By Hung Ou Yang
A foreign entity means an entity incorporated and registered according to foreign laws other than Taiwanese law. Any foreign entity may not conduct any business operation in Taiwan unless it has been recognized under Taiwanese laws.
That is to say, a foreign entity may start its business in Taiwan through the recognition process and then set up its affiliate or subsidiary in Taiwan. In addition, a foreign entity may also set up a representative office instead of a subsidiary for legal acts in Taiwan when the scale of operation in Taiwan is not huge.
To establish a representative office in Taiwan, a foreign entity shall file an application for the purpose of registration with the Ministry of Economic Affairs, pursuant to Article 386 of the Company Code. With a representative office in Taiwan, however, a foreign entity’s capacity is very limited. It is not deemed as a legal entity and may not conduct any business operation in Taiwan. Although the Ministry of Economic Affairs allows a representative office to do specific legal acts like negotiation, signing of contract, bidding, issuing quoatation and purchase order, some Taiwanese courts have been very strict with regard to the representative office. When the representative person in Taiwan assisted the foreign entity to sign a huge amount of transnational contracts with many employees substantially hired by the representative office, the court held that the representative person was conducting business operation in violation of Article 19 of the Company Code. The court stated that the representative person will be subject to penalty even though all the transnational contracts in relation to the Taiwanese people were signed by the foreign company overseas. In addition, in the absence of recognition under Taiwanese laws, a foreign entity with a representative office in Taiwan shall also be responsible for business tax and penalties, and be responsible jointly and severally with its representative person for any business acts in Taiwan, if it engages in business operation in Taiwan.
Moreover, for the purpose of conducting business operation in Taiwan, a foreign entity shall apply for recognition and then incorporate an affiliate or a subsidiary in Taiwan, with the Ministry of Economic Affairs, pursuant to Article 371 of the Company Code. A legally incorporated affiliate or a subsidiary of a foreign entity in Taiwan has the same legal capacity and obligation as any Taiwanese entity of the same kind, within the limits of relevant laws and regulations. In this regard, a foreign entity’s affiliate and subsidiary shall operate its business in compliance with Taiwanese labor laws, tax laws, and National Health Insurance Act, etc. Because using the representative office for business acts in Taiwan may lead to some potential risks, our firm highly suggests our clients to consider setting up an affiliate or a subsidiary other than a representative office in Taiwan for the purpose of conducting business operation.
ABOUT THE AUTHOR: Hung Ou Yang
Hung Ou Yang, Esq., Managing Attorney at Brain Trust International Law Firm, specializes in handling transnational legal disputes, business and white collar crime, business litigation, and the negotiation and drafting of international agreements. Hung Ou Yang has successfully resolved many high-profile civil, criminal, and transnational disputes, including a complaint concerning pesticide-contaminated land leased by RT-Mart, anti-dumping investigation in connection with CSC’s carbon steel plate, and transnational property litigation concerning an internationally-renowned scholar.
Copyright Brain Trust International Law Firm
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.
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