Foreign Startups In Taiwan: 3 Options For Foreign Corporate Entities To Set Up Companies In Taiwan

In our previous article Foreign Startups in Taiwan: 3 Key Questions You Need to Consider in Advance, we answered the 3 most frequently asked questions that have been inquired by a foreign national when they want to set up a company in Taiwan.
Taiwan Corporate/Commercial Law
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In our previous article Foreign Startups in Taiwan: 3 Key Questions You Need to Consider in Advance, we answered the 3 most frequently asked questions that have been inquired by a foreign national when they want to set up a company in Taiwan. In practice, some startups may have already established corporate entities in other countries, such as the U.S., Singapore, Israel, the Cayman Islands, etc. It is important for startups to consider the legal relationship between their existing foreign corporate entities and their Taiwan companies. We will cover the following topics in this article:

  1. 3 types of companies that a foreign corporate entity may establish in Taiwan
  2. Key differences between these 3 types of companies
  3. How long it takes a foreign corporate entity to set up a company in Taiwan

3 types of companies that a foreign corporate entity may establish in Taiwan and the key differences between them all

If a foreign corporate entity wishes to engage in business activities in Taiwan, they may choose to set up a subsidiary, branch, or representative office. The first major difference is whether the Taiwanese entity has an independent "corporate entity" or "corporate personality" from its foreign corporate entity. Among the three types of companies mentioned above, only a subsidiary has a "corporate entity" or "corporate personality" independent from their foreign corporate entity. On the other hand, a branch office or representative office does not have an independent "corporate entity" from its foreign corporate parent. Therefore, all the rights and obligations will belong to the foreign parent company. For example:

If a foreign company "Co A" decides to set up a Taiwanese subsidiary "TW Co B," "Co A" is the sole shareholder of "TW Co B." The shareholders' liabilities of "Co A" are limited to its investment amount in "TW Co B." In other words, there is a firewall between Co-A and TW Co-B, in respect to liabilities of the company.

In contrast, if a foreign company "Co A1" decides to set up a Taiwanese branch or representative office "TW A2," Co A1 is responsible for all the liabilities of TW A2.

The second major difference is if a subsidiary, branch, or representative office is allowed to engage in profit-seeking activities under applicable laws. Generally speaking, a subsidiary or branch may engage in profit-seeking businesses in Taiwan (note: the business activities must comply with the Negative List for Investment by Overseas Chinese and Foreign Nationals). A representative office, however, is not permitted to engage in profit-seeking activities such as providing services or selling goods. It can only engage in non-profit-seeking activities for or on behalf of its overseas principal, such as signing contracts, procuring goods and services, providing quotations, bargaining, or gathering market information. Thus, if a foreign corporate entity intends to hire employees, expand its businesses, and engage in profit-seeking activities in Taiwan, setting up a subsidiary or branch is recommended.

When a foreign startup that already has a foreign corporate entity decides to set up a subsidiary, it may choose to set up a limited company, a company limited by shares, or a close company as if it were a "foreign natural person." However, when a startup that already has a foreign corporate entity decides to set up a branch, it does not need to choose from alimited company, company limited by shares, or close company, because a branch is an extension of its principal (i.e., the branch is the same as its foreign principal).

Lastly, when a foreign startup considers setting up a subsidiary or a branch, it must take tax implications into consideration. According to Taiwan tax laws, both subsidiaries and branches are independent entities which are required to file and pay business tax and profit-seeking enterprise income tax in Taiwan. A significant difference is whether tax-withholding obligations apply to a Taiwan entity that intends to wire transfer dividends/profits to its foreign parent corporate entity or principal. In this case, a subsidiary must withhold 21% of the dividends when it makes distribution of dividends to its foreign parent corporate entity, and it shall pay 5% surtax on its retained earnings. A branch, on the other hand, does not need to withhold tax when it distributes profits to its foreign principal, and no surtax on its retained earnings.

How long it takes a foreign corporate entity to set up a company in Taiwan?

Subsidiary:

The process of setting up a subsidiary is generally similar to when a "foreign natural person" sets up a Taiwan subsidiary. That is, once a foreign corporate entity confirms that the "Statute for Investment by Foreign Nationals" applies to it and the business it wants to carry out in Taiwan does not fall within the prohibited/restricted scope for foreign investment, it may then proceed with the application for setting up a subsidiary by following the six steps below. If application materials are complete, it should take approximately two to three months to complete the whole process.

  1. Company name and pre-check
  2. Applying for approval from the Investment Commission (IC) of the Ministry of Economic Affairs
  3. Opening a bank account for company preparatory offices
  4. Wire transferring the investment amount
  5. Verifying your investment with the IC
  6. Company registration

Branch:

Setting up a branch office typically takes approximately one to two months to complete the entire process if documents are well-prepared. Applying for approval from the IC is not required for setting up a Taiwan branch. However, it is important to note that, if a foreign corporate entity is controlled by Chinese (People's Republic of China) natural persons, corporate entities, or other organizations ("PRC Investors"), or more than 30% of foreign corporate entity's shares are directly or indirectly held by PRC Investors, the "Measures Governing Investment Permit to the People of Mainland Area" will apply to this foreign corporate entity, and IC's prior approval will be necessary for its investment in Taiwan.

Representative Office:

Setting up a representative office in Taiwan is much easier compared to setting up a subsidiary or branch because company name pre-check and approval from IC are not required. It usually takes about five to ten days to complete the registration of a representative office.

Setting up companies in Taiwan often involves multifaceted factors including law, accounting, tax, and business, so we encourage foreign businesses to consult lawyers or accountants before setting up a company in Taiwan. In this way, startups can learn about legal compliance matters from the beginning, and can avoid wasting time and money switching from an unsuitable type of company to a suitable one.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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