. The two sides have also liberalised market access in certain service sectors, including banking.

Since President Ma Ying-jeou took office in 2008, the KMT government has followed a policy of rapprochement with China and liberalisation of economic and transportation links across the 180-km-wide Taiwan Strait.

This is helping position Taiwan as a convenient base from which to serve the China market, and enhances its attractiveness for foreign investors.

The ECFA agreement provides, for the first time, a legal and institutional framework for the vibrant cross-Strait economic ties that have developed over the past three decades. Taiwan and China are expected to follow up the ECFA with a bilateral agreement on mutual investment protection.

Most significantly, in late June 2010, Taiwan and China signed a landmark economic deal, formally known as the Economic Cooperation Framework Agreement (ECFA), which lowers trade and investment barriers between them.

On 1 January 2011, preferential tariffs took effect for more than 700 products

Economic profile Despite its relative diplomatic isolation, Taiwan has become a force to be reckoned with on the international economic stage. It is one of the largest manufacturers of information and communications technology (ICT) products in the world and a lynchpin in the global ICT production network.

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Taiwan is the 24th largest economy in the world, as measured by nominal gross domestic product (GDP), according to the latest International Monetary Fund statistics. Moreover, Taiwan's business and investment climate consistently scores very high in global competitiveness rankings by leading economic research organisations. For example, in the IMD World Competitiveness Yearbook 2010, Taiwan advanced 15 notches to eighth place among the world’s 58 most competitive economies.

Since the 1950s, Taiwan has evolved from an agrarian economy to one focused on capital- and technologyintensive industries, as well as creative industries. Agriculture now constitutes just 1-2% of GDP, down from 35% in 1952, while manufacturing and services account for 30% and 69%.

Small and medium-sized enterprises continue to form the backbone of

Taiwan’s economy and play important roles in the value chains supporting larger firms’ production and exports.

In the late 1980s, facing rising costs, traditional industry manufacturers began to move their production bases overseas. Initially, most relocated to countries in Southeast Asia, but after the Taiwan government began to ease restrictions on cross-Strait business ties in the early 1990s, China became the investment location of choice. With cumulative investments there currently estimated at more than US$200 billion, Taiwanese companies are one of the largest sources of foreign direct investment in mainland China.

Hi-tech firms have joined more labour-intensive industries in shifting capacity to China, encouraged in part by the government’s further easing of restrictions on China-bound investments. Even so, Taiwan remains

an important hub for hi-tech activities.

Production of higher-end goods such as semiconductors and liquid crystal display (LCD) panels has largely remained in Taiwan, as have advanced research and development facilities.

Also, the government encourages foreign multinational companies to set up their regional R&D centres in Taiwan, providing investment subsidies and help with finding talent.

Leading companies—including Dell, Ericsson, HP, IBM, Intel, Microsoft and Sony—have established some 40 R&D centres in Taiwan to date.

In addition to the hi-tech sector, which remains the mainstay of Taiwan’s economy, other important industries include chemicals, machinery, plastics, steel and textiles. More recently, the government has targeted a number of industries for priority development and investment promotion, including

Taiwan consistently scores high in global competitiveness rankings 12 | Doing Business in Taiwan

biotechnology, medical care, cultural and creative industries, tourism, green energy and high-end agriculture.

Banking and finance Taiwan’s financial services industry weathered the global financial crisis relatively unscathed, but it remains overcrowded and highly competitive.

Taiwan has almost 400 depository institutions, including 39 domestic banks, which together with numerous insurance companies, securities firms and other financial institutions compete to cater to the financial needs of a population of some 23 million.

The industry has undergone a degree of consolidation in recent years, but the government retains ownership and control of many of the island’s leading banks. The Financial Institutions Merger Act allows foreign banks, insurers, brokerages and other financial institutions to acquire or merge with their local counterparts.

Since 2006, several foreign banks have taken advantage of the relaxed rules, spurred partly by the possibility of using these investments indirectly to enter the larger China market.

Domestic banks are also looking to expand their operations to China following the ECFA signing. They are now allowed to set up branches in China after having maintained a representative office there for one year. Chinese banks are also allowed to establish a presence in Taiwan.

As of the end of 2010, six Taiwanese banks had been approved to open branches in China, and three Chinese banks had received approval to open representative offices in Taiwan.

The Taiwan Stock Exchange (TWSE) is the primary equities market, and the Gre-Tai Securities Market (GTSM) is the secondary market on which bonds and smaller stocks are traded.

Domestic individual investors account for around one-half of total share ownership in Taiwan, compared with one-third for domestic institutions and around one-sixth for foreign investors.

Since 2008, the government has endeavoured to internationalise Taiwan’s capital markets by encouraging foreign firms and overseas Taiwanese-owned businesses to list locally through initial public offerings and Taiwan depositary receipts, or TDRs. Also, China’s Qualified Domestic

PwC Taiwan | 13

five trade partners were China, Japan, the US, the European Union and Hong Kong. Taiwan’s main export category was electronic products, and the biggest import category was crude oil and other mineral products.

Institutional Investors are allowed to invest in the TWSE and GTSM markets.

Foreign exchange controls Taiwan’s currency, the New Taiwan dollar (NT$), is not fully circulated or convertible in global markets.

Therefore, entities must open onshore accounts to conduct NT$ transactions.

All foreign exchange transactions are supervised by the Central Bank of the Republic of China (Taiwan).

Taiwan’s foreign exchange policy is a managed float, which means the NT$ exchange rate fluctuates freely under the influence of market forces, but is still bounded by a band monitored by the central bank. The latter will only step in when the market is disrupted by seasonal or irregular factors.

14 | Doing Business in Taiwan

In general, capital can flow freely in and out of Taiwan. There is no limit on trade-related remittances involving the conversion of NT$ whether inward or outward. For non-traderelated remittances, companies and individuals wishing to exchange an aggregate amount exceeding US$50 million and US$5 million within a year, respectively, must apply for prior permission to the central bank. All foreign exchange transactions over NT$500,000 (or equivalent) must be declared to the central bank.

Taiwan joined the WTO on 1 January 2002 under the title of “The Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu.” Membership in the WTO has further deepened Taiwan's integration into the global economy and opened up its market to more investment and competition.

International trade

In July 2009, Taiwan joined the WTO’s Government Procurement Agreement, which grants foreign contractors access to local procurement opportunities.

These include the i-Taiwan 12 Projects, a major infrastructure programme that is scheduled for completion by 2016 at a projected cost of about US$130 billion. Private investors are expected to contribute one-third of the total.

Foreign trade is the engine powering Taiwan’s economy. In 2010, Taiwan was the world’s 16th largest trading economy, according to the World Trade Organisation (WTO). Its top

Taiwan has so far been unable to make much headway on signing freetrade agreements (FTAs) with other countries. It has only concluded four FTAs with five of its diplomatic allies

in Latin America, and these have achieved limited economic benefits.

The signing of the ECFA with China, however, is seen as a stepping stone for Taiwan to seek more FTA-like deals with other major trading partners.

Taiwan will hold formal talks with Singapore in 2011 about signing an economic partnership agreement.

The government is also looking to take advantage of the opening of direct shipping and air links with China to promote Taiwan as a major international logistics hub. The policy centres around the development of free trade zones (FTZs) offering a menu of tax and tariff incentives as well as relaxed legal restrictions.

Taiwan's FTZs currently include five seaports (Kaohsiung, Keelung, Suao, Taichung and Taipei) and one airport park area (Taiwan Taoyuan International Airport).

Foreign investment Taiwan generally welcomes foreign direct investment, except in certain restricted industries involving environmental and national security issues. Market liberalisation has

reduced the “negative list” for foreign investment—which is available at www.moeaic.gov.tw—to less than 1% of Taiwan's manufacturing categories and less than 5% of its service sectors.

Most foreign ownership limits have been removed, while restrictions on Chinese investment in Taiwan are being gradually eased. In July 2009, the government began to allow Chinese investors to invest in certain manufacturing and service sectors, as well as the real estate market. The ECFA also allowed Chinese banks to invest in their Taiwanese counterparts and to set up offices on the island.

In March 2011, the government opened up additional business sectors to Chinese investors, including the

sensitive semiconductor and LCD panel industries. Chinese companies are now allowed to take stakes of up to 10% in Taiwanese technology companies and up to 50% in new joint ventures, among other requisites. The new investment liberalisation list brings to 247 the total number of industries that have been opened to Chinese investment since July 2009. This represents 42% of Taiwan’s manufacturing categories, 42% of its service industries and 24% of its public construction industry.

The steady improvement in relations with China, continued deregulation and streamlined procedures for setting up operations in Taiwan, along with improved intellectual property rights protection and a cut in the

Ongoing reforms are making Taiwan a more attractive place for business investment

PwC Taiwan | 15

corporate tax rate to 17% (one of the lowest in Asia), have helped make the island a more attractive place for business investment. This is reflected in Taiwan’s much-improved ranking on the World Bank’s Ease of Doing Business Index of 183 economies, from 61st place in 2008 to 33rd in 2010.

The government also offers various attractive incentives to make Taiwan more investor-friendly, with foreign investors enjoying the same rights and privileges as local investors. These incentives are generally in the form of tax breaks to encourage investors to expand their presence in Taiwan.

Most of the tax breaks were previously offered under the Statute for Upgrading Industries, which was replaced in April 2010 by the Statute for Industrial Innovation. The new law marks a switch from an emphasis on capital-intensive to technologyintensive production by focusing on research and innovation. Qualifying firms are entitled to tax credits for up to 15% of their R&D expenditures.

Additional tax and non-tax incentives are available to eligible foreign direct investors under the Statute for Investment by Foreign Nationals, the

16 | Doing Business in Taiwan

Business Mergers and Acquisitions Act, the Financial Institutions Merger Act and other laws and regulations.

“Invest in Taiwan” promotion Following the ECFA signing, the Taiwan government stepped up efforts to lure foreign investors from around the world to set up base in Taiwan and to use the island as a springboard to enter the mainland China market.

In the second half of 2010, the Executive Yuan established a task force to coordinate investment promotion efforts to attract both foreign companies and Taiwanese firms operating in China. A new cabinet-level agency, the InvesTaiwan Service Center, was also set up to provide custom one-stop solutions to any investment obstacles encountered by foreign investors.

The government has selected 10 major construction projects and emerging industries as the primary targets for its “Invest in Taiwan” promotion, with the aim of attracting US$13.5 billion in new investments over the next few years to boost Taiwan’s economic competitiveness and growth prospects.

The 10 flagship targets are: 1. Biotech and medical travel 2. Cultural and creative industries 3. Globalisation of Taiwanese cuisine 4. Smart handheld devices 5. Cloud computing and WiMAX 6. Green energy and intelligent green buildings 7. Smart electric vehicles 8. Urban renewal 9. Taoyuan Aerotropolis 10. Central Taiwan hi-tech industrial cluster A guide to these targets is available at www.cepd.gov.tw, as well as for Taiwan’s other theme plans (i-Taiwan 12 projects, four emerging intelligent industries, six major rising industries and ten key service industries).

Main regulatory bodies Taiwan’s central government currently comprises eight ministries and 29 other agencies under the Executive Yuan. To improve efficiency, plans are in progress to downsize the current structure to 29 branches from 37, which will take effect in January 2012.

PwC Taiwan | 17

The most relevant regulatory bodies for businesses planning to enter or expand their presence in Taiwan are listed below, with their areas of jurisdiction (see Appendix A for contact details).

Ministry of Economic Affairs: The MOEA is responsible for issuing business laws and regulations. Four of its subordinate units are charged with assisting prospective investors: • Dept. of Commerce reviews applications for company registration, including the establishment of local subsidaries, branches and representative offices of foreign-owned entities.

• Dept. of Investment Services promotes and facilitates foreign investment in Taiwan, and also provides services for Taiwanese companies returning from overseas.

• Industrial Development Bureau is responsible for promoting industry upgrading, developing new industries and assisting businesses to overcome investment obstacles.

• Investment Commission is responsible for the approval of foreign investment in Taiwan and outward investment from Taiwan.

18 | Doing Business in Taiwan

Bureau of Foreign Trade: The BOFT is an agency of the MOEA charged with executing trade policies and managing trade related activities. It is responsible for regulations covering import and export activities, and supervising the import and export of controlled items.

Taiwan Intellectual Property Office: The TIPO is an agency of the MOEA and deals with patent, trademark and copyright matters, and the protection of intellectual property rights.

Ministry of Finance: The MOF is responsible for the administration of taxation, customs and the national treasury, as well as the management of state property. The Taxation Agency is an administrative authority directly subordinate to the MOF and is in charge of taxation matters. Five tax collection agencies are also under the supervision of the MOF. Financial Supervisory Commission: The FSC is responsible for supervising the banking, securities and insurance sectors, as well as financial holding companies. It comprises four bureaus: Banking, Securities and Futures, Insurance, and Financial Examination.

Fair Trade Commission: The FTC is in charge of competition and fair trade policy. It conducts investigations into business practices that may impede competition, such as monopolies, mergers, concerted actions and other restraints on competition or unfair trade practices.

Environmental Protection Administration: The EPA is responsible for environmental policy formulation and enforcement, including environmental impact assessments of industrial projects.

Council for Labour Affairs: The CLA is in charge of administering labour policies and regulations covering employee rights, health and safety, labour insurance and so on. It is also responsible for issuing work permits for foreign professional workers.

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Chapter 2 Setting up and investing in Taiwan

20 | Doing Business in Taiwan

Establishing a business entity in Taiwan is not particularly burdensome.

Foreign investors may also choose to invest in an existing Taiwanese company or expand their business activities in Taiwan through share purchases or mergers and acquisitions.

Other important considerations for investors include competition and antitrust policy, the protection of intellectual property and legal redress through courts or arbitration.

This chapter covers: • Business formation • Registration procedures • PRC investment in Taiwan • Capital market investment • Mergers and acquisitions • Competition and antitrust policy • Intellectual property rights • Court system and arbitration

Business formation Prospective investors intending to develop a business and conduct activities in Taiwan may choose to establish a business presence in the form of a company, branch office, representative office, job-site office, partnership or sole proprietorship.

Company Taiwan’s Company Act provides for four corporate forms: an unlimited liability company; an unlimited company with limited liability shareholders; a limited liability company; or a company limited by shares. In practice, most foreign investors setting up in Taiwan favour companies limited by shares.

There is no minimum capital requirement for limited companies under the Company Act, but a capital requirement may apply in certain sectors, such as banking. In general, the capital should be sufficient to cover the preparation costs of setting up the company. If a company wants to hire foreign expatriates to work in Taiwan in its first year of operation, the minimum capital is NT$5 million.

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Except in certain restricted industries, foreign investors are generally allowed to set up companies in Taiwan after obtaining approval from the Ministry of Economic Affairs’ Investment Commission (MOEAIC) pursuant to the Statute for Investment by Foreign Nationals (SIFN). A foreign company that receives investment approval from the MOEAIC is called a Foreign Investment Approved (FIA) company.

FIA status is a prerequisite to enjoy SIFN benefits, which include the right to up to 100% foreign ownership, no limitations on profit repatriation and the same access to incentives and privileges enjoyed by local investors.

Branch office A foreign company may also establish a branch office to conduct business in Taiwan. Unlike the corporate form, however, a branch office is not deemed to be an independent legal entity.

The head office located in a foreign country assumes all liabilities left unsettled by the Taiwan branch office.

A company incorporated outside of Taiwan must first apply for recognition with the Department of Commerce of the Ministry of Economic

22 | Doing Business in Taiwan

Affairs (MOEA) and then complete the procedures for branch office registration, which are similar to those applicable to a FIA company.

There is no minimum working capital requirement for a branch office.

However, the head office must remit sufficient funds for the branch’s operations. If a branch office intends to hire foreign expatriates to work in Taiwan during its first year of operation, the minimum operating capital is set at NT$5 million.

Branch offices of foreign companies have to designate a representative for litigious and non-litigious matters in Taiwan and a branch manager for day-today business operations, who may be the same person and may be either domiciled Taiwan nationals or foreigners with Taiwan residence.

In general, the taxable profits of a foreign company’s Taiwan subsidiary or branch office are computed in a similar fashion. However, whereas subsidiary companies are subject to withholding tax on dividends paid to shareholders abroad, branch offices face no such tax on the repatriation of after-tax profits to their foreign head

office, because such remittances are not considered dividend distributions.

Representative office Many foreign companies prefer to establish a representative office (also known as a liaison office) at the early stage of entering the Taiwan market.

Representative offices are generally easier to establish than a corporate subsidiary or branch office as they do not engage in profit-seeking activities.

A representative office is basically a legal agent of a foreign company that is permitted to engage in price negotiations, provide quotations, participate in tenders and sign procurement agreements in Taiwan.

However, it is not permitted to engage in income-generating business activities such as signing sales contracts, providing services or receiving funds from clients.

There is no capital requirement for representative offices, but only businesses recognised by the MOEA as legally established companies in a foreign country may set up a representative office in Taiwan.

Job-site office

Registration procedures

A company intending to contract longterm construction work in Taiwan may find it preferable to set up a job-site office to coordinate all aspects of the project, as well as for tax purposes.

To facilitate and promote foreign investment in Taiwan, the government continues to simplify the application and registration procedures for different types of business entities.

A job-site office need only apply to the local tax authority for business registration, not corporate registration, and is allowed to make purchases and issue government uniform invoices. However, it has the usual taxwithholding obligation and must pay business tax (that is, valueadded tax or VAT) and income tax.

The general procedures for investment in Taiwan include approval for foreign investment, corporate registration, business registration (for tax purposes) and other procedures as required by Taiwan’s related laws and regulations.

Partnerships and proprietorships In accordance with the SIFN, a foreign individual may invest in Taiwan by setting up a general partnership with one or more other individuals. All partners are jointly and severally liable for the obligations of the partnership. A foreign national may also establish a sole proprietorship in Taiwan to conduct business. There is no minimum capital requirement for partnerships and sole proprietorships.

Foreign investors typically have to deal with the following two regulatory agencies of the MOEA when applying for approval permits and registration: • MOEAIC (www.moeaic.gov.tw) is responsible for the investigation and granting of permits for foreign companies’ investment plans.

Any foreign investor intending to establish a corporate subsidiary in Taiwan will have to undergo this process at the preliminary stage.

• MOEA’s Dept. of Commerce (http://gcis.nat.gov.tw) and local government authorities handle applications for the corporate and business registration of companies, branches and representative offices.

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To establish a private company limited by shares, for example, a foreigner investor must obtain FIA approval from the MOEAIC and also complete the following procedures: • search, reserve and apply for MOEA approval for company name; • make a set of company seals; • submit a CPA report to the MOEA verifying the investment capital; • apply for corporate and business registration at the MOEA and local government and tax authorities; • apply to the Bureau of Labour Insurance to participate in the labour insurance and pension plan appropriation schemes; and • apply to the Bureau of National Health Insurance to register for the national health insurance scheme.

These procedures currently take up to one month to complete, but the government is looking to cut the number of procedures and time needed to establish a business in Taiwan. As of the time of writing this guide, the MOEA was preparing to launch a new one-stop online application system for company registration in mid-2011.

24 | Doing Business in Taiwan

PRC investment in Taiwan In July 2009, PRC (People's Republic of China) investors were permitted to make direct investments in Taiwan for the first time. The relevant legislation is the Act Governing Relations between Peoples of the Taiwan Area and the Mainland Area, and the related operational guidelines are set by the MOEA in the “Measures Governing Investment Permits to the People of the Mainland Area.”

Under the new rules, PRC investors must obtain approval from the MOEAIC before making any direct investment in Taiwan. They may then apply to the MOEA and other relevant agencies to establish a local company, branch office or representative office, which are subject to different documentation and approval requirements.

Taiwan is gradually opening up to direct Chinese investment

The industries in which PRC investors are allowed to invest are provided by the MOEA in a positive approved list. In July 2009, almost 200 manufacturing, service and public construction sectors were opened to Chinese investment.

One year later, the banking, insurance and securities sectors were added to the list. In March 2011, the MOEA opened up more business categories, bringing to 247 the total number of industry sectors open to PRC investors.

The Taiwan authorities have also issued supplemental policies to encourage and facilitate investment from PRC investors, which cover, for example, issues regarding investor residence, medical care, studying in Taiwan and the purchase of real estate.

Taiwan and China have yet to sign agreements on investor protection or the avoidance of double taxation.

Negotiations on a mutual investment protection accord are expected to be concluded sometime in 2011.

Capital market investment In addition to direct investment, foreign companies may also invest indirectly in Taiwanese business enterprises through portfolio investment, or even raise funds through a public listing in Taiwan.

Both foreign institutional and individual investors have long been allowed to invest in Taiwan’s capital markets, which comprise the Taiwan Stock Exchange (TWSE), the GreTai Securities Market and the Taiwan Futures Exchange. Since January 2010, China’s Qualified Domestic Institutional Investors are also allowed to invest in Taiwan securities and futures, though subject to tighter rules.

The review process for foreign portfolio investment is a simple registration system administered by the TWSE and supervised by the Financial Supervisory Commission (FSC).

Since 2008, the government has sought to internationalise Taiwan’s capital markets by encouraging foreign firms and overseas Taiwanese-owned

PwC Taiwan | 25

businesses to list locally through initial public offerings or Taiwan depositary receipts. It has relaxed restrictions on the qualifications of foreign issuers and the use of raised funds, which can now be remitted for investment in any offshore territory, including China.

Mergers and acquisitions Merger and acquisition (M&A) activities in Taiwan are mainly governed by the Business Mergers and Acquisitions Act (BMAA), which supercedes other laws and regulations concerning M&A. One exception is financial institutions, which are covered by the Financial Institutions Merger Act (FIMA) and Financial Holding Company Act (FHCA).

For M&A transactions involving a public company, the Securities and Exchange Act governs the filing requirements and procedures of public tender offers—which have become an important method for acquiring a majority stake in Taiwan-listed companies—and private placements.

Also, stock exchange rules address the various listing and delisting issues that may result from an M&A transaction.

26 | Doing Business in Taiwan

The government actively encourages foreign companies to list in Taiwan The MOEA is in charge of the interpretation and application of the BMAA, as well as matters regarding the incorporation and registration of companies. The cabinet-level FSC oversees the financial industry and securities market in Taiwan, including the M&A activities of financial institutions and public companies.

Under the BMAA, Taiwanese companies can engage in mergers or spin-offs with foreign companies.

Similarly, domestic enterprises can acquire, or be acquired by, foreign firms. A foreign investor wishing to merge with or invest in a Taiwanese company must obtain approval from the MOEAIC, as detailed earlier.

Business M&A

The BMAA allows various methods for M&A, including short-form merger, de-merger, share exchange, and assets and business acquisition. For a merger, the consideration may be paid in stock, cash or a combination of the two.

The BMAA regulates mergers, acquisitions and corporate divisions (such as spin-offs), and also provides various tax incentives to encourage corporate restructuring.

M&A transactions that meet certain criteria qualify for tax benefits under the BMAA. These include exemption from deed tax, stamp duty, securities transaction tax and business tax, and deferral of land value increment tax.

See Chapter 5 for further details.

Financial M&A The FIMA allows banks, insurers, brokerages and other financial institutions to acquire or merge with related institutions. It also allows foreign banks to acquire or merge with their local counterparts.

The FHCA provides the legal framework for local financial institutions to form financial holding companies, in which they may merge with or acquire their rivals. Foreign financial institutions may invest directly in local financial holding companies for up to 100% ownership.

M&A labour issues The BMAA also addresses labour protection issues, in conjunction with the Labour Standards Act and the Protective Act for Mass Redundancy of Employees (PAMRE). The procedural

requirements of the PAMRE (see Chapter 3 for more details) may, however, complicate some corporate restructuring and reorganisations which involve mass lay-offs.

For example, the 60-day notice period required of employers when the PAMRE is triggered can conflict with the BMAA procedural rules, which oblige an employer to give employees 30 days’ written notice advising them of the labour situation at the surviving company following a merger.

Competition and antitrust policy Free competition is encouraged in Taiwan under the rules of the Fair Trade Act, which governs two broad categories of anti-competitive or counter-competitive business conduct: • Restrictive business practices, which include monopolies, business combinations, concerted action, resale price maintenance and other restrictive business practices.

• Unfair competition, which covers impediments to fair competition, counterfeit commodities or

trademarks, false, untrue and misleading advertisements, wrongful damage to business reputation, improper multi-level sales (for example, via pyramid schemes) and other deceptive or unfair business conduct.

The Fair Trade Commission (FTC) is the principal governing authority for the administration and enforcement of competition and antitrust policy in Taiwan. It is empowered to draft fair trade policy and regulations and conduct investigations against alleged anti-competitive practices.

Monopolies The Fair Trade Act permits certain monopolies as long as they do not abuse their market power. This applies to enterprises whose monopolistic status is protected or approved by other laws and regulations. Statutory monopolies exist in electricity, water supply and postal services.

A monopoly is considered to exist in any of the following circumstances: one enterprise has at least a 50% market share; two enterprises have

PwC Taiwan | 27

a combined market share of at least two-thirds; or three enterprises have a combined market share of at least three-fourths of the total market.

The FTC determines whether an enterprise has abused its dominant position on a case-by-case basis.

Business combinations When considering whether to accept or reject applications for business combinations (for example, mergers), the guiding principle of the FTC is whether the overall economic benefit of the merger outweighs the disadvantages resulting from restraint of competition that it would cause.

In general, any merger involving at least one Taiwanese enterprise that gives rise to one of the following three situations may not be completed without the prior approval of the FTC: • where, as a result of the merger, the parties will acquire at least onethird of the relevant market; • where at least one of the parties to the merger has one-quarter or more of the relevant market; or

28 | Doing Business in Taiwan

• where the preceding year’s sales of the parties to the merger exceed certain thresholds. The current threshold for the merger of nonfinancial businesses is NT$10 billion for one party and NT$1 billion for the other. For the merger of financial institutions, the threshold is NT$20 billion for one party and NT$1 billion for the other.

A pre-merger notification is required by the FTC. If it does not object to the deal after 30 days (may be extended to 60 days) from the filing date (assuming that no additional inquiries are raised by the FTC after the filing), the parties to the merger are free to proceed.

Concerted action Businesses are generally prohibited from engaging in concerted action (collusion), which is defined in the Fair Trade Act as any form of mutual action or understanding with any other competing enterprise with regard to prices, quantity, technology, products, facilities, trading counterparts, etc.

Taiwan does not outlaw collusion among businesses outright, however.

Certain types of concerted action are permissible under the Fair Trade

Act (but they must first be approved by the FTC), or where such action is considered to be beneficial to the economy and in the public interest.

Intellectual property rights The MOEA’s Intellectual Property Office (TIPO) coordinates and administers policies on intellectual property rights (IPR) in Taiwan. Its key roles include patent and trademark examination and registration, improving IPR legislation and coordinating enforcement efforts.

In recent years, Taiwan has strengthened its IPR legal regime and enforcement. Of particular note was the launch in 2008 of a specialised Intellectual Property Court to handle IPR infringement cases. As a result of the improvement in Taiwan’s overall IPR environment, in 2009 Taiwan was removed from the US Special 301 Watch List for IPR violators.

With business activity across the Taiwan Strait booming, disputes over IPR violations have also increased.

To address this pressing issue, in June 2010 Taiwan and China signed

an agreement on IPR protection and cooperation. The two sides have since agreed to mutual recognition of priority rights for patents and trademarks, a matter that has long been a concern for local companies.

Patents Taiwan operates a first-to-file system for patents. Patents are granted to those who file first with the TIPO and not to those who invent first. A foreign patent application filed by parties with no domicile or business office in Taiwan must be made through an authorised patent agent.

Taiwan's Patent Act grants protection to three forms of patents—invention patents, new design patents and new utility model patents. An invention patent has a term of twenty years, a design patent has a term of twelve and the utility model has a term of ten years. Protection for all three types of patent may be curtailed if the patent owner fails to pay the administrative fees or renounces the patent.

Trademarks Taiwan’s Trademark Act follows a firstto-file system. When two applications have been filed for similar or identical trademarks, the first application filed will receive priority for approval. The Act also provides some protection to well-known foreign trademarks.

Foreign applicants from WTO member countries or countries that protect trademarks on a reciprocal basis with Taiwan may apply to register a trademark with the TIPO, but those not domiciled or established in Taiwan must appoint a trademark agent in Taiwan to register. The term of trademark protection is ten years from the date of registration, and may be renewed for additional ten year terms.

Court system and arbitration Taiwan is a civil law jurisdiction, with the emphasis of the legal system placed on codified statutes rather than case law. If disputes and litigation arise, the courts are the ultimate authorities with the power to interpret and apply the law of the land, with cases heard and decided by judges, not juries.

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Court system Taiwan operates a dual court system, in which the common courts hear civil and criminal cases, and the administrative courts adjudicate cases regarding violations allegedly committed by government agencies.

The common court system consists of district courts, high courts and a Supreme Court. Issues of fact are adjudged by the district courts and high courts, while the Supreme Court considers only issues of law.

The administrative court system consists of regional high administrative courts, which hand down judgements on issues of both fact and law, and the Supreme Administrative Court, which reviews only issues of law.

Cases involving alleged violations of intellectual property laws and regulations may, under certain circumstances and at various stages of litigation, be referred to a separate Intellectual Property Court.

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Enforcement of foreign judgements

Arbitration

A final and binding judgement rendered by a foreign court is recognised in Taiwan, unless one of the following four exceptions applies:

Taiwan’s Arbitration Act complies with the UNCITRAL Model Law on International Commercial Arbitration.

Most arbitration cases are referred to the Arbitration Association of Taiwan.

• the foreign court rendering the judgement has no jurisdiction over the case under Taiwan law; • the judgement was rendered by default against a defendant who was not duly served in sufficient time to commence the litigation in the foreign country or through judicial assistance in Taiwan; • the foreign judgement is deemed contrary to the public policy or good morals of Taiwan; or • judgements rendered in Taiwan are not reciprocally recognised by the subject foreign courts.

According to Taiwan's Compulsory Execution Act, the party seeking to enforce a final foreign judgement in Taiwan must file a civil action in a Taiwanese court for permission to enforce that judgement.

To file for arbitration, the disputants must enter into a written arbitration agreement with each other. An arbitral tribunal may be composed of one or an odd number of arbitrators.

An arbitration decision is binding upon the disputants and has the same legal force as a final and conclusive court judgement. A disputant may file a motion in a Taiwanese court for compulsory enforcement.

The Arbitration Act treats any arbitration decision made outside of Taiwan, or made in Taiwan in accordance with foreign laws, as a foreign arbitration decision. After a motion has been filed with a Taiwanese court to recognise the arbitral decision, it may be treated as an enforceable instrument.

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Chapter 3 Human resources

32 | Doing Business in Taiwan

Taiwan has a comprehensive and extensive labour protection system which is broadly similar to those found in many developed countries.

Labour regulations Labour Standards Act

This chapter covers:

The Labour Standards Act (LSA) is the central piece of labour legislation in Taiwan, and many companies use it to set their internal policies for personnel matters. The law sets forth the minimum statutory standards for employment terms and conditions covering almost all employees.

• Labour regulations

Wages

• Labour and health insurance

An employee’s pay may not be lower than the minimum basic wage, which is reviewed annually by the Council of Labour Affairs (CLA). The statutory minimum level of pay is currently set at NT$17,880 (about US$600) per month, or NT$98 (US$3.30) per hour.

Also, the government has adopted a number of preferential measures in recent years to attract foreign professionals to work in Taiwan.

• Employee retirement benefits • Termination of employment • Work permits for foreigners

Equal pay is also required for men and women for work of equal value.

Working hours Normal working hours for employees may not exceed eight hours a day and 84 hours within any two-week period.

Workers are entitled to breaks of 30

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minutes for every four hours of work.

Overtime is limited to four working hours a day and 46 hours a month.

Children under 15 years of age are prohibited from working, while those between 15 and 16 years of age may work (with legal consent) up to eight hours a day, but not overtime or between the hours of dusk and dawn.

Females may not work between 10pm and 6am unless by formal agreement.

Certain categories of workers are exempt from LSA restrictions on working hours and leave, and also from rules against pregnant women or new mothers working past 10pm.

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Holidays and annual leave Employees are allowed time off on public holidays. Regarding public holiday arrangements, most organisations follow the official government holiday schedule issued by the Central Personnel Administration.

Employees are also entitled to annual paid vacation of seven days after one to two years of continuous service, 10 days for three to five years of service, 14 days after five years of service, and up to 30 days for service longer than 10 years (the legally required number of days increases by one day per year).

Special leave Employees may take leave with full pay for marriage (up to eight days),

funerals (3-8 days, depending on the relationship to the deceased), medical care and recovery from occupational accidents (granted on a case-by-case basis), and legally required public service (also on a case-by-case basis).

For sickness or injury other than occupational accidents, outpatient leave may not exceed 30 days in one year, hospitalisation leave is not to exceed one year every two years, and combined outpatient and hospitalisation leave may not exceed one year within a two-year period.

Employees may take up to 30 days sickness and injury leave at half pay each year. Additional days are not compensated. Female workers may request menstruation leave of one day

Employees may also take up to 14 days leave (without pay) annually to attend to personal business as necessary.

Also, businesses with more than 250 employees must provide child care facilities or appropriate child care measures, and they may receive financial assistance from government agencies for this specific purpose.

Maternity leave and childcare

Sex discrimination and harassment

Female workers are entitled to eight weeks paid maternity leave, though at half pay if employed for less than six months. In the case of a miscarriage, a female employee may also take leave, which depends on how long she was pregnant before the miscarriage.

The GEEA prohibits any gender discrimination with regard to recruitment, hiring, promotion, pay, benefits, etc. Moreover, employers cannot terminate employment at will if an employee becomes married or pregnant, or requests leave for childbirth or childcare reasons.

per month, which is included in the sick leave tally, also at half pay.

In addition to maternity leave, the Gender Equality in Employment Act (GEEA) mandates other sorts of leave related to family responsibilities, such as paternity, childcare, family care, etc.

Other statutory requirements include the provision of infant nursing time and childcare arrangements.

Female employees with infants less than one year old are entitled by law to two 30-minute breaks every day for pumping breast milk, which is in addition to normal rest periods and counted as working time.

Sexual harassment is prohibited in the workplace. An employer with over 30 staff must adopt measures for preventing and correcting sexual harassment and publicly display them.

Health and safety The Labour Safety and Health Act prohibits minors under the age of 16 and women from working in dangerous or hazardous environments.

The law also requires certain entities to establish on-site medical centres. These

include businesses with more than 300 employees at a single location, as well as businesses engaged in potentially hazardous operations which have more than 100 workers.

The CLA and local governments are responsible for inspecting workplace conditions to ensure the health and safety of workers. Inspections carried out under the Labour Inspection Act cover labour health and safety, labour insurance, employee welfare funds and the hiring of foreign workers.

Labour and health insurance Labour insurance programme Insurance coverage under the Labour Insurance Act (LIA) is compulsory for all workers in any establishment with five or more employees, or who are self-employed. Foreigners are also covered under the LIA programme run by the Bureau of Labour Insurance, and others may join voluntarily.

Labour insurance coverage consists of two types: ordinary-risk insurance, with six kinds of benefits (maternity, injury and sickness, disability, old

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age, death and unemployment); and occupational-risk insurance, with four kinds of benefits (injury and sickness, medical care, disability and death).

The LIA premium is calculated as a percentage of an employee’s monthly insured salary from NT$17,880 to NT$43,900. The premium for ordinary-risk insurance ranges between 7.5% and 13% of the insured salary, with the premium split between the employer (70%), employee (20%) and the government (10%). As for occupational-risk insurance, it only applies to certain types of industries.

The premium ranges from 0.06% to 3% of an employee's insured salary and is paid entirely by the employer.

National health insurance Taiwan also operates a National Health Insurance (NHI) system, which works in tandem with the LIA programme and provides universal medical care coverage. The compulsory NHI scheme covers almost all Taiwan citizens, as well as foreign national employees with an Alien Resident Certificate.

The NHI system offers a comprehensive and uniform benefits package to all those covered by the programme.

This includes preventive and medical services, prescription drugs, dental services, Chinese medicine therapies, maternity services, physical rehabilitation and home nursing care.

Taiwan offers universal health coverage for locals and foreigners

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The NHI premium rate for each insured person is currently set at 5.17% of an employee’s monthly insured salary, with the maximum base salary capped at NT$182,000 per month. The NHI premium payment is split between the employer (60%), employee (30%) and the government (10%).

In January 2011, the National Health Insurance Act was amended to lower the NHI premium rate to 4.91% from 5.17%, and to introduce a new supplementary premium system that will charge 2% on additional earnings.

The new NHI changes are scheduled to take effect from 1 January 2012.

Employee retirement benefits The mandatory retirement age for insured workers in Taiwan is 65.

An employee currently may receive benefits from an older retirement plan under the LSA, or a newer pension scheme under the Labour Pension Act (LPA), depending on which retirement plan the employee has selected.

In addition to the above, an insured employee is entitled to claim lumpsum old age benefits under the LIA, subject to certain conditions.

All employees to whom the LSA was applicable are eligible for retirement benefits under the LPA, except for foreigners. Employees hired before the LPA implementation date of 1 July 2005 have adopted either the LSA or LPA plan. New hires after that date are automatically enrolled in the LPA plan.

An employee covered by the LSA plan will receive a lump-sum payment from their employer upon retirement, based on the employee’s pensionable salary and years of service. To fund the LSA retirement benefits, employers are required to make monthly contributions of no less than 2% of an employee’s wages to a designated pension account at the Bank of Taiwan.

Under the LPA plan, employers must contribute at least 6% of an employee’s monthly salary, ranging from NT$1,500 to NT$150,000, to an individual pension account managed by the Bureau of Labor Insurance.

Employees may also voluntarily contribute up to 6% of their monthly salary to their pension accounts, which may be deductible from their taxable income in the year concerned.

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Mass lay-offs trigger special rules to protect employees An employee covered by the LPA plan may receive monthly pension payments if 60 years or older with more than 15 years of service. Those with less than 15 years service may receive a lump-sum pension payment of the principal and accrued dividends in their individual pension account.

Termination of employment The LSA authorises lay-offs where, for example, the company ceases to operate in Taiwan, undergoes a change in business, has operating losses or cost reductions that precipitate internal restructuring and lay-offs, or where force majeure causes the company to close or reduce its business operations.

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The LSA establishes the procedures employers must follow when they terminate an employee. Except where termination is for cause, the law obliges employers to pay severance and other termination benefits due to the terminated employees. Collective bargaining agreements may be a means for employees to obtain other benefits or protections in addition to those required by the LSA. The dismissal notice requirements are 10 days for those employed for more than three months to one year, 20 days for those employed one to three years and 30 days for those employed longer than three years. Employers must provide severance pay equal to one month’s salary for each year of service.

For employees covered by the LPA pension scheme, severance pay is calculated at half the monthly average wage for each year of service.

Severance pay for a service period less than one year is to be pro-rated, and total severance pay may not exceed six times the monthly average wage.

Mass lay-offs The Protective Act for Mass Redundancy of Employees (PAMRE) provides procedural protections for workers facing redundancy situations, as well as formal sanctions against employers who close their business enterprises or implement mass lay-offs without settling employee wages.

The PAMRE is triggered when employers with 30 or fewer employees intend to lay off 10 or more staff during a 60-day period; when employers with 30 to 200 employees intend to lay off at least a third of their staff over the course of 60 days; when employers of between 200 and 500 employees intend to lay off more than a quarter of the workforce during a 60-day period or more than 50 on any one day; and when employers of more than 500 intend to lay off at least a fifth of the workforce in a 60-day period.

Work permits for foreigners

A 60-day notice period is mandated when the PAMRE is triggered. The company must also notify the relevant government authority and labour representatives of the redundancy plan, and publish an announcement of the proposed lay-offs at the beginning of the 60-day notice period. Within ten days of the start of the notice period, the employer and employee labour representatives are expected to negotiate the redundancy plan and come to an agreement on the lay-offs.

A work permit must be made by the sponsoring entity in Taiwan to the CLA. The maximum duration that can be applied for is three years. Following approval of the work permit, the foreigner must apply for a visitor or resident visa depending on the term of the work permit and duration of stay.

Work permits must be obtained where work in Taiwan is to be performed by foreigners, whether directly engaged by a Taiwanese employer or assigned by a foreign legal entity to fulfil contractual obligations in Taiwan.

The work permit processing time is about two weeks from the date of submission, provided all documents are in order. The subsequent processing time for the visitor or resident visa can vary from one day to one week. The ARC processing time is approximately 10 working days.

In certain circumstances, however, foreigners working on assignment in Taiwan for no more than 30 days to fulfil contractual obligations for specialised work may not be required to apply for a work permit.

A foreigner granted a resident visa to stay in Taiwan for more than six months must also apply for an Alien Resident Certificate (ARC) at Taiwan's National Immigration Agency.

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Chapter 4 Accounting and audit

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In Taiwan, businesses are required to maintain accounting records and prepare financial statements in accordance with local accounting laws and Taiwan Generally Accepted Accounting Principles (GAAP).

In 2013, Taiwan will fully adopt International Financial Reporting Standards (IFRS) for listed companies and many financial institutions.

Unlisted public companies will be required to follow IFRS from 2015.

This chapter covers: • Key governing bodies • Accounting books and records • Audit requirements • Taiwan’s accounting profession • Auditor responsibilities • Sample audit report • IFRS adoption in Taiwan

Key governing bodies For accounting and audit matters, including the supervision of public accountants, the main regulatory and supervisory bodies in Taiwan are: Ministry of Economic Affairs. The MOEA issues accounting regulations for both private and public companies, and also regulates Taiwan practicing accountants in accordance with the Certified Public Accountant (CPA) Act. Securities and Futures Bureau.

The SFB of the Financial Supervisory Commission (FSC) supervises public listed companies, as well as the audit work of Taiwan-licensed CPAs. Accounting Research and Development Foundation. The ARDF sets the financial accounting and auditing standards used in Taiwan. It is an endowed private institution but supervised by the SFB.

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or expenses in the current period regardless of when the income is received or expenses are paid.

Accounting books and records Accounting period. Businesses generally use the January-December calendar year as their accounting year, which is the same as the Taiwan fiscal year for tax purposes. However, a company may, with permission, adopt a non-calendar year-end.

Bookkeeping currency. Accounting books must be denominated in New Taiwan dollars (NT$). If accounts are kept in a foreign currency due to business needs, such currency must be translated into NT$ in the closing financial statements. (Guidelines have

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not yet been finalised for functional currency adoption under IFRS).

Bookkeeping language. All accounting books, documents and financial statements should be in Chinese, but may also be written concurrently in a foreign language.

Accounting basis. Business entities must follow the accrual basis of accounting in performing recognition, measurement and reporting for accounting purposes. All income realised and expenses incurred or attributable to the current period should be recognised as income

Accounting books. Companies are required to maintain accounting records and prepare annual financial statements in accordance with the Commercial Accounting Act and related rules and Taiwan GAAP (which largely follows the two predominant standards, IFRS and US GAAP). They must keep journals, a general ledger and subsidary ledgers, as well as appropriate memorandum records.

Computerised accounting systems, if utilised, can be regarded as the company’s accounting records.

Financial statements. The basic financial statements required are a balance sheet, income statement (or profit and loss account), cash flow statement, statement of changes in owners’ equity and notes to financial statements, along with comparative data for the previous accounting year.

Reporting format. The format of financial statements is set forth in the Statements of Financial Accounting Standards issued by Taiwan’s accounting standard-setting body,

the ARDF. Public companies are also required to follow the format and guidance prescribed by the SFB. Preservation of books and records.

All accounting records must be kept for at least five years, and all accounting books and financial statements for at least ten years after the completion of annual closing procedures.

Audit requirements Private companies with paid-in capital of NT$30 million or more are required to have their financial statements audited and certified by a Taiwanlicenced CPA. Public companies and financial institutions must also be audited by a licenced CPA, as well as meet other reporting requirements.

Taiwan-registered public companies are required to have their annual financial statements audited by a CPA within four months after the end of each fiscal year. They must also have

their semi-annual financial statements audited by a CPA within two months after the close of each fiscal half-year.

In addition, their first and third quarter financial reports must be reviewed by a CPA within one month after the end of the first and third fiscal quarters.

Taiwan’s accounting profession The National Federation of Certified Public Accountants Associations (NFCPAA) represents the accounting profession in Taiwan. It oversees the education of accountants and acts as a communications channel between the profession and the government.

Practicing CPAs must register with at least one of three CPA associations (representing Taipei City, Kaohsiung City and Taiwan Province), which operate under the umbrella NFCPAA. Taiwan's CPA Act was amended in 2007 to make the local practice environment more flexible and in

line with international standards. It provides CPA firms greater choice in organisation structure, clarifies firm liability, enhances CPA independence and strengthens the self-regulatory function of Taiwan’s CPA associations.

Auditor responsibilities The “Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants” cover independence matters, reporting and disclosure requirements, suggested audit procedures and other general requirements related to the review of internal control systems.

Auditor independence is key to the integrity of the financial audit process.

In Taiwan, an auditor is prohibited from becoming a director or officer in an audited company or having a direct or indirect financial interest in the company under audit. Audit firm rotation is not compulsory in

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Taiwan, but seven-year audit partner rotation became mandatory for listed companies from July 2009.

Auditors attest to whether a company’s financial statements comply with local accounting laws and Taiwan GAAP. To do so, they must examine them in accordance with current auditing rules, as well as the Statements of Auditing Standards issued by the ARDF. In general, auditing standards and procedures in Taiwan are similar to the International Standards on Auditing and US Statements on Auditing Standards.

The auditor’s report may conclude with an unqualified opinion, modified unqualified opinion, qualified opinion, adverse opinion or a disclaimer of opinion. Whenever an auditor expresses an opinion that is other than unqualified, a clear description of all the substantive reasons should be included in their report together with a quantification of the possible effects on the financial statements.

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Sample audit report The following shows the typical language for an unqualified audit report on financial statements prepared and presented in accordance with Taiwan GAAP: “We have audited the accompanying balance sheets of ABC Company as of December 31, 20XY and 20XZ, and the related statements of income, changes in shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.”

“We conducted our audit in accordance with the ‘Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants’ and generally accepted auditing standards in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.”

“In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20XY and 20XZ, and the results of its operations and its cash flows for the years then ended, in conformity with the ‘Rules Governing the Preparation of Financial Statements of Securities Issuers’, the Business Entity Accounting Act, the ‘Regulations on Business Entity Accounting Handling’ and generally accepted accounting principles in the Republic of China.”

IFRS adoption in Taiwan In May 2009, the FSC announced its roadmap for the full adoption of IFRS in Taiwan in two phases starting from 2013. The FSC said that it was taking this action to make Taiwan’s capital markets more attractive to foreign investors and to help Taiwanese companies raise capital overseas.

Taiwan will fully adopt IFRS starting from 2013

The ARDF will translate and issue Taiwan-IFRS (that is, IFRS translated into traditional Chinese script), which companies will follow in preparing their financial statements. TaiwanIFRS will be implemented as follows: Phase I: Taiwan-listed companies and financial institutions supervised by the FSC, except for credit cooperatives, credit card companies and insurance intermediaries, will be required to adopt Taiwan-IFRS starting in 2013, with 2012 IFRS comparative data.

Early adoption in 2012 is optional for companies that have already issued securities overseas, or have registered an overseas securities issuance with the FSC, or have a market capitalisation of more than NT$10 billion.

Phase II: Unlisted public companies, credit cooperatives and credit card companies will be required to adopt Taiwan-IFRS starting in 2015, with 2014 IFRS comparative data. Early adoption starting in 2013 is optional.

Reporting requirements for private companies, including the Taiwan subsidiaries and branches of foreign companies, have not yet been decided.

Several options are under discussion by the FSC’s IFRS adoption taskforce, including current GAAP, IFRS for SMEs and voluntary IFRS reporting.

Companies transitioning to IFRS will face several challenges, including firsttime adoption adjustments, stricter revenue recognition rules and new disclosure requirements. IFRS will also present unique challenges for the banking and insurance industries in view of the more stringent reporting requirements for recognition, measurement, presentation and disclosure of financial instruments.

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Chapter 5 Business taxation

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This chapter updates significant changes in Taiwan's tax laws and regulations since the 2010 edition of this guide. These include a cut in the corporate tax rate, revisions to available tax incentives, the introduction of a new tonnage tax regime and thin capitalisation rules, and new double taxation agreements.

Income tax scope and rates

This chapter covers:

Any company operating within the territory of Taiwan must pay corporate income tax, except where exemptions are provided. Its tax status determines how and at what rate the tax is levied.

• Income tax scope and rates • Taxable corporate income • New tonnage tax system • Capital gains • Dividends • Withholding taxes • Double taxation relief • Alternative minimum tax • Tax administration • Tax incentives • Transfer pricing • Thin capitalisation rules • M&A and restructurings

In Taiwan, businesses are subject to profit-seeking enterprise income tax.

The term “profit-seeking enterprise” refers to companies, partnerships, sole proprietorships and other forms of profit-seeking business organisations.

Basis

Residency The tax status of corporate taxpayers is divided into three categories: • A resident enterprise with its head office in Taiwan (including locally incorporated subsidiaries of foreign companies)—subject to income tax on its worldwide income.

• A non-resident enterprise with its head office outside Taiwan but with a fixed place of business or business agent in Taiwan—subject to income tax on its Taiwan-sourced income.

• A non-resident enterprise with no fixed place of business in Taiwan— subject to withholding tax at source.

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Tax rates

Taxable corporate income

In June 2010, the Income Tax Act was amended to further reduce the corporate income tax rate to 17%, which was applied retroactively to take effect from 1 January 2010 onwards.

Taxable income

A year earlier the tax rate had been cut to 20% from 25% to take effect from 1 January 2010. The subsequent additional cut to 17% was made in response to the elimination of several tax incentives under new legislation.

As a result of these changes, the 25% and 17% rates apply when filing 2009 and 2010 tax returns, respectively.

Corporate income tax rates (effective from 1 January 2010) Taxable income

Tax rate

Up to NT$120,000

0%

NT$120,000 and over

17%

In addition to regular tax calculations, resident enterprises and non-resident entities with a fixed place of business or business agent in Taiwan are subject to an alternative minimum tax (AMT) under the Income Basic Tax Act.

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Taxable income is calculated from net income, defined as gross annual revenues after deducting costs, expenses, losses and taxes. Except for certain exempt items, income from all sources is subject to corporate tax.

To determine a company’s taxable income, its accounting income is adjusted by taking into account nontaxable income, non-deductible expenses, allowable provisions and available losses carried forward.

Taiwan-sourced income Article 8 of Taiwan's Income Tax Act and related guidelines define the types of income that should be regarded as Taiwan-sourced income.

In September 2009, the Ministry of Finance (MOF) issued “Guidelines for Determining Taiwan-Sourced Income under Article 8 of the Income Tax Act” to clarify the scope of Taiwansourced income. They took effect when issued and do not apply retroactively except where a case is undergoing administrative remedy procedures.

Under the Guidelines, fees received by a foreign company for services performed entirely outside of Taiwan are exempt from income tax. For services rendered both onshore and offshore, only the remuneration for services rendered onshore is deemed to be Taiwan-sourced income.

For certain categories of Taiwansourced income, costs and expenses are allowed as deductions to arrive at net taxable income, with tax refunds available for withholding tax previously applied on gross revenues.

Supporting evidentiary documents are required in such circumstances.

The Guidelines open up opportunities for foreign companies to reassess whether their cross-border service charges are wholly or partially nonTaiwan-sourced income, to claim associated costs and expenses, and to apply for tax refunds where possible.

Non-taxable income Corporate taxpayers are subject to a single assessment on all income received. Exceptions to this rule include the following income items, some of which need special approval:

Taiwan’s corporate tax rate of 17% is one of the lowest in Asia

• Proceeds from land sales; • Income from securities and futures transactions; • Dividends received by a Taiwan company from another local firm; • Royalties paid to a foreign company for the use of its patents, trademarks or technical knowhow in order to introduce new production technology or products, improve product quality, etc.; • Certain technical service fees received by foreign entities; and • Business income obtained within Taiwan by a foreign company engaged in international

transportation, provided reciprocal treatment is granted to Taiwanese transportation enterprises.

Deductions In general, expenses or losses incurred during the ordinary course of business are tax deductible, except where these are not substantiated by adequate and acceptable documents.

Different documentation rules apply to overseas and domestic purchases: • Required evidence for overseas purchases includes commercial invoices from foreign suppliers, customs duty receipts, import declarations and remittance slips;

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• For domestic purchases, all profitseeking enterprises—except for small-scale businesses with monthly sales less than NT$200,000 and certain professional service providers—must use government uniform invoices (GUIs). These invoices are the main form of documentation necessary to support deductions of local expenditures.

For deductible expenses supported by receipts from small-scale businesses, the total claimed as deductions may not exceed 3% of total manufacturing and operating expenses.

For payments to professional service providers, the required withholding tax must be applied to such payments, and receipts or remittance slips obtained.

Non-deductible items Expenses and losses unrelated to the business operations of a company are not deductible for tax purposes.

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Unrealised expenses and losses may not be claimed as tax deductible items except for certain allowances and provisions, as specified in the Income Tax Act and other laws, or where specially approved by the MOF. To qualify for tax deductibility, provisions and allowances must be recorded on the books, i.e., not made off the books for tax purposes only.

New tonnage tax system In January 2011, Taiwan introduced a new tonnage tax regime. A qualifying enterprise engaged in maritime transportation having its head office in Taiwan may apply to re-base the taxation of its maritime transportation income, from the regular income tax system to a lump sum tax calculated on the net tonnage of its shipping fleet.

Once an application is approved, the qualifying enterprise must remain under the tonnage tax system for ten consecutive years and cannot switch to the regular income tax system at its

discretion. Also, loss carryforwards and tax incentives are not eligible under the new tonnage tax system.

The tax only applies to maritime transportation income. Other income will still be taxed in the normal way.

The tonnage tax is computed with reference to a daily assumed profit (as shown in the table below) multiplied by 365 days and the prevailing corporate income tax rate.

Daily assumed profit (for each complete 100 net tonnes) Up to 1,000 tonnes

NT$67

From 1,001 to 10,000

NT$49

From 10,001 to 25,000

NT$32

Above 25,000 tonnes

NT$14

Capital gains Taiwan does not impose a capital gains tax, as all gains, unless specifically exempt by law, are assessed as regular income and subject to income tax.

Gains from land sales and securities and futures transactions are exempt from income tax, while losses therefrom are not tax deductible.

However, resident enterprises and non-resident entities with a fixed place of business or business agent in Taiwan are required to include any gains from securities and futures transactions in their AMT calculation in accordance with the Income Basic Tax Act. Land sales are subject to land value increment tax at progressive rates from 20% to 40%. Proceeds from securities and futures transactions are subject to securities and futures taxes at rates of 0.1%-0.3% and 0.0000125%-0.6%, respectively.

Dividends Taiwan operates an imputation tax system to avoid double taxation of dividends by allowing corporate and individual shareholders to claim credits for taxes paid on dividends received.

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Treatment of dividends

Undistributed earnings

For Taiwan corporate shareholders, dividends received from local investee companies are not included in their taxable income. However, they must record any imputation tax credit distributed by other Taiwan companies along with the dividends in a shareholder imputation credit account.

A 10% profit retention tax may be imposed on any part of a resident company’s current year profit (after taxes and statutory reserves) not distributed as dividends in the following year. This also applies to local subsidiaries of foreign companies.

Any dividends paid by a corporate shareholder to its resident individual shareholders would, in turn, carry the underlying tax credit for corporate income tax paid by its subsidiary.

For resident individual shareholders, dividend income is not subject to withholding tax. The gross dividend received is included in an individual’s taxable income, and the associated imputation tax credit (for the underlying corporate tax paid by the company distributing the dividend) can be used to offset their individual income tax liability. Any excess credit is refundable to individual shareholders.

For foreign shareholders, cash or share dividends distributed by a resident company in Taiwan are subject to withholding tax at a rate of 20% if no tax treaty protection is available.

52 | Doing Business in Taiwan

The profit retention tax paid by the company may be used by a resident individual shareholder to offset the shareholder’s tax liabilities once the company distributes dividends from the corresponding undistributed earnings in subsequent years.

Non-resident shareholders may credit the 10% profit retention tax against their dividend withholding tax once the company distributes dividends from the corresponding retained earnings in subsequent years.

The credit for the profit retention tax against the dividend withholding tax is not a dollar-to-dollar credit but calculated based on a prescribed formula and subject to a ceiling.

Withholding taxes For withholdings on residents, the taxes withheld on different types of income (as detailed in the next table) must be paid to the tax authority within ten days after the close of the month in which payment was made.

The related withholding certificates must be prepared and submitted to the tax authority for verification by the end of January of the following year.

For withholdings on non-residents, the taxes withheld must be paid and the related withholding certificates submitted to the tax authority within ten days after the payment was made.

According to the MOF's Guidelines on Taiwan-sourced income, a foreign

enterprise with no fixed place of business in Taiwan is subject to withholding tax if it receives Taiwansourced income from service fees, rental income, business profits and other income. However, it may appoint a tax agent in Taiwan to claim a tax deduction for costs and expenses incurred (supported by evidentiary documents) and apply for a tax refund within five years of the payment date.

The table on the following page summarises the withholding tax rates for various types of income.

The tax rates on dividends, interest and royalties may be reduced if the recipient is a tax resident of a tax treaty country and the relevant treaty provides for a reduced rate.

Withholding tax rates up to 20% apply to Taiwan-sourced income PwC Taiwan | 53

Withholding taxes (as of 31 March 2011) Type of income

Resident Resident individuals (%) enterprises (%)

Non-resident individuals and enterprises (%)

Dividends

N/A

20

N/A (1)

20

Commissions

10

N/A

Rentals

10

N/A (1)

20

Interest

10

10

15, 20 (2)

Royalties

10

N/A (1)

Technical service fees

10

N/A

(1)

Prizes/Awards (6)

10, 20

10, 20

20

Professional fees

10

N/A

20

0, 20 (3) 3, 20 (4, 5)

Notes 1. Commissions, rentals, royalties and technical service fees received by resident enterprises that issue GUIs are exempt from withholding tax.

2. For non-resident enterprises, a 15% withholding tax applies to interest income derived from short-term bills, securitised certificates, corporate bonds, government bonds or financial debentures, as well as interest derived from repurchase transactions involving these bonds or certificates. The rate in all other cases is 20%, unless reduced under a tax treaty.

3. Royalties received by foreign enterprises that are specially approved in advance by the government are exempt from income tax.

4. A 3% withholding tax rule may be applicable if approved by the tax authority.

5. Technical service fees received by foreign enterprises in relation to the construction of factories for manufacturing, and approved by the government are exempt from income tax.

6. For prizes or payments from contests and games won by chance, the withholding tax rate is 10% for resident individuals and enterprises and 20% for non-resident individuals and enterprises. Cash awards less than NT$2,000 from lottery tickets issued by the government are not subject to withholding tax, while those in excess of that amount are subject to a 20% withholding tax.

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Double taxation relief Taiwan companies (including the local subsidiaries of foreign companies) are subject to income tax on their worldwide income, regardless of whether that income was derived inside or outside of Taiwan.

Foreign tax credit Taiwan uses the credit method to avoid double taxation of income. Foreign taxes paid on foreign-sourced income may be credited against a company’s total Taiwan income tax liability.

However, the credit is limited to the amount of Taiwan income tax derived from the foreign-sourced income.

Double taxation agreements Taiwan has entered into bilateral double taxation agreements (DTAs) with 20 countries to date. In 2010, Taiwan signed three new DTAs with Paraguay, Hungary and France.

These DTAs generally follow the Organisation for Economic Cooperation and Development (OECD) model and provide for reduced rates on certain withholding taxes, as summarised in the next table.

Withholding taxes under DTAs (as of 31 March 2011) Country Australia Belgium Denmark France Gambia Hungary Indonesia Israel Macedonia Malaysia (3) Netherlands New Zealand Paraguay Senegal Singapore South Africa Swaziland Sweden United Kingdom Vietnam

Dividends (%) 10, 15 (1) 10 10 10 10 10 10 10 10 12.5 10 15 5 10 (4)

5, 15 (5) 10 10 10 15

Interest (%) 10 10 10 10 10 10 10 7, 10 (2) 10 10 10 10 10 15 Nil 10 10 10 10 10

Royalties (%) 12.5 10 10 10 10 10 10 10 10 10 10 10 10 12.5 15 10 10 10 10 15

Notes 1. 10% for shareholders that are companies (other than partnerships) with at least a 25% shareholding.

2. 7% of the gross amount of the interest arising in a territory and paid on any loan of whatever kind granted by a bank of the other territory.

3. The withholding tax rate on technical service fee payments is reduced to 7.5%.

4. The total tax burden of corporate income tax and dividend withholding tax must not exceed 40% of the total profits of the company.

5. 5% for shareholders with at least a 10% shareholding.

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Alternative minimum tax In addition to regular tax calculations under the Income Tax Act, Taiwan imposes a separate AMT in accordance with the Income Basic Tax Act. AMT applies to all Taiwan resident enterprises and foreign entities with a fixed place of business or business agent in Taiwan if they earn certain income that is tax exempt or enjoy certain tax incentives, or if their annual basic income (that is, income subject to AMT) exceeds NT$2 million.

The following are not subject to AMT: • Sole proprietors and partnerships; • Non-profit organisations; • Government-owned enterprises; • Non-resident enterprises with no fixed place of business or business agent in Taiwan; and • Businesses that have filed for liquidation or declared insolvency.

If the regular income tax is greater than the AMT, no special action is required. Conversely, if the AMT amount is greater, taxpayers have to calculate and pay AMT as follows:

56 | Doing Business in Taiwan

• Income subject to AMT = Regular taxable income + add-back items • AMT = (Income subject to AMT − NT$2 million)× 10% Tax administration The tax year runs from 1 January to 31 December. Companies must obtain permission to adopt a fiscal year other than the calendar year. Tax payments are filed on a self-assessment basis.

Group companies qualifying under the Business Mergers & Acquisitions Act, and financial holding companies as defined by the Financial Holding Company Act, can file a consolidated return for the Taiwan parent and its first-tier Taiwan subsidiaries.

Consolidated returns are not permitted for other enterprises. Consequently, the losses of one affiliate cannot be used to offset the profits of another.

Tax returns

As a general rule, losses incurred by a company in an accounting year may not be carried forward. However, companies which keep a complete and orderly set of accounting books and records, use blue returns, or have their returns examined and certified by a Taiwan-licensed certified public accountant (CPA), may carry losses forward for a period of up to 10 years.

Losses cannot be carried back.

Corporate taxpayers must file returns using one of two prescribed forms:

Certification

Resident enterprises and non-resident entities with a fixed place of business or business agent in Taiwan must file annual tax returns no later than five months after the end of the tax year.

Penalties are imposed for late filing and failure to file a tax return, and interest is charged on late payments.

• Ordinary return—used by all types of profit-seeking enterprises; or • Blue return—used by businesses with a record of honest tax return filing, subject to prior approval.

Submission of audited financial statements with income tax returns is not required. However, certain entities must have their tax returns certified by a Taiwan-licensed CPA, including:

• Banks, credit cooperatives, insurance companies, investment trust companies, short-term bill and finance companies, capital leasing companies and firms engaged in securities and futures trading; • Public companies; • Companies approved for corporate tax exemption under the Statute for Encouragement of Investment and other laws, and have annual net revenues and non-operating income in excess of NT$50 million;

Payment Corporate tax is paid on a selfassessment basis in two instalments.

A company with a calendar yearend must pay provisional income tax between 1 and 30 September equal to 50% of the tax liability declared for the previous year. However, taxpayers meeting certain requirements can pay the provisional income tax based on their taxable income for the first six months of the current tax year.

The second payment is made when filing the annual tax return. The return is then reviewed by the tax authority and a final assessment issued.

Assessments The tax authority may audit tax returns, accounting books and supporting documents as necessary.

After a tax audit, the tax authority may request the taxpayer to explain any questionable items and present additional supporting documents.

• Companies qualifying under the Business Mergers and Acquisitions Act or Financial Holding Company Act that have filed a consolidated corporate income tax return; and • Other companies whose annual net revenues and non-operating income exceed NT$100 million.

Other taxpayers may also opt to have their returns certified by a Taiwan-licensed CPA, since this would enable them to enjoy the benefits enjoyed by companies filing a blue return, which include the carry forward of prior year losses and a higher limit on deductible entertainment expenses.

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payable in the year the expenses are incurred. Any unutilised R&D credits will be forfeited and cannot be carried back or carried forward.

Certain other tax incentives are available to investors if they are located in prescribed areas such as export processing zones, science-based industrial parks and free trade zones.

If the tax authority comes up with a different assessment, it will issue a formal assessment notice to the taxpayer, who then can opt to pay the tax as assessed or follow the administrative remedy procedures provided under the relevant laws.

Penalties and interest Penalties are imposed for late filing and failure to file a tax return.

The taxpayer must pay interest on any unpaid taxes from the day following the original due date to the date of payment. The interest charge is based on the prevailing one-year time deposit interest rate set by the Directorate General of the Postal

58 | Doing Business in Taiwan

Remittances & Savings Bank each year.

The interest charge may be waived if the amount is less than NT$1,500.

Tax incentives Most tax breaks were previously offered under the Statute for Upgrading Industries, which expired at the end of 2009. It was replaced by the Statute for Industrial Innovation, which retains tax breaks for R&D expenditures. The new provisions apply from 1 January 2010 onwards.

Now, companies can claim tax credits for up to 15% of qualified R&D expenses, with the maximum amount of tax credit capped at 30% of the tax

Additional tax incentives are available under the Business Mergers and Acquisitions Act, the Financial Institutions Merger Act and other laws.

Transfer pricing The key legislation on relatedparty transactions in Taiwan is the "Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax on Non-Arm’s Length Transfer Pricing” (TP Assessment Rules). These follow OECD transfer pricing guidelines.

Arm’s length principle Transactions involving revenue, costs, expenses and profit or loss allocations between a company and another local

or foreign one that it has an association with, and those between one company and another which it directly or indirectly owns or controls, must conform to the arm's length principle.

The types of transactions covered by the TP Assessment Rules include: • Transfer or use of tangible or intangible assets;

Transfer pricing methodology

The following should be prepared:

The following methods are acceptable for tangible asset transactions:

• Comprehensive business overview;

• Comparable uncontrolled price method; • Resale price method; • Cost plus method; • Comparable profit method;

• Rendering of services;

• Profit split method; and

• Use of funds; and

• Other MOF-approved methods.

• Other types of transactions assessed by the MOF.

The profit level indicators prescribed by the TP Assessment Rules include:

Related parties

• Return on operating assets;

In addition to a 20% equity ownership threshold, the MOF follows the “substantive management and control” and “material influence” concepts to define what constitutes a related party.

• Return on sales;

The burden of proof is on the taxpayer to show a transaction is conducted at arm’s length. The taxpayer is obligated to disclose information on relatedparty transactions and prepare certain documents when filing their tax return.

The disclosure of related-party transactions in annual tax returns and the preparation of transfer pricing documents are required if certain thresholds are met.

• Berry ratio; and • Full cost mark-up.

Documentation requirements

• Organisation structure description; • Related-party transaction summary; • Transfer pricing report (see the TP Assessment Rules for more details); • Statement of affiliation (subsidiary) and consolidated business report of affiliated enterprises (parent); and • Other documents concerning related parties or controlled transactions that may affect pricing.

All documents should be provided in Chinese, though English documentation may be acceptable if approved by the tax authority.

Safe harbour rules Companies which have controlled transactions below certain thresholds may replace their transfer pricing report with other evidentiary documents sufficient to prove that the results of such transactions are consistent with arm's length results.

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Penalties The tax authority can adjust the income of taxpayers whose controlled transactions fall outside the permitted arm's length range, and penalties may be imposed for failure to comply with the arm’s length principle.

Advance pricing agreements A company meeting the following requirements may apply for an advance pricing agreement (APA): • The total amount of the transactions being applied for under the APA is at least NT$1 billion, or the annual amount of such transactions is at least NT$500 million; • No tax evasion has been reported in the past three years; and • Documentation, such as business overview, relevant information on the related parties and controlled transactions, transfer pricing reports, etc. is provided within the prescribed time limit.

Qualified taxpayers should file an application with the tax authority before the end of the first fiscal year to be covered by the agreement. In general, an APA is valid for three to five years. Where a company’s business nature has not materially changed, a one-time extension of up to five years can be requested.

Thin capitalisation rules In January 2011, Taiwan introduced new thin capitalisation rules. Now, deductible interest expenses on inter-company loans are capped at a prescribed debt-to-equity ratio to be determined by the MOF. The new rule generally applies to profit-seeking enterprises, except for banks, credit cooperatives, financial holding companies, bills finance companies, insurance companies and securities companies.

M&A and restructurings Merger and acquisition (M&A) activity in Taiwan has been on the rise in recent years, particularly in the financial sector. The government provides tax incentives to encourage domestic M&A, which offer significant tax savings for foreign investors wanting to acquire Taiwan companies.

Certain transfer taxes (such as business tax, securities transaction tax, stamp duty, deed tax and land value increment tax) may be exempted or deferred in a qualified merger, spinoff or acquisition transaction under the Business Mergers and Acquisitions Act. Asset acquisition Capital gains arising from the transfer of assets (except for land and marketable securities) are taxable at the prevailing corporate income tax rate. If the seller has tax losses, these may be offset against capital gains for corporate income tax purposes.

Taiwan has introduced new thin capitalisation rules 60 | Doing Business in Taiwan

An asset deal potentially allows the purchaser to step up the basis of the acquired assets for tax purposes. This enables the buyer to reduce their future tax liability through increased depreciation of tangible assets or amortisation of intangibles.

In general, unused tax incentives of the seller may not be carried over by the acquiring company in an asset deal.

The seller has to to issue a GUI to the buyer and charge VAT of 5% on the sales of its operating assets, including inventories, fixed assets and intangibles. The buyer may claim a VAT refund for certain fixed assets or an input tax credit to offset output tax.

Share acquisition Gains on the sale of a target company’s shares are exempt from income tax and losses suffered are not tax deductible, unless the seller is taxed on an AMT basis. However, the sale is subject to a securities transaction tax of 0.3% on the proceeds from the share transfer.

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Interest expenses incurred by a Taiwan holding company in purchasing shares in a Taiwan target company may not be offset against tax-exempt dividend income paid by the target company.

After a share acquisition, the target company may continue to enjoy the unutilised tax losses carried forward and unused tax incentives that were enjoyed before the acquisition.

A share acquisition will not allow the buyer to step up the basis of the assets owned by the target company. The asset value would remain the same as it was before the share deal. Also, the target company may continue to depreciate its fixed assets on the same tax basis after the acquisition.

Buyer vs. seller preferences The buyer generally favours an asset purchase for several reasons: • It allows the purchaser to step up the basis of the acquired assets for tax purposes, which in turn reduces their future tax liability through larger depreciation charges; • It may be possible to amortise goodwill over a minimum period of five years; and • Exposure to undisclosed liabilities or contingencies of the acquired company can be avoided.

The seller generally favours a share sale for the following reasons: • Gains on the sale of shares in companies limited by shares are exempt from corporate income tax, but may be subject to AMT; • Share sales do not result in corporate income tax liabilities on resulting dividends; and • Share sale procedures are simpler.

62 | Doing Business in Taiwan

Mergers If the consideration received from a business merger exceeds the paidin capital and capital reserve of the dissolving company, the excess will be considered investment income or dividend income to be taxed at the dissolving company shareholder level.

Individual shareholders who can provide proof of their original investment costs can be assessed for deemed dividends based on their actual investment costs, as opposed to the paid-in capital and capital reserve of the dissolving company.

Liquidations Gains from the liquidation of a business are included in the entity’s final tax return. Any gains from the distribution of the liquidation proceeds to shareholders are treated as dividends and taxed accordingly.

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Chapter 6 Personal taxation

64 | Doing Business in Taiwan

This chapter highlights the principal provisions governing the taxation of individuals working in Taiwan, including foreign nationals.

Income tax scope and rates

This chapter covers:

The tax liability of an individual in Taiwan depends on the individual’s source of income and their number of days present in Taiwan.

• Income tax scope and rates

Basis

• Taxable personal income • Fringe benefits • Capital gains • Dividends • Exemptions and deductions • Alternative minimum tax • Tax administration

Individual income tax is levied on the Taiwan-sourced income of both resident and non-resident individuals, unless exempt under the provisions of the Income Tax Act and other laws.

Income received for services rendered in Taiwan is considered to be Taiwansourced income subject to tax regardless of whether such income is paid by a local or an offshore employer.

Since 1 January 2010, the alternative minimum tax (AMT), based on the provisions of the Income Basic Tax Act, also applies to the overseas income of resident individuals, including qualifying foreign nationals.

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Residency An individual is considered resident in Taiwan for income tax purposes if: • Domiciled or ordinarily residing in Taiwan; or • Not domiciled but residing in Taiwan for 183 days or more in a calendar year.

Foreign nationals who reside in Taiwan for less than 183 days are considered non-residents, and, in general, their Taiwan-sourced income is subject to withholding tax at source.

Tax rates Tax is charged on an individual’s net taxable income, which is defined as gross income less eligible exemptions and deductions (as detailed later).

Income tax payable is calculated as a percentage of net taxable income, less a "progressive difference," for each tax bracket. For 2010 tax returns, the tax rates range from 5% to 40%.

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Individual income tax rates (effective from 1 January 2010) Taxable income (NT$)

Tax rate

Progressive difference

0 – 500,000

5%

0

500,001 – 1,130,000

12%

35,000

1,130,001 – 2,260,000

20%

125,400

2,260,001 – 4,230,000

30%

351,400

4,230,001 and over

40%

774,400

Taxable personal income Taxable income includes salaries and wages (and any allowances, bonuses or similar compensation), professional fees, rental income from property in Taiwan, and dividends, interest and royalties derived from sources in Taiwan. Prizes and awards are also subject to individual income tax.

Withholding tax rates for resident and non-resident individuals are different and range from 5% to 20%. The withholding tax rates on salaries and wages are 5% and 18% for residents and non-residents, respectively.

A foreigner is taxed on salary, bonuses and commissions earned for work performed in Taiwan, regardless of where payment is made, but is not taxed on compensation for services performed outside Taiwan.

If a foreigner stays in Taiwan for less than 90 days in a calendar year, however, remuneration for services rendered in Taiwan received from a entity registered abroad is not taxable.

Fringe benefits Foreign employees working in Taiwan are also taxed on fringe benefits, such as employer-provided housing and allowances for living expenses, education and transportation.

Cash allowances are taxable regardless of the nature of the benefits. Noncash benefits provided directly by an employer to employee are also taxed unless the recruitment of a foreign professional satisfies certain criteria.

As there are numerous tax rulings on fringe benefits in Taiwan, please consult our experts on expatriate tax issues for up-to-date guidance.

Capital gains Gains on qualified securities transactions are exempt from income tax, but are subject to a securities tax of 0.3% on the gross proceeds.

Since 2006 resident individuals are required to include any gains derived from the sale of unlisted securities in Taiwan in their AMT calculation.

Gains on the sale of other properties are subject to regular income tax, but gains from land sales are subject to land value increment tax .

Dividends For resident individuals, dividends received from a Taiwan company are not subject to withholding tax.

The gross dividend received is included in an individual’s taxable income, and the associated imputation tax credit (for the tax paid by the company distributing the dividend) can be used to offset their income tax liability. Any excess credit is refundable to residents.

Exemptions and deductions Certain exemptions and deductions are available to a resident taxpayer, their spouse and family dependents.

A resident individual taxpayer can claim either the standard deduction or itemised deductions, depending on whichever gives a higher total deduction amount. There is no ceiling on the itemised deduction total. In addition, certain special deductions are available to resident taxpayers.

Non-resident individual taxpayers are not eligible for any personal exemptions or deductions.

The following tables summarise the various allowable exemptions and deductions against taxable income, and the necessary supporting documents:

For non-resident individuals, dividends are subject to 20% withholding tax.

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Exemptions (as of 31 March 2011) Exemption amount

Supporting documents

Taxpayer

NT$82,000

None.

Spouse

NT$82,000

Copy of marriage certificate.

Dependents not over 20 years of age

NT$82,000

Copy of birth certificate.

Dependents over 20 years of age and studying in an approved college or university

NT$82,000

Dependents over 60 years of age

NT$82,000

1. Copy of birth certificate.

2. Copy of tuition receipt and valid student ID. 1. Copy of the birth certificate of the taxpayer/spouse.

2. Document certifying the dependent is supported by the taxpayer/spouse.

1. Copy of the birth certificate of the taxpayer/spouse.

Dependents over 70 years of age

NT$123,000

2. Document certifying the dependent is supported by the taxpayer/spouse.

3. Documents evidencing the dependent's living arrangements.

Standard deductions (as of 31 March 2011) Deduction amount

Supporting documents

Single taxpayer

NT$76,000

None.

Married, filing jointly

NT$152,000

Copy of marriage certificate.

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Itemised deductions (as of 31 March 2011) Deduction item

Maximum deduction

Supporting documents

Charitable donations

Limited to donations to Taiwanregistered non-profit organisations and 20% of annual gross taxable income

Original receipts.

Life insurance premiums

Limited to NT$24,000 for each person per year.

Original receipts.

Medical and maternity expenses

No limit.

Original receipts issued by a qualified hospital or clinic.

Calamity losses

No limit.

Certificate issued by the local tax office.

• Interest payment receipt.

Interest paid on loans for the purchase of an owner-occupied residence in Taiwan.*

Limited to NT$300,000 for a tax filing unit.

• Title deed.

• Documents evidencing the residence was owner occupied in the tax year.

• Rental contract with the taxpayer’s name as lessee.

Rental expense for the lease of a self-use residence in Taiwan.*

Limited to NT$120,000 for a tax filing unit.

• Rental payment receipt issued by the landlord.

• Documents evidencing the residence was for selfuse in the tax year.

* Either "interest paid on loans" or "rental expense" is to be claimed.

Special deductions (as of 31 March 2011) Deduction item

Maximum deduction

Supporting documents

Salaries and wages

Limited to NT$104,000, or actual salary/wages received, per person, whichever is lower.

None.

Property transaction losses

Limited to property transaction gains for the same year. Any residual balance may be carried forward for three years.

Savings and investment

Limited to NT$270,000 per tax filing unit.

None.

Disability (mental or physical)

NT$104,000 per taxpayer, spouse and dependent, if handicapped.

Copy of a psychiatrist’s diagnosis certificate or copy of Disability Identification.

Dependent child tuition

NT$25,000 per dependent child if studying in an approved college or university.

Student certificate or tuition receipts issued by the dependent child’s college or university.

Certificate issued by the local tax office.

Purchase and sales contracts showing the purchase and sales price, and other relevant documentation detailing the related costs and expenses incurred.

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Resident foreigners may be subject to AMT on worldwide income

Alternative minimum tax In addition to regular income tax calculations, Taiwan imposes a separate AMT under the Income Basic Tax Act on individuals who are tax residents in Taiwan (including foreign nationals who stay in Taiwan for 183 days or more in a calendar year).

Resident taxpayers with AMT taxable income of more than NT$6 million may be subject to AMT at a rate of 20%.

A taxpayer must calculate the amount of income subject to AMT after adding back certain items, and compare the result with the regular income tax

70 | Doing Business in Taiwan

amount calculated under the Income Tax Act. The higher tax due is deemed as the individual’s income tax liability.

The taxpayer has to calculate and pay AMT based on the following formulae: • Income subject to AMT = Regular taxable income + add-back items

Since 1 January 2010, the overseas income of resident individuals is included in the AMT calculation.

Although the inclusion of foreignsourced income will increase the AMT burden, any foreign taxes paid on such income may be credited against AMT payable, with certain limitations.

• AMT = (Income subject to AMT− NT$6 million) × 20%

Tax administration

Add-back items include qualified insurance benefits, capital gains from unlisted securities, non-cash charitable contributions, the excess of market value over par value of stock granted to employees, and foreign-sourced income totalling NT$1 million or more.

Taiwan’s tax year runs from 1 January to 31 December. Individual taxpayers are required to report all their Taiwansourced income, irrespective of the payment location of such income, and to file an annual return with the tax

Returns

authority by 31 May of the following year, with no extension allowed.

For resident individuals, a consolidated income tax return must be filed with respect to Taiwan-sourced income.

Married couples must file joint returns if both spouses have resided in Taiwan for more than 183 days in a calendar year. However, a spouse can opt to calculate taxes due on the spouse’s salary and wages separately. The income of any dependents for whom the resident taxpayer has claimed a personal exemption must also be included in the joint tax return.

Non-residents who stay in Taiwan for 90 days or less in a year are not required to file a tax return if they only receive income from an entity registered outside of Taiwan, or receive income from a Taiwan-registered entity on which tax has been properly withheld at the applicable rate.

Payment of tax Income tax is withheld on locally-paid salaries. Any additional tax due must be paid before the actual return is filed.

Thus, in Taiwan, a tax payment receipt must be obtained before filing a return.

Penalties A taxpayer is subject to interest for late return filing. The interest is calculated on the amount of tax payable at the Taiwan time deposit prime rate over the number of days the filing is late.

If a taxpayer is found to have understated or omitted reportable income on the return filed, then the taxpayer is subject to a penalty of up to 200% of the additional tax assessment.

If a taxpayer is found to have failed to file an income tax return, a penalty is imposed of up to 300% of the tax.

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Chapter 7 Other taxes

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This chapter highlights some of Taiwan’s key indirect taxes, including: • Business tax • Stamp tax • Customs duty • Commodity tax

Business tax All sales of goods and services in Taiwan, and imports of goods and services, are subject to business tax.

Sellers and service providers are generally obligated to pay business tax on the sales of goods or services within Taiwan unless the law provides otherwise. Unless specifically exempt, the seller is generally required to issue a government uniform invoice (GUI) to the buyer on all taxable sales.

For imported goods, the business tax is to be paid by the goods receivers or buyers via Customs. For imported services sold by foreign companies to Taiwanese buyers, the tax is to be paid by the service buyers. However, the latter will not be required to pay business tax if they adopt the valueadded tax system and are exclusively engaged in taxable transactions.

Tax systems and rates Business tax is imposed in Taiwan under two systems: the valuedadded tax (VAT) system and the nonvalue-added (also known as the gross business receipts tax or GBRT) system.

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• VAT applies to most non-financial businesses at a basic rate of 5%, and 0% or no VAT under certain circumstances. Each seller collects output VAT from the buyer at the time of sale, deducts input VAT paid on purchases from output VAT collected on sales and remits the balance to the tax authority.

• GBRT applies to financial institutions, small-scale businesses and certain restaurants. Their sales, based on gross receipts, are subject to rates ranging from 0.1% to 25%.

Financial institutions are taxed at 2% on core business revenue, and at 5% on non-core business revenue.

Under the VAT system, an input tax credit or refund is available where VAT amount paid on purchases exceeds the VAT collected on sales.

A credit or refund is not available under the non-VAT system, however.

The business tax on imported goods is calculated at a prescribed tax rate based on the total dutiable value plus customs duty, commodity tax or tobacco and alcohol tax, if applicable.

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Taiwan has expanded the scope of eligibility for zero-rated VAT Zero-rated goods and services A zero business tax rate applies to certain transactions, as specified in the Business Tax Act, including exports and export-related services, items sold by duty-free shops, goods sold to businesses in designated bonded areas (see below) and certain international transportation goods and services.

In January 2011, the Business Tax Act was amended to apply the same VAT treatment for business entities located in different bonded areas, with additional business transactions becoming eligible for zero-rated VAT.

In addition to export processing zones, science-based industrial parks and bonded factories and warehouses, the scope of “bonded areas” was expanded to include agricultural biotechnology parks, free trade zones, logistics centres and other government-approved areas administered by Customs.

Also, goods sold by bonded-area businesses to enterprises in taxable areas that are for direct export, or stored with free trade zone enterprises, Customs-managed bonded warehouses or logistics centres for subsequent export, are now subject to zero VAT.

Exempt goods and services Certain transactions are exempt from business tax, as specified in the Business Tax Act, such as land sales and healthcare services.

For business entities engaged solely in selling tax-exempt goods or services, the input tax is not refundable.

Filing and payment Regardless of whether or not a business entity has sales, it must file a bi-monthly business tax return with the tax authority by the 15th of every odd month for the preceding two months.

A business eligible for zero-rated VAT may file a return on a monthly basis.

Any tax due must be paid before filing.

The head office and other fixed place of businesses of the same enterprise located in Taiwan must file separate returns with the tax authority. That said, a consolidated filing is allowed subject to certain requirements.

The collection authority may issue a business tax assessment in the case of late filing or non-filing, and payment must be made within 10 days of the taxpayer’s receipt of the notice.

Business tax payable on imported goods is levied by Customs.

Stamp tax The execution of certain types of documents in Taiwan is subject to stamp tax at the following rates: • 0.4% of all monetary payment receipts, with the exception of 0.1% of receipts for money deposited by bidders on contracts; • NT$12 per deed for the purchase or sale of movable property; • 0.1% of the contract amount for contracting agreements; and • 0.1% of the contract amount for the sale, transfer and partition of real estate.

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Stamp duty is payable upon the delivery or use of the taxable documents after they have been executed. The taxpayer is the person who signs or issues the documents.

Stamp duty is generally paid by buying and affixing a tax stamp to the documents. If the tax payable is large, the taxpayer may apply to the local tax office to issue a tax payment notice, pay the tax to designated financial institutions and affix the payment receipt to the taxable documents.

Customs duty Customs duties are levied on goods imported into Taiwan based on the Customs Act and regulations promulgated by the Ministry of Finance. Taiwan’s customs regime, including valuation and classification, basically follows the tariff rules of the World Trade Organisation (WTO).

Customs import duty is payable by the consignee or the holder/receiver of the bill of lading for the goods, and is based on the dutiable value or volume of goods imported into Taiwan.

76 | Doing Business in Taiwan

Taiwan’s tariff schedule consists of three categories of duty rates: • Most-favoured nation rate For WTO members and other countries with a reciprocal relationship with Taiwan; • Preferential rate For specified underdeveloped or developing countries and those countries which have signed a free trade agreement with Taiwan (i.e., El Salvador, Guatemala, Honduras, Nicaragua and Panama); and • General rate Applicable to customs jurisdictions other than those listed above.

Certain goods are exempt from customs duty as specified in the Customs Act. Customs duty and VAT exemptions also apply to goods imported into designated bonded areas, as highlighted earlier.

The duty payer must declare the imported goods to Customs within 15 days following the arrival date of the transportation carrier on which the goods were carried into Taiwan.

Commodity tax The commodity tax is a singlestage excise duty levied under the Commodity Tax Act on certain types of goods, locally made or imported.

The tax is payable by the local manufacturer or importer.

Taxable commodities include, but are not limited to, rubber tyres, cement, beverages, flat glass, oil and gas, electrical appliances (including refrigerators, colour television sets, air conditioners, dehumidifiers, video and audio equipment and electric ovens) and vehicles (including cars, motorcycles and trucks).

For locally-produced commodities, the taxable value is equal to the manufacturer’s ex-factory selling price less the commodity tax included in the price. For imported commodities, the taxable value is the total dutiable value plus applicable import tariffs.

goods supplied for military morale purposes, and goods supplied directly for military use with the approval of the Ministry of National Defence.

Different commodity tax rates of between 8% and 50% apply to different types of commodities based on the value of the goods or their volume in specific circumstances.

Local tax offices collect the commodity tax, which is payable by the 15th of the next month for goods shipped from the factory in the current month.

Manufacturers must set up and keep accounting books, documents of evidence and accounting records for accurate calculation of the tax.

For imported taxable commodities, the importer must file with the customs authority, which collects the commodity tax together with applicable customs duties.

Certain goods are exempt from commodity tax, including raw materials used for manufacturing other taxable commodities, export goods, goods for exhibition but not for sale,

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Useful business contacts Taiwan’s e-government infrastructure provides a wealth of information in English for organisations and individuals.

The main entry portal can be found at www.taiwan.gov.tw. This appendix highlights the key government ministries and agencies, as well as local diplomatic and representative offices and foreign chambers of commerce in Taiwan.

Ministries and agencies InvesTaiwan Service Center, Executive Yuan

Department of Investment Services, MOEA

8F, 1 Xiangyang Road Taipei 10046, Taiwan 886-2-2311-2031 http://investtaiwan.org.tw

8F, 71 Guanqian Road Taipei 10047, Taiwan 886-2-2389-2111 www.dois.moea.gov.tw

Ministry of Economic Affairs (MOEA)

Bureau of Foreign Trade, MOEA

15 Fuzhou Street Taipei 10015, Taiwan 886-2-2321-2200 www.moea.gov.tw

1 Hukou Street Taipei 10066, Taiwan 886-2-2351-0271 www.trade.gov.tw

Department of Commerce, MOEA

Industrial Development Bureau, MOEA

15 Fuzhou Street Taipei 10015, Taiwan 886-2-412-1166 http://gcis.nat.gov.tw

41-3 Hsinyi Road, Section 3 Taipei 10675, Taiwan 886-2-2754-1255 www.moeaidb.gov.tw

Intellectual Property Office, MOEA 3F, 185 Hsinhai Road, Section 2 Taipei 10637, Taiwan 886-2-2738-0007 www.tipo.gov.tw Investment Commission, MOEA 8F, 7 Roosevelt Road, Section 1 Taipei 10092 Taiwan 886-2-3343-5700 www.moeaic.gov.tw Ministry of Finance (MOF) 2 Aiguo West Road Taipei 10066, Taiwan 886-2-2322-8000 www.mof.gov.tw Taxation Agency, MOF 2F, 2 Aiguo West Road Taipei 10066, Taiwan 886-2-2322-8000 www.dot.gov.tw

78 | Doing Business in Taiwan

Directorate General of Customs, MOF

Ministry of Transportation and Communications (MOTC)

Bureau of Employment and Vocational Training, CLA

13 Tacheng Street Taipei 10341, Taiwan 886-2-2550-5500 www.customs.gov.tw

50 Renai Road, Section 1 Taipei City 10052, Taiwan 886-2-2349-2900 www.motc.gov.tw

83 Yanping North Road, Section 2 Taipei 10346, Taiwan 886-2-8590-2567 www.evta.gov.tw

Ministry of Foreign Affairs (MOFA)

Tourism Bureau, MOTC

Bureau of Labor Insurance, CLA

2 Kaitakelan Boulevard Taipei 10048, Taiwan 886-2-2348-2999 www.mofa.gov.tw

9F, 290 Zhongxiao East Road, Sec. 4 Taipei 10694, Taiwan 886-2-2349-1500 www.tbroc.gov.tw

4 Roosevelt Road, Section 1 Taipei City 10013, Taiwan 886-2-2396-1266 www.bli.gov.tw

Bureau of Consular Affairs, MOFA

Central Bank of the Republic of China (Taiwan)

Department of Health (DOH), Executive Yuan

2 Roosevelt Road, Section 1 Taipei 10066, Taiwan 886-2-2393-6161 www.cbc.gov.tw

36 Tacheng Street Taipei 10341, Taiwan 886-2-8590-6666 www.doh.gov.tw

Council for Economic Planning and Development, Executive Yuan

Bureau of National Health Insurance, DOH

3 Baoqing Road Taipei 10020, Taiwan 886-2-2316-5300 www.cepd.gov.tw

140 Hsinyi Road, Section 3 Taipei 10634, Taiwan 886-2-2706-5866 www.nhi.gov.tw

Council of Labor Affairs (CLA), Executive Yuan

Food and Drug Administration, DOH

3-5F, 2-2 Jinan Road, Section 1 Taipei 10051, Taiwan 886-2-2343-2888 www.boca.gov.tw Ministry of the Interior (MOI) 5 Xuzhou Road Taipei 10055, Taiwan 886-2-2356-5000 www.moi.gov.tw National Immigration Agency, MOI 15 Guangzhou Street Taipei 10066, Taiwan 886-2-2388-9393 www.immigration.gov.tw

9F, 83 Yanping North Road, Section 2 Taipei 10346, Taiwan 886-2-8590-2866 www.cla.gov.tw

161-2 Kunyang Street Taipei 11561, Taiwan 886-2-2653-1318 www.fda.gov.tw

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Directorate General of Budget, Accounting and Statistics, Executive Yuan 1 Zhongxiao East Road, Section 1 Taipei 10058, Taiwan 886-2-3356-6500 www.dgbas.gov.tw Environmental Protection Administration, Executive Yuan 83 Zhonghua Road, Section 1 Taipei 10042, Taiwan 886-2-2311-7722 www.epa.gov.tw Fair Trade Commission, Executive Yuan 12-14F, 2-2 Jinan Road, Section 1 Taipei 10051, Taiwan 886-2-2351-7588 www.ftc.gov.tw Financial Supervisory Commission, Executive Yuan 18F, 7 Xianmin Boulevard, Section 2 New Taipei City 22041, Taiwan 886-2-8968-0899 www.fsc.gov.tw

80 | Doing Business in Taiwan

Mainland Affairs Council, Executive Yuan 15F, 2-2 Jinan Road, Section 1 Taipei 10051, Taiwan 886-2-2397-5589 www.mac.gov.tw National Communications Commission, Executive Yuan 50 Renai Road, Section 1 Taipei 10052, Taiwan 886-2-1343-7377 www.ncc.gov.tw Public Construction Commission, Executive Yuan 9F, 3 Songren Road Taipei 11010, Taiwan 886-2-8789-7500 www.pcc.gov.tw

Taiwan embassies and missions abroad A directory of Taiwan’s diplomatic, trade and cultural offices abroad is available at www.mofa.gov.tw

Foreign embassies and trade offices in Taiwan A directory of foreign diplomatic and representative offices in Taiwan is available at www.mofa.gov.tw

Foreign chambers of commerce in Taiwan American Chamber of Commerce in Taipei

European Chamber of Commerce Taipei

Spanish Chamber of Commerce in Taiwan

7F-6, 129 Minsheng East Road, Section 3 Taipei 10596, Taiwan 886-2-2718-8226 www.amcham.com.tw

11F, 285 Zhongxiao East Road, Section 4 Taipei 10692, Taiwan 886-2-2740-0236 www.ecct.com.tw

10F-B1, 49 Minsheng East Road, Section 3 Taipei 10478, Taiwan 886-2-2518-4905 http://taiwan.oficinascomerciales.es

Australian & New Zealand Chamber of Commerce in Taipei

French Chamber of Commerce & Industry in Taiwan

5F, 44 Zhongshan North Road, Section 2 Taipei 10448, Taiwan 886-2-7701-0818 www.anzcham.org.tw

2F, 307 Dunhua North Road Taipei 10583, Taiwan 886-2-2514-7959 www.ccift.org.tw

British Chamber of Commerce in Taipei

19F-9, 333 Keelung Road, Section 1 Taipei 11012, Taiwan 886-2-8758-5800 www.taiwan.ahk.de

26F, 9-11 Songgao Road Taipei 11073, Taiwan 886-2-2720-1919 www.bcctaipei.com

German Trade Office Taipei

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About PwC Global www.pwc.com

Taiwan www.pwc.com/tw

PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

PwC Taiwan is a leading professional service firm with over 2,300 people in eight offices across Taiwan.

“PwC” is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients.

PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way.

82 | Doing Business in Taiwan

We have extensive experience and expert knowledge in serving domestic and forign multinational companies in Taiwan. We provide a wide range of services to help organisations across all industries solve their business issues and identify and maximise the opportunities they seek.

Each line of service is staffed with highly qualified and experienced professionals. Their dedication to quality has been recognised by International Tax Review, winning the “Taiwan Tax Firm of the Year” award in 2009 and 2010.

Working closely with PwC China, Hong Kong and Singapore, and also leveraging the resources of our global network, we can provide the professional service support you need to thrive in Taiwan and the Greater China area.

Our services PwC Taiwan offers a wide range of professional services to domestic and foreign clients across three lines of service:

Assurance

Tax and Legal

Advisory

• Financial statement audit

• Domestic and international tax compliance and planning

• Corporate finance

• IFRS conversion and reporting • IPO and market listing services • Global capital markets advisory • Sarbanes-Oxley compliance • Risk and control solutions • Corporate governance compliance • Operational effectiveness review • Financial restructuring services • Japanese client services • Mainland China services

• China investment and tax consultation • Mergers and acquisitions • Transfer pricing • Financial industry tax services • International assignment solutions • Company fiduciary and administration services

• Financial due diligence • Strategy and valuations • Business recovery services • Dispute analysis and investigations • Performance improvement • Financial risk management systems • Talent search and selection • Compensation and benefits

• General accounting and related outsourcing services

• Performance management and human capital effectiveness

• Corporate legal advisory services

• Talent management and professional development

• Tax and business litigation • Intellectual property, employment and dispute resolution

PwC Taiwan | 83

PwC Taiwan offices

PwC Taiwan contacts

Taipei

Kaohsiung

General enquiries

27F, International Trade Building 333 Keelung Road, Section 1 Taipei 11012, Taiwan Tel: 886-2-2729-6666 Fax: 886-2-2757-6371/6372

22F, 95 Minzu 2nd Road Kaohsiung 80048, Taiwan Tel: 886-7-237-3116 Fax: 886-7-236-5631

Damian Gilhawley 886-2-2729-6666 ext. 23470 damian.gilhawley@tw.pwc.com

Taichung

Chungli 22F-1, 400 Huanbei Road Chungli 32070, Taiwan Tel: 886-3-422-5000 Fax: 886-3-422-4599

31F, 345 Taichung Port Road, Section 1 Taichung 40309, Taiwan Tel: 886-4-2328-4868 Fax: 886-4-2328-4858

Dexter Chang 886-2-2729-5222 dexter.chang@tw.pwc.com

Hsinchu

Tainan

5F, 2 Industry East 3 Road Hsinchu Science Park Hsinchu 30075, Taiwan Tel: 886-3-578-0205 Fax: 886-3-577-7985

12F, 395 Linsen Road, Section 1 Tainan 70151, Taiwan Tel: 886-6-234-3111 Fax: 886-6-275-2598

PwC Legal, Hsinchu Branch

Room C, 2F-1, 17 Nanke 3rd Road Tainan 74147, Taiwan Tel: 886-6-234-3111 Fax: 886-6-505-0808

E-1, 1 Lising 1st Road Hsinchu Science Park Hsinchu 30078, Taiwan Tel: 886-3-500-7077 Fax: 886-3-577-3308

84 | Doing Business in Taiwan

Southern Taiwan Science Park

Assurance

Tax and Legal Steven Go 886-2-2729-5229 steven.go@tw.pwc.com Advisory Marie Cheng 886-2-2729-5221 marie.cheng@tw.pwc.com

Further reading These PwC Taiwan English-language publications can all be found on www.pwc.com/tw/en/publications.

Events & Trends

IPO in Taiwan

TDRs

Monthly e-magazine covering a broad range of business topics of interest to corporate executives.

An introductory, step-by-step guide to primary stock listings in Taiwan by foreign issuers.

An introductory, step-by-step guide to secondary listings in Taiwan by overseas companies.

Taiwan Pocket Tax Book

Taiwan Tax Updates

Latest annual guide to tax rules and practices in Taiwan for businesses and individuals.

Monthly e-update highlighting the latest developments in local tax laws, regulations and rulings.

PwC Taiwan | 85

Recycled Paper By using one tonne of post-consumer recycled fibre in lieu of virgin fibre can offer the following benefits to the environment:

31.48 trees were preserved for the future

1479 lbs of solid waste was not generated

90.93 lbs of waterborne waste was not created

2913 lbs net of greenhouse gases was prevented 22,299,750 of BTUs energy not consumed

© 2011 PricewaterhouseCoopers Taiwan. All rights reserved. In this publication, “PwC” refers to PricewaterhouseCoopers Taiwan, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers Taiwan, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.