Doing Business in Taiwan
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Foreword About this book Over four decades, the Republic of China has been bent on developing Taiwan’s economy, and it has achieved marvelous results. This success has brought prosperity to the island and greatly enhanced the country’s international status. During this development process, foreign investments in Taiwan have made great contributions to improving Taiwan’s production and management techniques: their marketing experiences have provided invaluable lessons for Taiwan in opening international markets. The R.O.C. government, therefore, has made every effort to encourage foreign investment. In addition to constantly improving the general investment environment, such as infrastructure and quality of work force, it has enacted special laws and regulations to protect the rights and interests of foreign investors in Taiwan. This report is compiled for interested foreign investors so they can better understand the investment environment in Taiwan. We hope that through direct investment, international economic cooperation and technical exchange will be enhanced, and that the R.O.C.’s economic potential will make greater contributions to the development of the world economy.
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Taiwan’s east coast Cover image: traditional stone carving, Sanshia Master Temple, Taipei
Contents Foreword 3 Introduction 7 Employment 12 Investment 21 Currency And Foreign Exchange
27
Taxation 32 Accounting And Auditing Requirements
43
Listing Rules In Taiwan
47
Relevant Websites Or Further Reading
54
Contact details
55
New North Bridge, Taipei
Introduction Geography Taiwan is an island situated at the midpoint of the western Pacific Ocean. It lies off the southeastern coast of mainland Asia, across the Taiwan Strait from China. To the north lies Japan; to the south is the Philippines. Many airlines fly to Taiwan, helping make it the perfect transit hub. Taiwan’s total land area is only about 36,000 square kilometers. It is 393 kilometers long from north to south and 143 kilometers wide at its widest point. Taiwan lies on the western edge of the Pacific “rim of fire”, and continuous tectonic movements have created majestic peaks, rolling hills and plains, basins, coastlines, and other natural wonders. Because of this, two thirds of its territory is covered by mountains which stretch throughout the length of the island. The highest peak soars up to 3,997 meters. Only 25 % of the land is suitable for farming. The climate is subtropical in the north and tropical in the south with average monthly temperatures around 30 degrees C. in the summer and 10-20 degrees C. in the winter. Typhoons frequently visit Taiwan between July and September. Although the farmland is limited, the warm and rainy weather permits year-round farming as well as three harvests per year. Taiwan’s agricultural produce not only meets the domestic demand but also supplies other countries. Nevertheless, Taiwan still relies on imports of beef, soybeans, wheat, and dairy products. Taiwan’s principal mineral resources are coal, natural gas, marble, limestone, and dolomite. After many years of mining, the coal has been mostly depleted. Taiwan imports most of its coal and petroleum to support industrial development.
Demography In 2010, Taiwan has a population of 23.16 millions; the density of population is about 639.68 people per square kilometer. Due to the decrease of the birth rate as well as the increase of the number of people aged 65 and over, Taiwan will have a fast-aging society in a few years. The official language of Taiwan is Mandarin Chinese, but because many Taiwanese are of southern Fujianese descent, Minnan (the Southern Min dialect) is also widely spoken. The smaller groups of Hakka people and indigenous tribes have also preserved their own languages.
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The most popular foreign language in Taiwan is English, which is part of the regular school curriculum. Besides, many people are also fluent in Japanese. School attendance is compulsory between the ages of 6 and 15. Chinese parents traditionally make their best effort to support their children’s education. This compulsory education and level of parental support results in a literacy rate of 98.04 % in the end of 2010. The number of well-educated people has been a major factor in the country’s rapid development.
Government The ROC is a constitutional democracy based on Dr. Sun Yat-sen’s Three Principles of the People. The government is divided into central, provincial, and county levels. Every level of the government has well-defined authority. The president represents the country in the international affairs and conducts all acts approved by the Legislative Yuan. The first direct popular election of the president was held on March 23, 1996. The central government’s authority is discharged through five Yuans: the Executive, Legislative, Judicial, Examination, and Control Yuans. The Executive Yuan is responsible for making and executing national policies. The Legislative Yuan has the power to pass legislation, examine budgetary bills, and oversee the operations of the Executive Yuan. The Judicial Yuan is in charge of the court system. The Examination Yuan is responsible for examination of professions as well as government employees, and it handles other personnel matters of public employees. The Control Yuan exercises the power of impeachment, censure, and audit. Due to the civil war that ended in 1949, the ROC now only has control over Taiwan island and some other small islands. Taipei and Kaohsiung are special municipalities under the direct jurisdiction of the Executive Yuan.
Economy Taiwan has a dynamic capitalist economy with gradually decreasing government guidance of investment and foreign trade. In keeping with this trend, some large, state-owned banks and industrial firms have been privatized. Exports have provided the primary impetus for industrialization. Therefore, it makes us a large trade surplus. Recently opened cross-strait travel, transportation, and tourism links are likely to increase Taiwan and China’s economic interdependence. At the same time, comply with the highly educated workforce, Taiwan has seen impressive growth in knowledge-based and service-oriented industries and has become a major global
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Economic Growth (%) 12.00 10.88
10.00 8.00 6.00
6.19 5.26
4.00
5.44
5.98
4.70
5.06
3.67
2.00
0.73
0.00 -2.00
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011(f) -1.65
-1.93
-4.00 Data source: Directorate-General of Budget, Accounting and Statistics, Executive Yuan National Statistics, R.O.C
competitor in semiconductor and computer-related products, telecommunications equipment, precision tools, optical machines and supplies and biotechnology. Unlike neighboring Japan and South Korea, in Taiwan, another particular characteristic is the small and medium-sized businesses make up a large proportion of businesses. Although Taiwan enjoyed sustained economic growth, full employment, and low inflation for many years, in 2001, Taiwan joined other regional economies in its first recession since 1949. From 2002-2007, Taiwan’s economic growth has ranged from 3.6% to 6.2% per year. In 2007, because of the Financial Crisis causing the global economic downturn, Taiwan’s economy slumped into recession in the second half of 2008 and 2009. With the global economy’s return to health, Taiwan has translated into an upsurge in exports and domestic demand. In 2010, Taiwan’s economy grew by 10.88%, it was the highest growth rate since 1987. Taiwanese investors and businesses have become major investors in mainland China, Vietnam, Thailand, Indonesia, the Philippines, and Malaysia. On the other side, China overtook the US to become Taiwan’s second-largest source of imports, after Japan, in 2008. Therefore, in order to intensify the relations across the Taiwan Straits. The Economic Cooperation Framework Agreement (ECFA) with the People’s Republic of China was signed on June 29, 2010. This agreement will allow for more than 500 products made in Taiwan to enter China at low or no tariffs. In the meanwhile, China will also open markets in 11 service sectors such as banking, securities, insurance, hospitals and accounting, while Taiwan agreed to offer wider access in seven areas, including banking and movies. However, the true benefits and impacts brought by ECFA to Taiwan’s overall economy are still in dispute.
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Transportation Taiwan has a fully integrated transportation network of railways, harbors and shipping lanes, civil aviation, freeways and highways, and rapid transit. These roads and railway systems are well-developed. The Taiwan Taoyuan International Airport in Taoyuan, 30 km. southwest of Taipei, is the primary gateway to Taiwan. In 2006, government starts to build the Taiwan Taoyuan International Airport Access MRT System to connect with Taipei and Taoyuan. The expected start time is on 2012. Water transport is very critical for Taiwan, since it is an export-oriented country. There are five international seaports with modern facilities: Keelung in the north, Taichung in the middle of the west coast, Kaohsiung in the south, and Suao and Hualien in the east. Kaohsiung’s harbor is ranked as the twelfth largest in the world in terms of the volume of containers loaded and unloaded there. Plans are underway for an offshore shipping center (OSC) that will allow foreign vessels, including Taiwan-owned vessels registered abroad, to provide direct transportation between Taiwan and the Mainland. There are about 38,528 km of highways, 1,118 km of railroads and 901 km of freeways linking cities and towns throughout the island. Besides, in January 2007, THSR (Taiwan High Speed Rail) began operation. THSR is 345 kilometers long from Taipei to Kaohsiung and saving passengers two thirds of the time spent on traveling. It carried an average of over 1.6 million passengers per day in December 2010. Metropolitan Rapid Transit System (MRT) is a rapid transit system covering metropolitan areas. Taipei MRT System consists of 91 lines, 94 stations and 101.9 km of operational length. Kaohsiung MRT system contains with 36 stations and 42.7 km of revenue track.
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Commuter train, Taipei
Employment Work Force Work force was a main resource for the agricultural societies in early Taiwan. In addition, impact of traditional culture and government’s encouragement, Taiwan has a high birth rate prior to the early 1980s, Taiwan’s working-age population expanded steadily. But at the same time, largely because of a desire by young people to extend their education, the labor force participation rate fell steadily from its peak of 60.9% in 1987 to 57.75% in 2009. Over the last ten years, total employment has increased 1.2% annually. Unemployment remained between 1.5% and 2.0% of the labor force until 1995. However, from the second half of 1995, owing to short-term slack in the economy and labor-market rigidity, unemployment turned upward. A higher level of structural unemployment resulting from the ongoing transformation of Taiwan’s domestic economic structure and exacerbated after 2001 by sluggish world economic growth was contributed to the rise in joblessness. In addition, after he Financial Tsunami in 2008, Taiwan’s economic and business environment brought about by unprecedented deal a serious impacted. Therefore, we have the highest unemployment rate reached 5.85% in 2009. With the economy recovery, the unemployment rate is decreased to 5.21% in 2010. As Taiwan has developed from an agricultural into an industrial economy, dramatic changes have taken place in its employment structure. Agricultural employment, for example, fell from 36.7% of total employment in 1970 to 5.14% in 2008, while employment in industry rose from 28.0% to a peak of 42.8% in 1987, before declining to 36.84% in 2008. Meanwhile, the service sector has increased its share of total employment from 35.3% to 58.02%, and promises to be the major provider of new job opportunities for years to come.
Education National construction and economic development require persons of ability. It takes a long time to cultivate persons of ability. Since 1979, government promoting the six years of elementary school and three years of junior high have been compulsory for all children. About 96% of junior high graduates continue their studies in either a senior high or vocational school.
In 2010, Taiwan has a total of 105 universities and 59 colleges. To improve the quality of higher education, apart from encouraging academic institutions to conduct selfevaluations, professional associations have also been commissioned to assess the performance and teaching quality of Taiwan’s colleges and universities. At the same time, the opportunities for graduate education are expanding, and also have many students travel abroad for advanced education. On the other hand, in order to reduce the pressure of further education and develop more diverse learning, Government is actively promoting the policy of 12-year compulsory education. After a lot of planning and promoting, Taiwan will implement 12-year compulsory education by 2014.
Labor Laws At present there is a labor shortage in the construction and manufacturing industries. In order to minimize the influence of this shortage on industries, the government has permitted the use of foreign laborers and encouraged automated production. The major laws and regulations regarding labor affairs include: •
Labor Standards Act
•
Labor Insurance Act
•
Employment Insurance Act
•
Employees’ Welfare Funds Act
•
Labor Pension Act
•
Protection for Workers Incurring Occupational Accidents Act
•
Regulations of the Settlement Labor Insurance Disputes
•
Gender Equality in Employment Act
•
National Health Insurance Act
The Labor Standards Act (LSA) 1.
Industries which the LSA applies to: ——
Agriculture, and framing; forestry, fishery and animal husbandry;
——
Mining and quarrying;
——
Manufacturing;
——
Construction;
——
Water, electricity and gas supply;
——
Transportation, warehousing and telecommunications;
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2.
——
Mass communications;
——
Other industries lines of business as may be designated by the Central government Competent Authority.
Working hours and leave entitlement Regular working hours must not exceed 8 hours a day and 84 hours in two weeks. Overtime hours are allowed subject to provisions. Workers are granted leave on all national holidays, Labor Day and other days designated by the central government. Annual vacations leave ranges from 7 days to 30 days depending on years of service as well as position.
3.
Minimum wage and overtime pay The minimum wage is currently NT$17,280 per month. The overtime pay ranges from one and one-third to two times employee’s normal hourly rate, depending on the length of the overtime and the day on which it is required.
4. Termination A worker who has worked for one year continuously in the same enterprise is entitled to severance pay equivalent a half-month to one month’s salary for each year of employment and the severance pay will be at most 6 month’s salary. The employer who terminates an employment contract in force on the basis of prescribed conditions should give the employee advance notice from 10 days to 30 days depending on the years of service. 5. Retirement A worker may voluntarily apply for retirement if: ——
Has worked for 15 years or more and has reached 55 years of age; or
——
Has worked for 25 years or more; or
——
Has worked for 10 years or more and has reached 60 years of age.
Compulsory retirement may be enforced if: ——
The worker has reached 65 years of age; or
——
The worker cannot do his job due to a mental defect or a physical disability.
The retirement pay before July 1, 2005 should be calculated as follows: ——
A worker will accrue 2 units for each year before reaching 15th years’ service and 1 unit for each year thereafter, for a maximum of 45 units. One unit represents one month’s average wage when the retirement is approved.
——
A 20 % increase should be added to the regular retirement payment if the worker is forced to retire due to a mental defect or a physical disability related to work injuries.
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Effective on July 1, 2005, the Definite Contribution Plan is applied. The employer must contribute and deposit at least 6 % of every employee’s salary or wage to an individual pension fund account governed by the government. However, the pension liability for the working years before July 1, 2005 must be calculated and deposited to the joint account of the company in the Central Trust of China (CTC) within 5 years from 2005. Labor Insurance Act An employer hiring five or more employees is required to enter into a labor insurance contract with the Labor Insurance Bureau for every employee who is above the age of 15 and fewer than 60. The insurance plan provides maternity benefits for female workers and for the wives of insured male workers, as well as benefits for injury, disability, death and retirement. The premium is 7.5 ~ 13 % of the employee’s monthly salary or wage. Accounting to the different situation, employer and employee has different premium rate have to pay. In most of the cases, 70 % of the premium is paid by the employer and 20 % is paid by the employee. The remaining 10% shall be paid by central government. The maximum monthly salary or wage which is subject to the labor insurance premium is currently NT$ 43,900. Employees’ Welfare Funds Act All enterprise organizations shall set-aside and allocate employees’ welfare funds to process and handle employees’ welfare businesses. Contributions might be made by enterprises according to provisions as follows: •
1% to 5 % of the company’s paid-in capital;
•
0.05 % to 0.15 % of monthly operating revenue; and
•
0.5 % of the monthly salaries or wages of each staff member or workers;
•
20 % to 40 % of proceeds from the sale of waste materials at the time of every sale.
The National Health Insurance Act The National Health Insurance Act, which became effective on March 1, 1995, established a program that provides comprehensive medical care for all citizens. According to this Act, Taiwanese citizens and foreign workers with alien resident certificates are required to join the program under employers’ sponsorship. This program also covers the treatment for unemployed spouses/dependents of the participants.
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The 60 %, 30 %, and 10 % of the premium are paid by the employer, the employee, and the government respectively. In addition to the premiums paid for employees, the employers pay premiums for a fixed 0.88 dependents per employee. The maximum monthly salary or wage which is subject to the health insurance premium is currently NT$182,000.
Sexual Harassment Prevention Act According to the Regulations for Establishing Measures of Prevention, Complaint and Punishment of Sexual Harassment in the Workplace (for short is Sexual Harassment Prevention Act), an employer hiring over thirty employees shall set up measures of prevention, complaint and punishment of sexual harassment in accordance with these guidelines. These measures shall be openly displayed in a noticeable place in the workplace and given to all employees. In the other hand, the employer shall set up designated telephone, telex, special mail box or e-mail addresses to handle the complaints concerning sexual harassment. The related information shall be openly displayed at a noticeable place in the workplace.
Visas In order to identify the visitors’ identity and purpose, we have those visas categories for different purpose. Visitor Visa Eligibility
Visitor visas are issued to foreign nationals who hold ordinary passports or other legal travel documents and who intend to stay in Taiwan for no more than six months.
Validity
Depending on the nationality of the traveler, a visitor visa may be valid from one month to a maximum of 5 years. Normally, a visitor visa is for single entry. However, multiple re-entry visas may be granted for business purposes by presenting a letter from an employer on company letterhead indicating the reason for the application of a multiple re-entry visitor visa. For the multiple reentry visitor visas, the traveler cannot stay in Taiwan for more than 6 months per entry.
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Resident Visa Eligibility
Resident visas are issued to foreign nationals who hold ordinary passports or other legal travel documents and who intend to stay in Taiwan for more than six months.
Validity
The resident visa is valid only for a period not exceeding 3 months.
Duration of stay R esident Visa holders are required to apply for the Alien Resident Certificate and Re-entry Permit at local service centers of the National Immigration Agency within 15 days starting from the next day of their arrival. They may stay in the ROC as long as the Alien Resident Certificate remains valid. Visa-Exempt Entry Eligibility
The Ministry of Foreign Affairs has granted exemptions from visa requirements for foreign nationals of 39 countries, including countries such as the United States, Canada, the United Kingdom, Japan, Singapore and others.
Duration of Stay A s of May 2003, foreign nationals from any of these 39 countries with a passport valid for at least 6 months will be allowed to enter and stay in Taiwan for 30 days upon proof of a confirmed return air ticket or an air ticket along with a visa for the next destination, and the proof of confirmed seat reservation for departure. Landing Visa Eligibility
Holders of emergency or temporary passports with validity more than six months for nationals of those countries eligible for visaexempt entry and holders of USA passport with validity less than six months.
Validity
The landing visa is for single entry only and there is no possibility of extension.
Duration of Stay T o apply for a landing visa, a traveler must hold a passport valid for at least 6 months and will be allowed to enter and stay in Taiwan for 30 days upon proof of a confirmed return air ticket or an air ticket and a visa for the next destination, and the proof of a confirmed seat reservation for departure.
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Diplomatic Visas Eligibility
Diplomatic visas are granted to anyone with a diplomatic passport or laissez-passer.
Validity
Diplomatic Visas shall have a validity of no longer than 5 years.
Duration of Stay T he length of stay shall be determined in accordance with the applicant’s needs and the purpose of his/her visit. In cases where the duration of stay is not specified, there shall be no limit to the length of stay, provided that this does not exceed the time required for the visa-holder’s assignment in the ROC. Courtesy Visa Eligibility
Courtesy visas are granted to the specific foreign passport holders and their dependents.
Validity
Courtesy visas shall have a validity of no longer than 5 years.
he length of stay shall be determined in accordance with the Duration of Stay T applicant’s needs and the purpose of his/her visit. In cases where the duration of stay is not specified, there shall be no limit to the length of stay, provided that this does not exceed the time required for the visa-holder’s assignment in the ROC. Time Required for Visa Application The Table 1 provides a general idea of the average time required to obtain a visa.
Table 1 Average time required to obtain Visa Type of Visas
Average Time Required
Diplomatic and courtesy visas
3 working days
Landing Visa
Immediately
Visitor visa
3 working days
Resident Visa
3 working days
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Work Permits In order to work in Taiwan, a foreign national must apply for employment authorization, also known as a work permit. The application must be filed by the employer. Foreign nationals may not be self-employed in Taiwan. The employer may only hire foreigners for employment opportunities that qualify under the categories set out in the Employment Services Act such as: •
Specialized or technical work
•
Executive for an investment project or business conducted by an oversea Chinese or a foreigner and approved by the authorities concerned
•
Teachers
As otherwise provided by law, work permits are generally valid for 3 years with the possibility for the employer to apply for extension.
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Liberty Square, Taipei
Investment Investment in Taiwan After a review of certain investment areas, the government plans to open these to foreign and overseas Chinese businesses. Those investment areas include gas stations, transportation, production of animal feed, fertilizers, leather goods, and limestone exploration. Also to be approved on a case-by-case basis are oil refining, power generation, tap-water supply, railway and harbor construction, and production of sodium cyanide, potassium cyanide, and asbestos. Some service industries are also being opened. The liberalization of this sector includes radio and TV broadcasting, cable television, newspaper publishing, and the establishment of special educational institutes. Some studies, moreover, have proposed allowing some foreign professionals to practice in Taiwan. The proposed categories include qualified foreign lawyers, medical technicians, midwives, and overseas staff who have worked at the parent company or other overseas branches for more than one year.
The Mechanics of Local Investment Under the ROC Company Law, there are four categories of companies: unlimited companies, limited companies, unlimited companies with limited-liability shareholders, and companies limited by shares. The difference among these types of companies lies in the extent to which shareholders are liable for obligations which the organization may incur. (Table 2 shows these differences) Table 2 Type of Companies by Shareholder and Liability Type of Company
Number of Shareholders
Nature of Shareholders’ Liability
Unlimited company
Two or more
Each shareholder has joint, unlimited liability for all company obligations
Limited company
One or more
Liability of each shareholder is limited to that shareholder’s capital contribution
Company limited by shares
One legal person or two individual or more shareholders; capital divided into shares
Liability of each shareholder limited to the amount of shares held
* A company limited by shares is similar to a corporation in the United States; most of the large commercial and industrial companies in the ROC are companies limited by shares.
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A Foreign Company’s subsidiary, branch, or representative office As a Company organized under the Company Act and the Statute for Investment by Foreign Nationals (SIFN) A foreign-investment-approved (FIA) company is organized under the Company Act and the Statute for Investment by Foreign Nationals (SIFN). The foreign investors of an FIA company are granted the following incentives: 1. Full (100 %) ownership of the company is no more subject to the domicile and nationality requirements for shareholders and officers. 2. The repartition of invested capital and remittance of earnings on such capital is unlimited. 3.
Dividends are subject to withholding tax rate of 20 %.
4. If foreign shareholders own at least 45 % of the company’s capital, then the requirements that the company’s capital offered for public subscription and that a certain percentage of new shares issued for purchase by the company’s employees are waived. Overseas Chinese investments are also granted the above incentives under the Statute for Investment by Overseas Chinese (SIOC). An EPZ (Export-Processing Zones) export enterprise may enjoy the privileges of exchange settlement benefits and exemption from import taxes. Science-based Industrial enterprises are granted the most favorable terms under ROC tax laws if they manufacture, research, and develop high-technology intensive products. Under the Company Act, shareholders of an ordinary domestic company may be ROC nationals, foreigners, or overseas Chinese. As a Branch A foreign company can set up a branch in the ROC. As a Representative Office A foreign company may establish a “representative office” within the ROC. That office may conduct activity in keeping with the law, but it cannot conduct business activities. By Appointing an Agent A foreign company may conduct business in the ROC by appointing an agent that is a registered profit-seeking enterprise there.
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Industrial Sites Manufacturing plants may be located in the such ideal sites as export processing zones (EPZs), Science-Based Industrial Parks, and industrial districts. Export Processing Zones (EPZs) In December 1966, Taiwan integrated the functions of a free trade area, duty-free zone, and industrial park to create its first export processing zone (EPZ) - the Kaohsiung (Cianjhen) Export Processing Zone. The zone succeeded in attracting foreign capital and technology to vigorously drive Taiwan’s economy and industry forward, setting a historical precedent for Taiwan and providing an innovative economic development model for the world. EPZ were designed by the government to provide free ports, industrial parks and other necessary facilities. The enterprises in the EPZs are known for their command of core technology and commitment to R&D. Many have also integrated trade, warehousing, distribution, marketing and financial operations to upgrade as international operation headquarters. Today, Taiwan’s EPZs are home to numerous internationally known enterprises. Currently, there are EPZs in Kaohsiung, Taichung, Chungkang, Pingtung, Nantze and so on. Science-Based Industrial Park In order to promote industrial research and development, the government began establishing science parks, economic zones which provide rent and utility breaks, tax incentives and specialized lending rates to attract investment. The Science-Based Industrial Park in Hsinchu, dubbed “Taiwan’s Silicon Valley,” was established by the government to encourage the development of high-technology industries and scientific expertise. Enterprises to be located in the Science-Based Industrial Park should register with the Science-Based Industrial Park Administration, which is under the National Science Council of the Executive Yuan. In its more than ten years of existence, the Park has made many noteworthy achievements. Some of its enterprises have become the heart of the ROC’s information industry, reversing the ROC’s brain drain, and providing the vehicle for closer interaction between industry and the private sector, R&D institutions, and government. In 2010, there were over 450 companies (including many listed on TAIEX) employing over 145,000 people are located within the park. Following the success of the first park, the government planed more science-based industrial park, such as Nankang Computer Software Park(Taipei), Southern Taiwan Science Park (consisting of the Tainan Science Park and the Kaohsiung Science Park), The Central Taiwan Science Park (Taichung) and so on.
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Statute for Investment by Foreign Nationals The Statute for Investment by Foreign Nationals provides regulations relating to the protection and administration of investments by foreign investors, individuals or enterprises within the ROC. It recognizes four forms of putting up capital: 1. Cash in the form of foreign exchange that is remitted or brought in. 2. Machinery, equipment, or raw materials imported for own use against selfprovided foreign exchange. 3.
Technical know-how or patent rights.
4. Investment principal, capital gains, net profits, interest or any other income generated as a result of transfer of investment, reduction of capital, or dissolution/liquidation as approved by the government. There are three types of investment: 1. Investments for establishing a new business or expanding the capital base of an existing business, made individually or in association with other foreign nationals, the ROC government, Chinese nationals, or juridical persons. 2. Purchases of the stocks or bonds of existing enterprises, or loans of cash, machinery, equipment, or raw materials. 3. The provision of technical know-how or patent rights as capital stock. Cooperation in the form of providing technical know-how or patent rights not as capital stock is governed by another law. As for foreign companies intending to set up a branch office within ROC territory for production or manufacturing operations, the protection and disposition of their investments are governed by the provisions of the Statute for Investment by Foreign Nationals. 1.
The Statute prohibits investment by four kinds of businesses:
2.
Those that violate public safety.
3.
Those that violate public morals.
4.
Those producing a large amount of pollution.
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Those that by law are given monopoly privileges or are closed to foreign investment. Industries in categories (1) to (4) above which are excluded from or restricted to investment from foreign investors are specified by the Executive Yuan. Investors who invest in the following categories of industries must comply with the relevant provisions as stipulated by the authorities in charge of those industries and obtain their approvals: 1.
Public utility industries.
2.
Financial and insurance industries.
3.
News media and publishing industries.
4.
Any other industries restricted by other laws or regulations.
The Ministry of Economic Affairs (MOEA) is the authority in charge of matters relating to investment under the Statute for Investment by Foreign Nationals. If the investor has not implemented the investment by paying the capital within the prescribed time limit after the approval of the investment, the approval will be revoked upon expiration of the prescribed time limit.
Statute for Investment of Overseas Chinese Basically, the provisions stated in the Statute for Investment of Overseas Chinese are the same as those in the Statute for Investment by Foreign Nationals. The only difference is that after an investor has implemented his investment, he or she receives favorable treatment upon the levy of estate tax on the amount of investment determined by the Investment Commission, as prescribed by the Executive Yuan.
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The Big Buddha of Baguashan, Changhua
Currency and Foreign Exchange Currency The local currency is the New Taiwan dollar (NT$). The exchange rate between the NT dollar and foreign currencies are determined by each bank authorized to handle foreign exchange transactions. Foreign Exchange Regulations The ROC has a comprehensive system of control over all foreign exchange transactions. The administration of exchange regulations is handled by the CBC. The main features of the current rules governing foreign exchange receipts are: 1. Foreign exchange resulting from the following should be sold to or deposited in the CBC or any of the appointed banks within the prescribed period: inward remittances from foreign loans; income from services provided by insurance, shipping, and other industries; income from government-approved foreign investments of ROC citizens domiciled or residing in the ROC; proceeds from export or re-export of commodities; net profit, royalties, principle, and interest accruing to domestic enterprises‘ government-approved foreign investment, technical cooperation, or financing; and other income. 2. A qualified exporter may receive unlimited funds for the export of goods. 3. A ROC national or a foreigner living in the ROC with an alien resident certificate, or a registered business entity or a non-business organization, may receive unlimited funds as payment for services provided. 4. A registered business entity may receive up to US $50 million a year, and an ROC national over 20 years old, a foreigner living in the ROC with an alien resident certificate, or a non business organization, up to US $5 million a year for such purposes as loans and gifts. 5. If a single transaction exceeds US $1 million (or its equivalent in other foreign currency), the designated bank will not process the application to receive the remittance until at least the 4th working day after the application date. The bank has confirmed that the Declaration Statement is consistent with relevant contracts and letters of approval that evidence the foreign exchange receipts in question. The CBC may, as it deems necessary, instruct the designated bank to suspend application processing.
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The main features of the current rules governing foreign exchange payments are: 1. Foreign exchange required to make any payments should be bought from the CBC or from any of its appointed banks. 2. A qualified importer may remit out unlimited funds for the import of goods. 3. A registered business entity or non-business organization may remit out unlimited funds for non-commodity trade expenses. 4. A registered business entity may remit out up to US $50 million a year, and a non-business organization, up to US $5 million a year. 5. Single transaction exceeds US $1 million (or its equivalent in foreign currency); the designated bank will not process the application for remittance until at least the 4th working day after the application date. The banking enterprise has confirmed that the Declaration Statement is consistent with relevant contracts and letters of approval that evidence the foreign exchange disbursements in question. The Central Bank may, as it deems necessary, instructs the designated bank to suspend application processing. Banking and Finance Taiwan’s financial system is governed by MOF and CBC. There are two types of financial institutions in Taiwan: Banking
- Domestic commercial and foreign banks - Specialized banks - Saving banks - Local credit cooperative institutions
Non-banking
- Trust and investment companies - Insurance companies
- The postal saving system - Securities markets
Banking Institutions 1. Domestic commercial banks Commercial banks, as referred to in the Banking Law of the ROC, may engage in accepting deposits, making loans, providing guarantees and acceptances, serving as paying and collecting agents, handling foreign exchange and conducting trust operations. 2. Foreign banks Incentives under consideration for foreign banks could allow them to issue more commercial paper and open more branches. Allowing foreign banks to offer investment-banking services and to accept international bank accounts for Taiwan nationals is also being considered.
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3. Specialized banks There are five specialized banks in Taiwan: Industrial Bank of Taiwan, Land Bank of Taiwan, Farmer’s Bank of China, the Medium Business Bank of Taiwan, and the Import-Export Bank of China. They provide domestic industries with medium and long-term credit to accelerate industrial development. 4. Local credit co-operative institutions There are three different types of credit cooperatives in Taiwan: creditcooperative associations, credit departments of farmers’ associations, and credit departments of fishermen’s associations. All are authorized to accept passbook deposits from the public, but they can extend loans to its members only. They must be approved by the MOF and are under the guidance of the CBC. The credit departments in the farmers’ and fishermen’s associations handle limited banking activities and credit extension services for their members. Non-Banking Institutions: 1. Trust and investment companies The main functions of these companies is to receive, manage and employ trust funds and administer trust properties, or act as an investment fiduciary to engage in specific investments related to the capital market. They cater to individual, corporate, and institutional customers. Although they are not allowed to accept public deposits, they are authorized to extend medium- and long-term loans. 2. The postal savings system The postal savings system was designed to encourage domestic consumer savings. It has proven to be very popular because of the number of branches and their longer hours of operation. 3. Insurance companies The insurance industry is governed by the Insurance Law, which is administered by the MOF. An individual company cannot provide both life and non-life coverage, although all insurance companies can conduct reinsurance business. 4. Registered insurers must be limited liability companies or cooperatives. The current minimum capital requirement is NT $2 billion, and 15 % of capital must be provided as guarantees. Foreign insurance companies are permitted to apply for the establishment of a branch or a subsidiary in Taiwan.
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Securities markets Taiwan Stock Exchange Market At the end of 2010, there were 758 companies listed on the Taiwan Stock Exchange. Over-the-Counter Market In 1994, the Over-the-Counter (OTC) Stock Trading Center became independent from the SEC. At December of 2010, there were 564 companies listed Over-the-Counter Market. Bills Finance Companies The main function of these companies is to provide a mechanism for the supply and demand of short-term funds. They assist their clients in issuing bills and notes by creating a primary market for the sale of short-term bills. They also participate in the secondary market to promote the negotiability of bills and notes. Foreign Futures The Taiwan Futures Exchange (TAIFEX) and New York Mercantile Exchange signed the cooperation memorandum on Oct 29, 2004. At this time, TAIFEX has already built up the cooperative relation with many country’s Future Exchanges, such as Korean, Japan, Chicago and the New York.
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Tea picking, Ba Gua
Taxation The income generated from sources within the ROC is subject to income tax. The tax accounting basis for individuals is their cash base; profit-seeking enterprises use an accrual basis, and non-corporate profit-seeking enterprises may elect to use cash basis or accruals basis. The tax year for individuals is the calendar year. For profit-seeking enterprises, the tax year should use the calendar year; however, they may elect to use their fiscal year with the approval by the tax authorities because of industry custom or an annual business cycle. Profitseeking enterprises must maintain complete proofs of expenditure and income plus their accounting records in order to calculate taxable income correctly. For income tax purposes, residents and non-residents must file their income tax or be withheld tax on their ROC-source income. ROC-source income for tax purposes is defined as follows: 1. Dividends distributed by companies incorporated and registered in accordance with the Company Law of the ROC and by foreign companies authorized by the government of the ROC to operate within the territory of the ROC. 2. Profits distributed by profit-seeking enterprises organized in the form of cooperatives or partnerships within ROC territory. 3. Remuneration for services rendered within ROC territory, provided that this shall not apply to remuneration obtained from an employer outside ROC territory by an individual not residing in the ROC but staying in the ROC for a period of not more than 90 days during a taxable year. 4. Interest received from various levels of the ROC government, from juridical persons within ROC territory, and from individuals residing in the ROC. 5. Rental income from lease of properties situated within ROC territory. 6. Royalties from patents, trademarks, copyrights, secret formulas, and franchisees by virtue of their being made available for use by other persons within ROC territory. 7. Gain from the sale of properties within ROC territory. 8. Remuneration for services rendered by government employees stationed abroad. 9. Profits from the operation of industrial, commercial, agricultural, forestry, fishery, animal husbandry, mining and metallurgical enterprises within the territory of the ROC. 10. Prize awarded to winners of contests or lotteries held in the ROC. 11. Any other income obtained within the territory of the ROC.
Individual Income Tax Individual income tax is levied on ROC-Source income. A resident individual’s income tax is assessed on gross income minus personal exemptions and deductions. Gross income for tax purposes is defined as: 1. Dividends or profits distributed by companies, partnerships, cooperatives, or sole proprietorships. 2. Remuneration from professional services. 3. Salaries and wages. 4. Income from interest. 5.
Income from rental and royalties.
6. Profits from self-undertaking in farming, fishing, animal husbandry, forestry and mining. 7. Gains on disposal of property, other than land and securities, located in the ROC. 8. Prizes awarded to winners of contests or lotteries held in the ROC. 9. Retirement pay, severance pay, separation pay, resignation pay, life-time pension, the old-age pension not covered by insurance benefits and the insurance payment made under annuity insurance according to the Labor Pension Act received by a person (Certain amount of exemption is provided to the foresaid pays.) 10. Other income earned in the ROC. The amount of personal exemption for residents filing 2010’s individual income tax returns (including the taxpayer, spouse, and each dependent) in 2011 was set at NT $82,000 or, if the dependent is over 70 years old, NT $123,000. These exemptions are announced each year by the government and are adjusted in line with annual variations in the Consumer Price Index. The deductions include standard deductions, itemized deductions, and special deductions. The taxpayers may elect either a standard deduction or itemized deduction, and they may make further special deductions. The standard deductions were NT $76,000 for an unmarried taxpayer and NT $152,000 for a married taxpayer. The itemized deductions are as follows: 1. Contributions and donations to educational, cultural, public welfare, or charitable organizations. 2. Insurance premiums. 3. Uncompensated medical and maternity expenses incurred in specified hospitals. 4.
Uncompensated casualty losses.
5. Mortgage interest on loans from financial institutions. 6. Rent of housing with limitation of NT$120,000 per year 7.
Contributions to political parties or election candidate
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The special deductions are as follows: 1. Losses from disposal of properties other than land and securities, if greater than gains from disposal of properties in the taxable year. 2.
Special deductions up to NT $104,000 from salary or wage.
3.
Special deductions up to NT $270,000 for savings.
4.
Special deductions of NT $104,000 for the disabled or handicapped.
5.
Special deductions up to NT $25,000 for educational tuition.
Foreign individuals who are employed and assigned to work in Taiwan are liable for income tax as follows Table 3 (effective from January 1, 2010): Table 3 The foreign individual’s income tax status Taxpayer’s status
Taxable income
Tax rate
Filing required
Non-resident stays for less than 90 days in the tax year
Remuneration received in Taiwan for services rendered in Taiwan
18 %
No (tax already withheld)
Non-resident stays for 90 days or more but less than 183 days in the tax year
Remuneration received for services rendered in Taiwan wherever received
18 %
Yes (filing as a nonresident)
Resident stays for 183 days or more in the tax year
Remuneration for services rendered in Taiwan wherever received, net of exemption and deductions
Varied
Yes (filing as a resident)
The income tax rates for filing 2010’s individual income tax return in 2011 are shown as the Table 4.
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Table 4 The Income Tax Rate Taxable Income Bracket
Tax on Lower Amount
Percentage on Excess over Lower Amount
0 – 500,000
None
5%
500,001 – 1,130,000
35,000
12 %
1,130,001 – 2,260,000
125,400
20 %
2,260,001 – 4,230,000
351,400
30 %
774,400
40 %
– 4,230,001 Up
Unit: NT$
Between May 1 and May 31, a taxpayer must file an income tax return for the preceding year.
Basic tax of an individual Whereas the amount of individual regular income tax is less than the amount of basic tax that is calculated in accordance with the Income Basic Tax Act, the amount of individual income tax payable shall also include the balance of the amount of basic tax in excess of the individual regular income tax, in addition to the amount as calculated in accordance with the Income Tax Act and other relevant laws. The amount of basic tax of an individual shall be the amount of basic income as calculated in accordance with the following paragraph with a deduction of NT$6,000,000 and then multiplied by the tax rate of 20%. The amount of basic income of an individual shall be the sum of the net taxable income as calculated in accordance with the Income Tax Act and the amount which is under the provisions of the following subparagraphs: 1. Income, which is derived from sources outside the Republic of China and is excluded from gross consolidated income, as well as income which is exempted in accordance with Paragraph 1, Article 28 of the Act Governing Relations with Hong Kong and Macau. However, if the aggregate of the two mentioned sources of income in a filing unit is less than NT$1,000,000, it may be excluded from the basic income. 2. Insurance payment received by the beneficiary of a life insurance policy or annuity in which the beneficiary and the proposer are not the same person and the life insurance policy and annuities are contracted after this Act coming into force. However, in the case of payment made upon the death of the insured person, the part of which aggregate of payment made in a filing unit is equal to or less than NT$30,000,000 may be excluded from the basic income.
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3. Income derived from transactions of securities listed as follows: ——
Share certificates, certificates of entitlement to new shares, stock share payment certificates and documents of title to any of the securities issued or placed privately by a company that is not listed in a stock exchange or traded in the over-the-counter market.
——
Beneficiary certificates of privately placed securities investment trust funds.
4. The amount of non-cash donations or contributions which is deducted from the gross consolidated income in accordance with the provisions of the Income Tax Act and other laws. 5. The amount of balance of the market value in excess of the par value of newly issued registered share certificates acquired by employees under the provision of Article 19-1 of the Statute for Upgrading Industries on the date next following the date of acquisition. 6. The amount of income or deduction which is entitled to reduction, exemption or deduction from the consolidated income tax as may be provided by laws which may be promulgated after the implementation of this Act and thereafter announced by the Ministry of Finance.
Profit-Seeking Enterprises Income Tax For income tax purposes, a profit-seeking enterprise is defined as an enterprise in any industrial, commercial, agricultural, forestry, fishing, animal husbandry, mining, or metallurgical enterprise operated by public, private, or joint public and private interests and having a business name or place and organized in the form of a sole proprietorship, partnership, company or in any other form of organization. In the ROC, all profit-seeking enterprises are taxed on their worldwide income with the exception of the ROC branches of foreign companies. A foreign company’s branch in the ROC is taxed only on its income from the ROC source. A representative office or a liaison office is not required to pay tax on fund transfers from foreign headquarters. However, if the representative office or liaison office is an incomegenerating type of business, the income generated from the ROC is subject to tax. If a foreign enterprise with headquarters located outside of the ROC is engaged in international transportation, construction contracting, providing technical services, or leasing of machinery and equipment, and its costs and expenses are difficult to calculate, then whether or not it has a representative office or a liaison office set up in the ROC, that foreign enterprises in international transportation may be assumed 10 % on its
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international transportation business income earned within the ROC as taxable income and the foreign enterprises in construction contracting, providing technical services, or leasing of machinery and equipment may be assumed 15 % on the ROC-source business income as its taxable income, with the approval by Ministry of Finance (MOF). Profit-seeking enterprise income tax is imposed on net income. The net income equals gross income minus costs of sales, services, expenses, losses, and taxes other than business income tax. There are three criteria that determine whether the expenses and losses of an enterprise are deductible: 1. The expenses and losses are related to the enterprise’s main operations. 2. The expenses and losses are incurred during the tax year with the exception of provisions for employees’ retirement, bad debts, and foreign investment losses. 3. The expenses and losses are supported by the proper documents. The income tax rates for filing 2010’s enterprise income tax return in 2011 are as Table 5. Table 5 The enterprise income tax rate Taxable Income
Rate
Under $120,000
None
Over $120,000
17 % of total taxable income but will not exceed 50 % of the taxable income over $120,000.
By May 31, a profit-seeking enterprise must file an enterprise income tax return for the preceding tax year. The deadline for profit-seeking enterprises using a fiscal year instead of the calendar year is on or before the last day of the fifth month after the close of its fiscal year. A profit-seeking enterprise must also file an interim return in the ninth month of each fiscal year and pay a provisional tax which is 50 % of the preceding year’s payable tax or file a half-year review report to estimate the current year’s tax liability. The tax return is examined by the local office of the National Tax Administration, after which the taxpayer receives an assessment letter from that office. If the taxpayer disagrees with the assessment, he or she may apply to the tax office for reexamination within 30 days after receiving the letter. If the taxpayer disagrees with the reexamination, he or she is granted recourse under most applicable laws to a two-tier review: administrative and judicial.
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Basic tax of profit-seeking enterprises Whereas the amount of regular income tax is less than the amount of basic tax, the amount of income tax payable shall also include the balance of the amount of basic tax in excess of the regular income tax, in addition to the amount as calculated in accordance with the Income Tax Act and other relevant laws. The amount of basic tax of a profit-seeking enterprise shall be the amount of basic income with a deduction of NT$2,000,000, and then multiplied by the tax rate of 10%. 1The amount of basic income of a profit-seeking enterprise shall be the sum of the taxable income as calculated in accordance with the Income Tax Act and such income as may fall under the provisions of the following subparagraphs: 1. The amount of income exempted due to suspension of income tax in accordance with Article 4-1 and 4-2 of the Income Tax Act. 2. The amount of income exempted from profit-seeking enterprise income tax in accordance with Article 9, Article 9-2, Article 10, Article 15 and Article 70-1 of the Statute for Upgrading Industries. 3. The amount of income exempted from profit-seeking enterprise income tax in accordance with Article 8-1 of the Statute for Upgrading Industries before the revision of December 31, 1999. 4. The amount of income exempted from profit-seeking enterprise income tax in accordance with Article 28 of the Statute for Encouragement of Private Participation in Transportation Infrastructure Projects. 5. The amount of income exempted from profit-seeking enterprise income tax in accordance with Article 36 of the Statute for Promotion of Private Participation in Public Construction Projects. 6. The amount of income exempted from profit-seeking enterprise income tax in accordance with Article 18 of the Act for Establishment and Administration of Science Parks. 7. The amount of income exempted from profit-seeking enterprise income tax in accordance with Article 15 of the Act for Establishment and Administration of Science Parks before the revision of January 20, 2001. 9. The amount of income exempted from profit-seeking enterprise income tax in accordance with Article 37 of the Business Mergers and Acquisitions Act.
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9. The amount of income exempted from profit-seeking enterprise income tax in accordance with Article 13 of the Statute Governing Offshore Banking Operations. However, the amount of income allowed for under this exemption does not include the total revenue derived from a credit extension that shall be taxed at the prescribed withholding rate in accordance with Article 73-1 of the Income Tax Act. 10. The amount of income that is entitled to reduction or exemption from profitseeking enterprise income tax or that is excluded from the income tax base as may be provided for in such laws as may be promulgated after the implementation of this Act and thereafter announced by the Ministry of Finance. Business Tax Business tax is levied on any sale of goods or services within Taiwan, on import of goods, or on foreign-provided services used in Taiwan, with certain exemptions. Under the Law, there are two forms of business tax, Gross Business Receipts Tax (GBRT) and Value Added Tax (VAT). The GBRT is paid by certain special restaurants engaging in special beverage and food services, traders in the wholesale agricultural market, small businesses supplying agricultural products, and small business and other business entities that the MOF has exempted from reporting their transaction. The tax basis is gross business receipts. Table 6 is the current rates of the GBRT. Table 6 The GBRT rate Types of Business
Tax Rate
Financial institutions
2.0 %
Nightclubs and restaurants with entertainment
15.0 %
Tearooms, saloons, coffee shops and hostess bars
25.0 %
Wholesale agricultural traders or small agricultural product suppliers
0.1 %
Small business and other business entities not required by the MOF to report transactions
1.0 %
VAT is levied on the value added at each stage of a transaction involving the sale of goods or services. The tax rate cannot be less than 5 % or more than 10 %. The current rate is 5 %. When goods are sold or services are rendered, the business entity is required to issue a uniform invoice. If a business fails to issue uniform invoices, the business, in addition to paying the tax owned at the prescribed tax rate, is fined one to ten times the amount of the tax evaded.
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There are two basic forms of exemption from the VAT, one known as “zero-rate VAT” and the other is simply as “tax exempt.” The difference is that a profit-seeking enterprise which purchases “zero-rate VAT” goods obtains a refund of taxes incurred on those purchases, whereas a profit-seeking enterprise selling “tax exempt goods” does not. Those zero-rate VAT goods and services include those for export and for international transportation. Tax exempt business transactions include those in land, agriculture, health, education, national defense, and telecommunications. Business tax returns should be filed every two months and any tax due should be paid when the returns are filed. Business tax overpayments may be refunded after verification by the tax office if: 1. There was overpayment of tax due on zero-rate VAT goods or services. 2.
There was overpayment on tax due on purchases of fixed assets.
There was overpayment on tax due to merger, consolidation, transfer of 3. ownership, or dissolution of business registration. In other circumstances, overpaid business tax is carried forward and offset against future business tax liabilities. Incentives for Mergers According to the Business Mergers and Acquisitions Act, mergers of two or more companies into one company are free from the stamp tax, deed tax and securities exchange tax. The merged companies must register and defer the value increment tax levied on land transfers. They may apply to the tax authorities for a refund if the price paid for new land purchases exceeds the selling price of old land that they sold. Retained Earnings From 1998, companies keeping retained earnings will be subject to a 10 % surtax of the undistributed earnings earned in 1998 and thereafter. Carry- Forwards Profit-seeking enterprise organized as a company that keeps a complete set of account books, uses the Blue Returns in the years such losses occurred and in the year of declaring such losses, or such losses have been duly certified by a certified public accountant and declared within the prescribed period, taxation may be made on its net income after deduction of losses incurred in the preceding ten years as verified and determined by the local collection authority-in-charge.
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Elimination of Double Taxation Companies’ dividend income received from Taiwan companies is free of tax. Exclusion of Income Tax on Share Issue Premium Premium from the issue of new shares is not considered income and is therefore free from profit-seeking enterprise income tax. Incentives for R&D In accordance with the provisions of Article 10 of the Statute for Innovation industrial promulgated and enacted on May 12, 2010, a company may be entitled to a tax credit of up to 15% of the R&D expenditure against its income tax liability. The credit is limited to 30% of the income tax payable for current year. This effective term of the said incentive will be from January 1, 2010 to December 31, 2019. The Ministry of Finance together with Ministry of Economic Affairs stipulates the “Rules for Application of investment Credits to Corporate Research and Development Expenditures” and the qualified scope of the said R&D credit is limited to the expenditure for the R&D activities with highly innovation, pioneering, risky and external nature. The company shall apply to its competent authority to determine the qualified scope of R&D activities within the period from three months before starting filing the income tax return to one month after the deadline of income tax return filing. (For example, it will be from February to June of the following year for the company adopted calendar year as fiscal year.) In addition, for certain R&D expenditure, the company should apply for special approval with the competent authority before the end of the year where the said expense incurred. Only a company registered in accordance with Taiwan Company Act will be eligible for the incentive; i.e., a branch office of a foreign company is not eligible. Incentives to Foreign and Overseas Chinese Investors 1.
Dividends and profits
Under the Statute for Investment by Overseas Chinese or the Statute for Investment by Foreign Nationals, dividends or profits received by nonresident investors are subject to 20 % withholding tax at the time of payment. The investors need not file an income tax return. If the nonresident investors have a position as a director, supervisor or manager, and they stay in the R.O.C. for more than 183 days (cumulative) in a tax year, they can apply for the preceding incentive for dividends received from the company. 2.
Compensation Paid Outside the ROC
If temporary managerial or technical staff sent to work in support of foreign investments in Taiwan do not stay in Taiwan for more than 183 days, and they are paid by the foreign company outside of the ROC, their income (salaries and compensation) will not be taxed by the ROC government.
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Flower field, near Taichung
Accounting and Auditing Requirements Bookkeeping Requirements under Income Tax Law & Related Regulations ROC income tax law requires that a profit-seeking enterprise keeps sufficient and accurate account records and supporting documents for calculation of its taxable income. As mentioned above, the accounting system is required to use the accrual basis. Small non-corporate businesses may use the cash basis with the approval of the tax authorities. The accounting year is the calendar year (January 1 to December 31). A profitseeking enterprise may adopt an alternative fiscal year because of special circumstances arising from the seasonal nature of the business with the approval of the tax authorities. An enterprise intending to computerize its accounting records must apply for an approval from the tax authority before it uses a computer to maintain accounting records. The names of accounts used in the financial statement must be in Chinese, and if this is not possible, notes in Chinese should be added by hand. All the accounting entries must have supporting documents. The primarily supporting documents are government uniform invoices (GUIs) issued by the sellers. GUIs not only are strictly controlled by the tax authorities but are also printed and pre-numbered. Enterprises must purchase blank GUIs from the authorities at the beginning of each month. Unused invoices must be accounted for periodically. Other supporting documents are receipts, certificates, and ordinary invoices. All the supporting documents must be kept for at least five years, except long-term contracts and similar evidence of transactions over a long period of time. Generally, the measurement basis adopted by enterprises in their bookkeeping is historical cost. However, revaluation of properties is allowed by local regulations subject to certain requirements. Financial Statements A profit-seeking enterprise must prepare the following reports and financial statements: 1.
Business reports.
2.
Balance sheets.
3.
Statements of profit and loss.
4.
Status of shareholding changes sheets.
5.
Cash flow statements.
6.
Proposals for allocation of surplus profit or making up loss.
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First of all, the board of directors must approve these reports and financial statements. Secondly, the enterprise supervisors must examine these reports and financial statements. Finally, the stockholders must approve these reports and financial statements at their meetings. Supervisors are statutorily required officers of each company who are elected from among stockholders, and at least one of the supervisors must reside in the ROC. They may investigate the company’s operating and financial condition at any time. They may also appoint a CPA to conduct the examination on behalf of the company. If a company’s paid-in capital is NT $30 million or more, its financial statements must be audited by an independent CPA. The company must keep the audited financial statements and the other reports mentioned above, and make them available for examination by the MOEA. All public companies must publicize and file the following financial statements to the Securities and Futures Bureau (SF) within a specified time period. Table 7 The different type of financial statements Type of company
Type of financial statements
Time period (*)
Public companies
Audited semiannual and annual financial statements
Within three months following the fiscal year for annual report, and two months after the close of first six month for semiannual report
Companies shares listed on the Taiwan Stock Exchange or traded over the counter
1. Audited semiannual and annual financial statements
1. W ithin three months following the fiscal year for annual report , and two months after the close of first six month for semiannual report 2. Within one month after quarter-end
2. First and third quarterly financial statements reviewed by a CPA
* Effective from January 1, 2012
Auditing Requirements Companies’ financial statements must be audited by an independent CPA if their capital exceeds NT $30 million. If the companies’ shares are listed on the Taiwan Stock Exchange (TSE), their annual, semiannual, first and third quarterly financial statements must be certified by a CPA. Furthermore, the following companies’ income tax returns (ITRs) must be certified by an independent CPA: 1.
Public companies.
2.
Financial institutions.
3.
Insurance companies.
4.
Leasing companies.
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5 Companies that have revenues falling under certain government criteria. (100 millions now) 6.
Companies that enjoy tax holidays.
Other companies may choose to have their ITRs certified by an independent CPA. Of course, if the ITRs are certified, the operating losses can be carried forward for 10 years and the probability of an investigation by tax authorities is reduced. CPA Qualifications CPAs in the ROC are required to possess the following qualifications: 1.
ROC citizenship.
2.
A passing score in the regular CPA examination OR
A CPA must obey the independence rules under CPA Law and the Code of Professional Ethics. Accounting Standards The Financial Accounting Standards Committee under the Accounting Research and Development Foundation of the ROC established standards of financial accounting and reporting. Generally, the standards are similar to the International Accounting Standards and those of the United States. When the differences appear, the ROC standards precede any other accounting standards. Besides the accounting standards established by the private sector, additional accounting practices are prescribed by the Business Accounting Law and by certain regulatory agencies such the SEC, the MOF, and the MOEA. However, for the following purposes, the Financial Supervisory Commission (FSC) planned to adopt the International Financial Reporting Standards (IFRS): 1. Strengthening the comparability of financial statements between domestic enterprises and international enterprises. 2.
Enhancing our international competitiveness of capital markets.
3. Attracting foreign capital investment in domestic capital market. 4.
Reducing the cost of raising funds overseas of domestic enterprises.
According to the FSC timetable for IFRS adoption, all listed companies, OTC companies, emerging companies and financial institutions under the commission’s supervisory, except grass-root credit cooperatives, credit card firms and insurance agents, must adopt IFRS no later than 2013; all public companies, grass-root credit cooperatives, credit card firms, must adopt IFRS no later than 2015.
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Chiang Kai Shek Memorial Hall, Taipei
Listing Rules in Taiwan Taiwan is situated as a pivot of the Asia-Pacific markets, and enjoys a critical economic and strategic position. The development of the clustering of industries in Taiwan is ranked amongst the top worldwide. Not only does Taiwan lead the hightech industries in many products in terms of market shares, but also become a major technological innovation center. Moreover, Taiwan is equipped with an outstanding caliber of human resource, which fosters an ongoing upgrading of industry structure, and injects the energy needed to expand and modernize Taiwan’s capital market. Having benefited from the strongly growing emerging economies of Asia, particularly a totally new and promising cross-straits relationship, Taiwan’s capital market now certainly has ample opportunities becoming a truly regional financial center for funding, wealth management and many other new activities. The development of Taiwan’s capital market is founded upon the competitive advantage of its overall environment. Over the past decade, the securities market in Taiwan has continued to grow on three fronts: the number of shares, the scale of the market and the share price. The overall market turnover rate has an even more impressive performance given its ranking as the number one or two of the Asia region. In order to make Taiwan to become the destination of choice for foreign issuers and Taiwanese businesses that are considering listing for the purpose of raising funds. On March 2008, the Executive Yuan passed a “1-2-3 Plan” for promoting foreign businesses to list in Taiwan. The purpose of this Plan is to promote and help facilitate the synchronization of these foreign businesses with Taiwan’s capital market to fulfill the local investors’ diversified needs. The purpose of this Plan is also to upgrade both the internationalization and competitiveness of Taiwan’s capital market. At the same year, we further relaxed the restrictions on the qualifications of foreign issuers, the upper limit of investments in Mainland China, and the use of raising funds.
Securities Market The securities markets divide into Taiwan Stock Exchange Market and Gretai Securities Market in Taiwan.
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Taiwan Stock Exchange Market (TWSE) The Listing Types 1. Foreign issuers that have not listed their shares on any other stock exchanges abroad apply for listing shares on Taiwan Stock Exchange. (Hereinafter referred as “Primary Listing Applicants”). 2. Foreign issuers with securities being traded on stock exchanges abroad apply for the listing of Taiwan depository receipts on TWSE. (Hereinafter referred as “Secondary Listing Applicants for TDR”). The Listing Rules The major listing rules of Primary Listing Applicants and Secondary Listing Applicants for TDR for general enterprises are listed as follows: Primary Listing Applicants Pre-Listing Preparation
1. Retain a Lead Underwriter 2. Sign a consultancy contract with the underwriters in preparation for listing application, or register for trading as an emerging stock on the GTSM for not less than six months before filing application.
Secondary Listing Applicants for TDR 1. U nderstand the relevant rules of the primary listing market in advance. 2. Select professionals such as underwriters, CPAs, and depositary institutions. 3. Consult professionals to assist in preparation of required application documents.
3. Retain professionals to obtain the professional services and prepare the application documents. Restrictions on Qualification
1. If the foreign issuer was incorporated in mainland China, it may not seek a primary listing in Taiwan. However, it may have an offshore holding company apply for the primary listing in Taiwan.
A foreign issuer can not apply for a secondary listing in Taiwan if he is registered in Mainland China.
2. If 30% or more of the shares or capital in a foreign issuer, or any shareholder with significant influence over such foreign issuer incorporated in a third jurisdiction is directly or indirectly held by mainland Chinese persons or legal entities, organizations or any other institutions from mainland China, except for being approved by project. Duration of Corporate Existence
The foreign issuer or any of its controlled companies shall have at least three years of business records.
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The registered shares or securities representing its shares, issued by the foreign issuer in accordance with the laws of its home country have been listed on one of the stock exchanges or securities markets approved by the Competent Authority.
Primary Listing Applicants Company size
At least one of the following requirements shall be met:
Both of the following requirements shall be met:
1. Amount of paid-in capital or shareholders’ equity: at least NT$600 million at the time of application for listing.
1. N umber of listed units or market capitalization: 20 million units or more of Taiwan depository receipts or with a market capitalization of not less than NT$300 million.
2. Market Capitalization: At the time of listing, the market capitalization is worth not less than NT$1.6 billion.
Profitability
Secondary Listing Applicants for TDR
The cumulative income before tax for the most recent three fiscal years of the foreign issuer is NT$250 million or higher, and the income before tax for the most recent fiscal year is NT$120 million or higher, and the foreign issuer does not have accumulated deficits.
2. Shareholders’ equity: based on the most recent period, a financial report that has been audited and certified by CPAs wherein the shareholders’ equity is equivalent to at least NT$600 million. The issuer must not have accumulated deficits for the most recent one fiscal year and meet one of the following criteria: 1. T he income before tax for the most recent one year represents not less than 6 percent of the shareholders’ equity as shown in its final accounts; or 2. The ratio of income before tax to shareholder’s equity in the final accounting for each of the past two fiscal years is 3 percent or higher, or the average is 3 percent or higher, and the profitability in the most recent fiscal year is better year-onyear than in the preceding year. 3. The incomes before tax for the most recent two fiscal years both reached NT$250 million or more.
Dispersion of Shareholding
The number of shareholders of registered shares shall be 1,000 or more. Also, shareholders, other than insiders of the company and judicial entities whose shares are held by those insiders with more than 50% shareholding shall not be less than 500, and the total number of shares they hold shall be 20 percent or greater of the total outstanding shares, or at least 10 million. The requirement need not to be met at the time of submissions of the application, but shall be met before listing.
Other
The number of shares planned to be listed and traded shall exceed 50 percent of the total number of its issued shares.
The number of registered holders of TDRs in Taiwan shall not be less than 1,000 persons, and the total number of units held by the holders of TDRs other than insiders of the foreign issuer and juristic persons of which such insiders own over 50% of the shareholding is 20 percent or more of the total number of issued shares or is 10 million shares or more. The requirement need not to be met at the time of submissions of the application, but shall be met before listing. There was no irregular change in the price of the stock which the TDRs represent three month before the approval of the listing agreement.
DOING BUSINESS IN TAIWAN | 49
Primary Listing Applicants Process Fill in and submit the application form to the Central Bank
The TWSE reviews the document
Central Bank to review the application
Listing review comittee of TWSE reviews the application
The Central Bank toissue a letter of approval
Ratification by TWSE Board
12 business days
Approximately 6 weeks
Fill in and submit the application form to the TWSE
To be held on the 3rd Tuesday of
The TWSE issues a listing approcal letter
Fill in and submit the report form of capital increase to the competent authority File an effective registration with the competent authority
Offering, issuing, and underwriting the shares, centralized custody of shares
Submit share distribution chart and determine the date of listing 3 days prior to
Apply for listing via mail
Listing on the TWSE listing ceremony
Central Bank issues an approval letter
Fill in the listing application form
TWSE reviews documents
Listing agreement submitted by TWSE and Approved by the competent authority
Within 11 business days at the earliest 50 | DOING BUSINESS IN TAIWAN
Listing date and listing
Central Bank reviews documents
Conduct and complete public issuance, submit the list of distribution of shareholding and apply for the listing
Fill in the listing application form
File and effective registration with the competent authority
Secondary Listing TDR Applicants Process
Gretai Securities Market (GTSM, Over-the-counter) The Listing Types Register as an Emerging stocks traded on the Over-the-Counter market stock. (Hereinafter referred as “Emerging Stocks Applicants”). A first application by a foreign issuer for OTC trading of the stock issued by the issuer whose registered stock has not been listed for trading on any foreign securities market. (Hereinafter referred as “Application for a primary OTC listing”). The Listing Rules The major listing rules of emerging stocks applicants and application for a primary OTC listing for general enterprises are listed as follows:
Emerging Stocks Applicants Pre-Listing Preparation
Application for a primary OTC listing
1. Retain a Lead Underwriter.
1. Retain a Lead Underwriter.
2. Sign a consultancy contract with the underwriters.
2. Sign a consultancy contract with the underwriters in preparation for OTC listing application, and register for trading as an emerging stock on the GTSM for not less than six months before filing application.
3. Retain professionals to obtain the professional services and prepare the application documents.
3. R etain professionals to obtain the professional services and prepare the application documents. Restrictions on Qualification
1. I f the foreign issuer was incorporated in mainland China, it may not seek registering as an emerging stock in Taiwan. 2. If 30% or more of the shares or capital in a foreign issuer, or any shareholder with significant influence over such foreign issuer is directly or indirectly held by mainland Chinese persons or legal entities, organizations or any other institutions from mainland China, this foreign issuer is not eligible to apply for emerging stocks in Taiwan except for being approved by project.
1. If the foreign issuer was incorporated in mainland China, it may not seek a primary OTC listing in Taiwan. 2. If 30% or more of the shares or capital in a foreign issuer, or any shareholder with significant influence over such foreign issuer is directly or indirectly held by mainland Chinese persons or legal entities, organizations or any other institutions from mainland China, this foreign issuer is not eligible to apply for OTC listing in Taiwan except for being approved by project.
Duration of Corporate Existence
—
It has been incorporated and registered in accordance with foreign law for at least two full accounting years.
Company size
—
Shareholders’ equity: based on the most recent period, a financial report that has been audited and certified by CPAs wherein the shareholders’ equity is equivalent to at least NT$100 million.
DOING BUSINESS IN TAIWAN | 51
Emerging Stocks Applicants —
Profitability
Application for a primary OTC listing Based on the consolidated financial report prepared in accordance with Taiwan’s financial accounting standards, the income before tax for the most recent fiscal year may not be less than the equivalent of NT$4 million, and its income before tax shall not take into account the effects of net minority interest income (or loss); furthermore, the ratio of income before tax to total shareholder equity shall meet one of the following requirements: 1. Reached 4 percent or higher in the most recent fiscal year, and after final accounting for the most recent fiscal year, there is no accumulated deficit. 2. Reached 3 percent or higher in both of the most recent two fiscal years. 3. T he average of the most recent two fiscal years is 3 percent or higher, and profitability in the most recent fiscal year is higher than that of the preceding fiscal year.
—
Distribution of Shareholding
Shareholders, other than insiders of the company and judicial entities whose shares are held by those insiders with more than 50% shareholding shall not be less than 300, and the total number of shares they hold shall be 20 percent or greater of the total outstanding shares, or at least 10 million. The requirement need not to be met at the time of submissions of the application, but shall be met before listing.
The Listing Process Register as an emerging stock on the GTSM Within 5 business days Within 3 business days
Fill in and submit the application form to the GTSM
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Start OTC trading of emerging stock Ratification by GTSM and disclose the company’s profile on the GTSM
Primary OTC listing
Register as an emerging stock on the GTSM at least 6 months
Apply of OTC listing
The GTSM reviews the documents
The GTSM issues a OTC listing approval letter
Ratification by GTSM board
Listing review committee of GTSM reviews the application
Offering, issuing and underwriting the shares, centralized custody of shares
OTC listing on the GTSM
Relevant Websites or further reading If you need more information, you can contact us or visit the Official web site as below: Finance, Taxation & Investing Ministry of Finance, R.O.C (Taiwan)
www.mof.gov.tw
Taxation Agency, Ministry of Finance, R.O.C (Taiwan)
www.dot.gov.tw
Taipei National Tax Administration, Ministry of Finance
www.ntat.gov.tw
Taiwan Stock Exchange
www.twse.com.tw
Financial Supervisory Commission, Executive Yuan, R.O.C
www.sfb.gov.tw
Employment Bureau of Labor Insurance
www.bli.gov.tw
Bureau of National Health Insurance
www.nhi.gov.tw
Council of Labor Affairs, Executive Yuan
www.cla.gov.tw
Law Laws and Regulations Database of R.O.C (Taiwan)
law.moj.gov.tw
Council of Labor Affairs, Executive Yuan R.O.C (Taiwan)
laws.cla.gov.tw
Others Kwang-I Earnest & Co., CPAs
www.rsmi.com.tw
Ministry of Foreign Affairs, R.O.C (Taiwan)
www.mofa.gov.tw
Tourism Bureau, R.O.C (Taiwan)
www.tbroc.gov.tw
Contact details RSM Kwang-I Earnest & Co., CPAS www.rsmi.com.tw TAIPEI Song-Shan District Office 5th Floor, 179 Fu Hsing N. Rd. Taipei
Tel: Fax:
(2) 271 75678 (2) 271 23878
HSINCHU Hsinchu District Office 6F-2, No. 27, Guanxin Rd., East Dist. Hsinchu City
Tel: Fax:
(3) 578 6736 (3) 578 9710
TAICHUNG West District Office Suite 5, 12th Floor, 20 Tai-Long Rd. Taichung
Tel: Fax:
(4) 232 73277 (4) 232 73577
Tel: Fax:
(5) 534 0166 (5) 534 4122
Tel: Fax:
(7) 237 8885 (7) 237 8858
YUNLIN Douliu District Office 1st Fl., No. 248, Minsheng Rd. Yunlin KAOHSIUNG Shan-Ming District Office 5th Floor, 34 Chung-Kuo Second Rd. Kaohsiung
RSM International www.rsmi.com RSM Executive Office Tel: +44 (0) 20 7601 1080 11 Old Jewry Fax: +44 (0) 20 7601 1090 London EC2R 8DU U.K.
DOING BUSINESS IN TAIWAN | 55
Notes
Cherry blossom, Taichung
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