Company Act: Revised Provisions on Control of Companies in Company Act

[2018/12/06]

The most recent amendments to Taiwan’s Company Act took effect on 1 November 2018. The amendments include the repeal of the provisions imposing a system of “recognition” for foreign companies. This change means that foreign companies that have not obtained recognition from the administrative authorities in Taiwan, and have not registered a branch office in Taiwan, now enjoy legal capacity in Taiwan in the same way as those that have done so.

Under the old Act, a foreign company that had not obtained recognition from the Ministry of Economic Affairs did not have the legal capacity to enjoy rights or assume obligations in Taiwan, and thus could not be treated as a legal entity. However, in practice this system gave rise to many problems, which repeatedly led to government agencies issuing written interpretations of the law that applied the principle of reciprocity to determine various questions, such as whether or not an unrecognized foreign company was able to acquire land rights, register a chattel mortgage, or acquire trademark rights in Taiwan. These interpretations have generally sought to sidestep the issue of the foreign company’s lack of legal capacity by holding that if the home country of a foreign company upholds the equivalent rights of Taiwanese companies, then an unrecognized foreign company is able, exceptionally, to acquire such rights or receive such protection in Taiwan. However, this approach is not only circuitous, but has been a hindrance to Taiwan’s efforts to align itself with international practice in foreign trade relations.

The most recent amendments to the Company Act actively seek to relax restrictions on foreign investment in Taiwan by abolishing the recognition system for foreign companies. Henceforth, foreign companies automatically enjoy legal capacity in Taiwan; this also simplifies the administrative procedures and documentation required for a foreign company to set up a branch office in Taiwan, as the company no longer needs to first obtain recognition from the MOEA, but can instead directly proceed to register the establishment of a branch office.

However, it should be noted that although foreign companies can now automatically enjoy rights and assume obligations in Taiwan, if a foreign company wishes to engage in business activities in Taiwan, it must still first complete the procedures for establishing a place of business in Taiwan. A foreign company that conducts business in Taiwan without having first set up a local branch office or subsidiary may be subject to both civil and criminal penalties.