QUESTION ONE – What are the most common structures used when international clients want to form a company in your jurisdiction? Any examples?
Foreign companies usually set up their subsidiaries or branches in Taiwan when they decided to invest in Taiwan. The analyses of taxation in Taiwan show that profit-seeking enterprise income tax is charged at 20 per cent for subsidiaries and branches. Surtax on undistributed retained earnings is charged at 5 per cent for subsidiaries and is exempt for branches.
Tax on the remittance of the dividends, which return to their parent companies (headquarters), is charged at 21 per cent for subsidiaries and nil for branches. If the parent company is a tax resident in a jurisdiction outside of Taiwan and has a tax treaty with Taiwan, then the withholding tax rates on the remittances from the subsidiary can be reduced to 5 per cent to 15 per cent.
If a foreign investor wants to exercise the same equity rights as other Taiwanese company shareholders, they must set up a Taiwanese subsidiary in order to obtain similar tax benefits to Taiwanese companies. If a foreign investor is in the fields of trading and manufacturing, they would need to set up branches in Taiwan to enjoy no withholding tax. If a foreign investor intends to invest in real estate in Taiwan, they must set up a branch office to enjoy similar tax benefits.
QUESTION TWO – Please detail some of the favourable and unfavourable legislation that businesses considering establishing a presence in your jurisdiction should be aware of? How can you help them to streamline the process?
From the perspective of the Company Act, setting up a representative office indicates that a foreign company has no intention to conduct profit-seeking business activities, but will only appoint its representatives to fulfil juristic duties.
For instance, hiring engineers for research and development is considered to be more like performing routine and repetitive business activities. This is very different from those of signing contracts, bidding for projects, quoting prices, procurement, and price negotiation. Hence, it will be regarded as profit-seeking business activities rather than fulfilling business juristic duties. Thus, it is not recommendable to set up representative offices as such.
From the perspective of taxation, if a representative office has no profit-seeking business activities, it is not required to file income tax returns and will neither be taxable under value-added taxes. However, it is often a decision of the tax authorities, as to whether it has profit-seeking business activities.
QUESTION THREE – What due diligence is required to be undertaken by company formations agents under anti-money laundering laws in your jurisdiction?
At the time of company incorporation and thereafter, any paid-up capital or any increase or decrease of capitalisation, is required to be certified by a Certified Public Accountant. According to Article 9 (1) of the Company Act, a company shall collect and receive the full amount of paid-up capital from the issuance of shares and shall not subsequently refund to any shareholder or allow any amount of capital to be taken back by any shareholder.
According to Article 5 (3.3) of the Anti-Money Laundering Control Act, any lawyers, accountants and notaries will be considered as non-financial professionals for their clients, when making preparations or carrying out any transactions. This includes buying and selling real estate, managing client funds, securities or other assets, managing of the bank, savings, and securities accounts and providing company formation, operational and managerial services. Thus Know Your Customer (KYC) applies including reviews of clients’ identities, implementation of customer due diligence (CDD) and enhanced due diligence (EDD) on potentially higher risk clients. Transaction records keeping and reporting of any suspicious transactions to the authorities is mandatory.
Contributing Advisors
