Taiwan Company
Incorporation Services
Establishing a Business Entity in Taiwan: Advantages and Disadvantages
Capitalizing on Taiwan’s strategic positioning in the heart of the Asia-Pacific, businesses can leverage the global production resources and market. The average flight duration from Taipei to six critical Western Pacific cities, including Hong Kong, Shanghai, Seoul, Tokyo, Singapore, and Sydney, is just around three hours.
One of Taiwan’s major selling points is its competitive tax framework. With a corporate income tax rate standing at 20%, it is notably lower than countries such as Japan, Korea, and China. Additionally, the Value Added Tax (VAT) is fixed at 5%, which is more favorable than in Japan, Korea, China, and even Singapore.
Setting up a business bank account and facilitating international fund transfers is less complicated in Taiwan compared to many of its Asian counterparts, given the appropriate documents are supplied to the bank.
To draw in foreign talent, Taiwan has eased its work permit acquisition process for professionals with relevant expertise. These foreign professionals can also benefit from attractive income tax incentives.
To cater to evolving business needs, the Taiwan government has established purpose-built zones. These include 10 export processing zones, 174 industrial parks, 3 science parks, 2 agricultural technology parks, 4 environmental science technology parks, and 7 free trade zones.
The industrial sectors in Taiwan are conveniently distributed, with electronics and technology predominating in the north, precision machinery in central regions, and petrochemicals and heavy industry in the south. This varied distribution facilitates a dynamic industrial supply chain that can swiftly respond and supply customized components and products as per client needs.
Taiwan’s intellectual property laws are transparent and comprehensive. They not only align with internationally recognized principles but also continually adapt to developments in global business and international intellectual property law.
Furthermore, Taiwan’s superior labor force is enriched by a robust education system that churns out over 300,000 graduates annually from junior college and university level or higher. In fact, as per recent studies, a minimum of a bachelor’s degree is held by 51% of the workforce.
While the advantages of incorporating a company in Taiwan are numerous, it’s not without challenges. The global-wide based corporate income tax system in Taiwan implicates that both offshore and onshore income of a Taiwan-registered business entity is subjected to corporate income tax. Nevertheless, the foreign tax credit system can offset the income tax liability for any income tax paid overseas by Taiwan business entities.
Steps to Establish a Business in Taiwan
Choosing the Type of Business Structure
Initially, you should identify the type of business structure you wish to incorporate in Taiwan. The following is a reference table providing an overview of the options available.
| Limited Company/ Limited Company by Shares | Branch | Representative Office | |
|---|---|---|---|
| Minimum Capital |
NTD$1 (Note 1) |
NTD$1 (Note1) |
Not applicable |
| Business Scope | Stipulated in Articles of Association, special licenses may be required(For example: Travel, Logistics) | Stipulated in Articles of Association, special licenses may be required (for example: Travel, Logistics) | Market research, contract negotiation and signing, etc. (Sales not permitted) |
| Management Requirement | At least one investor (Individual or entity) and one director (Individual) (Note 2) | One representative (individual) | One representative (individual) |
| Limited Liability | Yes, limited to the amount of capital | Not applicable | Not applicable |
| Audit requirement | Depends on sales, capital, number of employees, and industry | Depends on sales, capital, number of employees, and industry | No |
| Corporate Income Tax | 20% | 20% | Not applicable |
| Business Tax | 5% | 5% | No |
| Withholding Tax on Dividend/Earning Distribution | 21% | Not applicable | Not applicable |
Footnote 1: A local regulation stipulates that the initial capital must be sufficient to meet the starting operating costs and expenditures.
Footnote 2: For a limited company by shares, it’s mandatory to appoint at least one individual to serve in the capacity of a supervisor.
The Process and Necessary Documents for Business Registration in Taiwan
For Limited Company, Limited Company by Shares, and Branch Operations
Name Reservation:
Foreign investors must first choose a Chinese name for their intended Taiwan-based company or branch. The application for name reservation should also include basic details of the Taiwan entity such as the business operations, the representative’s name, contact number, and address.
Investment Application:
Foreign investors must fill out the Investment Application Form and provide related documents to the appropriate MOEA unit.
Opening a Preparatory Bank Account:
A preparatory bank account is required at this stage to facilitate capital injection. Since the Taiwan entity is not yet established, this account will be an individual account in the proposed entity’s name.
The timeline for account opening can vary greatly depending on the type of bank chosen (e.g., 1-7 days for local banks, 2-4 weeks for foreign banks).
Capital Injection and Audit:
Capital should be injected from the investor’s overseas bank account in foreign currency. A local CPA must issue a capital audit report.
If the investor chooses to inject capital from a Taiwan bank account, the source of funds must be clearly explained with supporting documentation to the relevant MOEA government unit.
Company/Branch Registration:
The foreign investor must submit an application along with required documents (such as the application form, office lease agreement, and articles of association) to the relevant MOEA government unit. Once approved, the Taiwan entity is officially established and will receive its Taiwan tax ID.
Tax Registration:
The investor needs to register the business entity with the local tax authority. A meeting will be scheduled, where the representative from the Taiwan-based organization should make a visit to the taxation authority to comprehend the business rules and regulations prevalent in Taiwan.
Opening an Official Bank Account:
The investor must convert the preparatory bank account into an official bank account.
As with the preparatory account, the timeline for this process can vary significantly depending on the type of bank (e.g., 1-7 days for local banks, 2-4 weeks for foreign banks).
Timeline:
The entire process of setting up a business entity in Taiwan may take approximately 3-4 months, of which about 2 months are typically devoted to government processing.
Required Documents for Proposed Representative:
- Copy of the representative’s passport
- Power of Attorney
Required Documents for Headquarters:
- Certificate of Incorporation
- Articles of Association
- Power of Attorney
- Organizational Structure
- Lists of shareholders and directors for each business entity that directly or indirectly owns the Taiwan company (until the ultimate beneficial owner)
- Passport copy for individual ultimate beneficial owners who directly or indirectly hold 25% ownership
- Investment plan (including the Taiwan company’s business model and financial plan)
For Representative Offices:
Registration of Representative Office:
The foreign investor must first submit an application to the Central Region Office, MOEA, and receive approval.
Tax Registration:
The investor must then apply to the local tax collection authority for a taxpayer identification number.
Required Documents for Proposed Representative:
- Copy of the representative’s passport
- Power of Attorney
Required Documents for Proposed Representative:
- Certificate of Incorporation
- Articles of Association
- Power of Attorney
- Strategic capital allocation blueprint (incorporating the business methodology and fiscal strategy of the Taiwan-based enterprise)
Is Your Presence Required in Taiwan?
The main reason that would necessitate a trip to Taiwan during the business incorporation process is the requirement by most local banks for the representative to be physically present for the bank account opening. Therefore, if you’re considering assigning a foreigner as your representative for your Taiwan business establishment, they would have to visit Taiwan twice for both the preparatory and official bank account opening procedures.
Banks in Taiwan are typically classified into three primary categories: government-owned banks, privately-owned banks, and foreign-based banks. To streamline the incorporation process, some of these institutions may accept a Power of Attorney (POA) in lieu of an in-person visit to Taiwan.
Government-owned Local Banks:
These banks make the account opening process quite straightforward. However, they do not accept POA for account opening and require the representative to visit the bank in person.
Privately-owned Local Banks:
These banks offer more flexibility to clients as they actively seek to attract customers. Nevertheless, each bank has its unique policy, and the relationship between the client and the bank is crucial.
Foreign-based Banks:
These banks provide the greatest flexibility to clients when it comes to account opening. Some accept POA, and others may set up online meetings. However, they typically have certain criteria such as annual sales, capital amount, and industry type. Their focus is usually on large-scale and multinational corporations.
Choosing the right bank to open an account during the incorporation process is critical. At times, the process may be significantly delayed due to misunderstandings with the bank. Therefore, it’s recommended to assign a Taiwanese agent or someone proficient in Chinese to assist with the bank account opening process.
Common Questions on Incorporation Services in Taiwan
The only instance when your physical presence is necessary during the process of establishing a business entity in Taiwan is when most local banks require an in-person visit for the opening of the bank account. Therefore, if you intend to appoint a non-resident as the representative for your Taiwanese business, this representative will need to travel to Taiwan twice – for the preliminary and final bank account opening.
Banks in Taiwan can be grouped into three primary categories: state-owned banks, privately-owned banks, and international banks. Some of these banks might permit the use of a Power of Attorney (POA) to facilitate the incorporation process, eliminating the need for an in-person visit.
State-Owned Local Banks: It’s a straightforward process to open a bank account with government-owned banks. However, these banks do not acknowledge the POA for bank account opening and insist on the representative’s physical presence.
Privately-Owned Local Banks: These banks exhibit greater flexibility, especially as they vie for more clients. However, each bank has specific policies, and building a relationship is crucial.
International Banks: These banks offer the greatest flexibility for clients regarding account opening. Some banks may accept POA and others may arrange for online meetings. However, they generally set specific prerequisites, such as annual revenue, capital amount, and preferred sectors. Their target clientele typically includes large and multinational corporations.
Choosing the right bank to open an account during the incorporation process is crucial. Occasionally, miscommunications with banking professionals may significantly delay the incorporation. Thus, it is advised to appoint a Taiwanese representative or a Mandarin-speaking individual to assist with the bank account opening process.
No, a director can be a foreigner and does not need to live in Taiwan.
In Taiwan, the most prevalent business structures are limited companies and branches, due to their straightforward setup process and the capacity to conduct a wide range of business activities.
A limited company is a separate legal entity from its shareholders, who are only accountable for their invested capital and can benefit from limited liability protection. On the other hand, a branch isn’t a separate legal entity and acts as an extension of its parent company, which alongside the branch representative bears unlimited liability for the branch.
For limited companies, any dividends distributed to foreign shareholders are subject to a 21% withholding tax. However, as the profits made by a branch are owned by its foreign parent company, there’s no withholding tax if the branch transfers the profits to its parent company.
There is no legal requirement for a minimum capital amount for foreigners wishing to establish a company in Taiwan. However, a local guideline stipulates that the capital of a new company should be sufficient to cover its initial operating costs. Therefore, we recommend that you allocate at least NTD$200,000 as your Taiwanese company’s initial capital.
No, the capital must be denominated in New Taiwan Dollar.
In general, as long as the capital is used for operational purposes rather than personal use, it can be freely used. However, it’s advisable not to withdraw funds from the bank immediately after the company is incorporated. If you can’t provide the necessary documents during an investigation, you may face penalties.
Yes, a foreign individual or corporation can own 100% of a Taiwanese company. However, prior to company registration, you will need approval from the Investment Commission.
Yes, a foreigner can enter into a joint venture with one or more individuals of any nationality. If a foreign national representative needs to apply for a work permit, the foreign ownership must exceed one-third of the Taiwanese company.
No, if you establish a representative office in Taiwan, this office is not allowed to conduct sales activities or generate revenue in Taiwan.
Taiwan categorizes all business activities into different business codes. You can refer to the list of business codes to decide what you will do in Taiwan.
There are no restrictions on the number of business codes. However, we suggest that you choose those that are most relevant to your planned activities in Taiwan.
Yes, your business code can be found on the public government website.
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Premia TNC has the optimal solutions for all your business needs.
Get in touch today for a FREE consultation.
No hidden costs, no obligations.
Feel free to drop us an email too!
[email protected]
