A Guide to Foreign Investing in Korea: Investment Incentives and Starting a Business in Taiwan

IInteractions between South Korea and Taiwan have become increasingly close, especially on the commercial front. With a total trade of $ 36 billion in 2020, South Korea was Taiwan’s fifth-largest partner, according to data from the Taiwan Bureau of Foreign Trade. Likewise, Korean customs data shows that Taiwan was also South Korea’s fifth-largest partner. This shows that Taiwan does indeed have niche markets for South Korean investors to invest in.

Robin chang
Partner
Phone. : +886 2 2763 8000 ext. 2208
Email: [email protected]

Many international rankings name Taiwan as one of the best environments for investment. Taiwan was named the fourth best investment destination in the world with a profit opportunity recommendation of 61, behind Switzerland, Norway and South Korea in the first report by US-based Business Environment Risk Intelligence in 2021. In the World Bank’s Doing Business 2020 report, Taiwan ranked 15th. over 190 savings for the ease of doing business.

Taiwan has a clear distribution of industrial clusters: electronics and technology in the north, precision machinery in the central regions, and petrochemicals and heavy industry in the south. These industry clusters provide strong supply chains for investors who can quickly deliver custom components to meet their needs. In addition, Taiwan has relatively inexpensive utilities and telecommunications fees and an excellent workforce, with 51.2% having obtained at least a university degree in 2018.

In response to changes in the global division of labor and the rise of the digital economy, since 2016 the government has started to promote Asian Silicon Valley industrial innovation programs, smart machines, green energy , biomedicine, new agriculture, national defense and the circular economy, collectively known as the 5 + 2 Industrial Innovation Plan. In recent years, building on existing technologies of 5G, artificial intelligence, big data, cloud computing, Internet of Things and blockchain, the plan has created many opportunities for investment and attracted many renowned global investors to Taiwan, including Microsoft, Google and Danish Ørsted. Considering recent trends in global trade and global value chains, we believe there will be plenty of opportunities for excellent Korean investors.

Matt Lai, Associate Partner, Tel- + 886 2 2763 8000 ext.  2113, Email-mattlai@leeandli.com
Matt Lai
Associate partner
Phone. : +886 2 2763 8000 ext. 2113
Email: [email protected]

Investment incentives

Fiscal advantages. Companies, including companies with foreign participation, which set up in export processing zones, scientific industrial parks or free trade ports are eligible for exemption from import duties on machinery and equipment. , raw materials, fuel, materials and semi-finished products for their own use. For companies that export goods or services, business tax will be exempt. A company or a limited partnership without any serious non-compliance record in the last three years can benefit from an R&D tax credit of up to 15% of its R&D expenses, which can be credited to its corporation tax payable in the current year. Retained earnings that are invested may be exempt from corporation tax. Other tax incentives include tax deductions for investments in smart machines and 5G equipment, as well as tax exemptions for new equipment and inbound technology transfers.

R&D grants. To encourage foreign companies to engage in R&D and innovation in Taiwan, foreign-invested companies approved by the Ministry of Economic Affairs will receive grants equivalent to up to 50% of total R&D expenditure. To boost industry growth, innovation and development, the Taiwan Industrial Development Bureau also provides grants of up to 50% of capital expenditure to enterprises eligible for the Innovation Platform Program. Taiwan Industrial.

Financial incentives. Businesses that intend to purchase automated machinery or equipment or energy-saving equipment can apply to the Taiwan Bureau of Energy for low-interest loans of up to NTD 400 million (14.3 million) in total, and up to NT $ 1 billion for the purchase of pollution prevention and control equipment. These low interest loans can cover up to 80% of the purchase cost.

Incentives to attract foreign professionals. Foreigners who intend to do professional work in Taiwan can apply to Immigration Department for a four-in-one employment card including work permit, resident visa, foreigner’s residence permit and a return permit. The duration of the card is one to three years. Foreign special professionals who have been authorized to reside in Taiwan for the first time or who have obtained a Gold card can enjoy tax deduction benefits within three years from the tax year in which this person has fulfilled the conditions for the first time.

Lu Jialin, Lawyer, Tel- + 886 2 2763 8000 ext.  2461, E-mail-jialinlu@leeandli.com
Lu Jialin
Lawyer
Phone. : +886 2 2763 8000 ext. 2461
Email: [email protected]

Incentives provided by local government. In addition to the incentives offered by the central government, there are also various grants provided by the local authorities. For example, to accelerate industrial development, encourage innovation and attract investment, the Taipei City Government provides innovation grants that support activities such as entrepreneurship, R&D, branding , innovation, the incubation of startups, and also provides investment grants to cover costs such as rent, salaries, interest and vocational training. Other cities like Taoyuan, Taichung, Tainan and Kaohsiung also offer various grants to attract foreign investment.

Subsidiary or branch?

There are two possibilities for a foreign investor to start his activity in Taiwan: the creation of a subsidiary or a branch. To establish a subsidiary, the following steps must be followed: reservation of the name of the Chinese company; the approval of foreign investments (FIA) by the Investment Commission; verification of the invested capital returned; incorporation; business registration; and registration of exports and imports.

It takes about eight weeks to set up an affiliate without registering a business requiring a special permit. Since the establishment of a branch does not require AIF from the Investment Commission, it takes about six weeks to set up a branch without registering a business requiring a special permit (excluding the time limit for opening a local bank account), provided that no PRC or Hong Kong element is involved in the foreign entity.

Foreign investors can choose between a subsidiary and a branch, depending on their business needs. The main differences in Taiwanese law include:

Independent legal person. A subsidiary is an independent legal entity and, in general, the liability of its foreign parent company as a shareholder is limited to its contribution of capital to the subsidiary. A branch is not an independent legal entity and the responsibility of the branch will be extended to its headquarters abroad.

. Withholding tax on dividends. As there is not yet a tax treaty between South Korea and Taiwan, when remitting dividends from a subsidiary to its foreign parent company, the dividends will be subject to withholding tax at the rate of 21%. . On the other hand, the remittance of the profits generated by the branch to its foreign headquarters would not be subject to any withholding tax.

. Tax on retained earnings. A subsidiary would be subject to a tax on retained earnings at the rate of 5% on the net income not distributed to shareholders before the end of the following year. The tax on retained earnings is not applicable to a branch.

Taiwanese law prohibits a foreign company from “doing business in Taiwan” before establishing a local presence (ie a branch or subsidiary). Under Taiwan’s Company Law, “doing business in Taiwan” refers to regular or substantial marketing, promotional campaigns, or any activity that can generate profit.

According to a decision issued by the Ministry of Economic Affairs, activities carried out by a company, such as signing an agreement, submitting bids, providing an estimate and awarding contracts, cannot be considered as commercial activities because these activities do not lead directly to the generation of profits. . So, if an offshore entity establishes a representative office that only functions as a selling or buying agent for international companies without making a profit locally, it may consider setting up a representative office instead of a branch and a subsidiary at the initial stage.

Conclusion

Recently, the Taiwanese government has actively created a more friendly environment for foreign investment. The environment, legislation and incentives continue to make Taiwan an attractive destination for foreign investors.

Since South Korea and Taiwan are important trading partners, under the global value chain trend, as interactions and relationships come closer and deeper, we anticipate more investment opportunities from South Korea.


Robin Chang is a partner at Lee and Li. You can contact him at +886 2 2763 8000 ext. 2208 and [email protected]

Matt Lai is an associate partner at Lee and Li. You can contact him at +886 2 2763 8000 ext. 2113 and [email protected]

Lu Jialin is a lawyer with Lee and Li. You can contact him at +886 2 2763 8000 ext. 2461 and [email protected]

Lee and Li

Lee and Li

8 / F, n ° 555, Sec. 4, Zhongxiao E. Rd.

Taipei 11072, Taiwan

Contact details:

Phone. : + 886-2-2763-8000

Email: [email protected]

www.leeandli.com/FR

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