Branch Office or Subsidiary?

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What’s the legal difference between a branch office and a subsidiary when establishing a commercial presence abroad?

 

A branch office is not considered a distinct legal entity, whereas a subsidiary is regarded as an independent Taiwanese company. From a practical point of view, a branch is more of an extension of the parent company. It cannot act by itself and has no board of directors. On the other hand, a subsidiary is owned by the parent company but can act by itself and has its own board of directors. A subsidiary is required to hold shareholders’ meetings and comply with other corporate formalities.

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The advantages of setting up a subsidiary

Because the subsidiary and the parent company are distinct legal entities, the parent company is not exposed to any liabilities of its subsidiary. The liability of the Taiwanese subsidiary is limited to its own assets. By contrast, a foreign investor is always liable for the activities of its Taiwan branch. This means the execution of the branch’s liabilities can be enforced at the expense of the foreign investor’s assets, even if these are located abroad.

 

Subsidiary tax advantages, such as:

 Subsidiaries can enjoy benefits given under the double tax treaties (please see the following link for the treaty list).

 https://www.songjer.com/withholdingtax  The branch office cannot apply for the tax treaty since it is not a legal entity nor a tax resident of Taiwan.

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The advantages of setting up a branch office

1. No minimum assigned capital is required for setting up a branch office

2. Taiwanese corporate law does not impose requirements regarding the establishment of a board of directors, the distribution of profits or the organization of shareholders’ meetings

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Branch office tax advantages, such as:

1. No profit remittance tax on branch profits.

2. Losses made by the branch may be offset immediately against the earnings of the head office

  

(1) Can a foreign national or an international company own 100% shares of the Taiwanese company?

Yes, unlike other countries, such as Thailand and the Philippines, where a foreign national or an international company cannot own 100% shares of a company, the Taiwanese government allows a foreign national/company to own 100% shares of a Taiwanese company. 

  

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(2) Can a foreign national be a director or a supervisor of a company? Can the foreign national reside outside Taiwan? 

 Yes, the director or the supervisor can be a foreign national residing outside Taiwan.       

 

(3) Is it necessary to own shares to become the director of a limited company?  The director or the supervisor of a company limited by Shares? 

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In the Limited company:

      1. Generally yes. The director of a limited company must hold shares to become a director of a limited company. 

      2. However, when a company acts as a shareholder of another company, its authorized representative can be elected as a director. The authorized representative is not required to be a shareholder. 

 

In the Company limited by shares:

      No, in Article 192 of the Company Act, the board of directors of a company shall have at least three directors who shall be elected by the shareholders' meeting from among the persons with disposing capacity.  There are no set rules regarding a supervisor must hold shares.  It not necessary to own shares to be a director or a supervisor if it is not a public company.  

 

(4) What is the minimum capital for limited companies and companies limited by shares in Taiwan?

 

      There is no minimum capital requirement. However, to sustain the operation of the newly set up company, we would suggest the minimum capital should be able to support the business activities for at least three to six months without other funding.  If the capital is obviously too low to maintain the operation,  the authority might ask the company to submit a 3-5 years financial plan to show that the company can sustain 3-5 years with low capital.  

     Furthermore, to be eligible for a work permit to hire yourself or the other foreign nationals as the manager of the business, there are minimum capital requirements for NTD$500,000. 

 

(5) What are the "permitted activities" for a Representative Office?

 

       The permitted activities are “signing contracts, bidding, purchasing, quoting and bargaining.” A representative office that provides support operations to their foreign head offices, such as marketing support, sales support, and support for technical issues raised by customers, which are beyond the scope permitted by the government, may face tax and legal compliance problems. Please see the article "The Business Scopes of the Representative Office in Taiwan."

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(6) As a foreigner, can I apply for a closely held company limited by shares?

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      Effectively on July 1, 2015, the Taiwanese government amended a new company structure called a "closely held company limited by shares" (CHCLBS), which allows the investors to obtain the equity of a CHCLBS by technical know-how, service, or goodwill.  The maximum amount of the capital provided by technical know-how, service, or goodwill cannot be over 50% of total equity. 

    A foreign investor can apply for a CHCLBS or be the shareholder of a CHCLBS. However, the contribution of technical know-how, service or goodwill as the capital does not apply to foreign investors.  

There are tax issues for setting up a CHCLBS. Please see the article "Taxation of the Closely Held Company Limited by Shares. "