Most Frequently Asked Questions regarding Name Borrowing in Taiwan

Insights 2024/11/06
分享到

By　Hung Ou Yang　and Paul Ma　

In Taiwan, name borrowing is a prevalent practice where property ownership is registered under another person's name, allowing the actual owner to manage and use the property. However, name borrowing always lead to legal risks or even disputes in the legal practice. Here are common questions about name borrowing, including its legal implications, risks, and measures for protecting one's rights.

Q: What is "Name Borrowing"?

A: In Taiwan's legal practice. Name borrowing is a very common arrangement amongst individuals or even businesses. The arrangement refers to the situation where the actual owner of a property (the borrower) uses another person's name (the lender) to register ownership of such property - mostly real estate but sometimes shares, vehicles or any other kinds of valuable assets. In this case, the borrower still uses, manages, and disposes of the property, but legally the property is recorded under the lender's name.

Q: Why do some people choose name borrowing?

A: People choose name borrowing for several reasons:

Tax avoidance: This is the most common reason Taiwanese people choose to borrow someone's name instead of owning the property directly. If an individual owns multiple properties, they may face high land or house taxes. Borrowing a name can reduce tax burdens by transferring some properties to another's name.
Circumventing qualification restrictions: Certain properties have specific ownership qualifications. For example, some lands are only permitted to be owned by farmers or aboriginals, while the they can generate higher economical effect if developed. Individuals who do not meet these requirements may use the name of a qualified person, i.e., farmers or aboriginals, to register the property.
Avoiding compulsory enforcement: If a debtor has outstanding debts, creditors can seize their property. Name borrowing can help avoid this situation.
Concealing assets: Even without specific legal motives, some may want to hide the existence of their assets, such as public figures wishing to protect their privacy by borrowing other's name.

Q: What is the court’s legal interpretation regarding name borrowing?

A: According to the Supreme Court's multiple judgements, such as 94 Taiwan Supreme Court TaiShangZi 953 (2005) and 98 Taiwan Supreme Court TaiShangZi 76 (2009), name borrowing is interpreted as an agreement where one party registers their property under another's name while still managing, using, and disposing of it. In nature, name borrowing should be treated similarly to a mandate contract. If the content does not violate laws or public order, it has legal effect and can be analogously applied to the relevant provisions of the Civil Code regarding mandates.

Q: Is name borrowing legal?

A: As aforementioned, name borrowing itself is legal, provided it does not violate mandatory laws, prohibitions, or public order. According to the Supreme Court's rulings, as long as the content of the name borrowing is lawful, the agreement has legal effect, thus can be enforceable under Taiwan's laws.

Q: What risks are associated with name borrowing?

A: Although the name borrowing is legal in general cases, it can lead to complexity and legal risks. The common risks involved are as below:

The lender selling the property: Since the ownership is registered in the lender's name, the borrower may not notice if the lender sells, transfers, and/or disposes of the property without the borrower’s permission.
The lender refusing to return the property: After the termination of the name borrowing relationship, the lender might probably refuse to return the property. The borrowers, under such circumstance, would have no choice but to take legal actions to assert their rights.
Inheritance disputes: If either the lender or borrower dies, heirs may be unaware of the name borrowing, leading to disputes over inheritance and property distribution. Furthermore, the tax bureau would be extremely picky when reviewing the existence of name borrowing, which can unexpectedly lead to tax burden upon heirs.
Compulsory enforcement of the property: If the lender has debts, creditors can apply for compulsory enforcement against properties registered in the lender's name, and the borrower cannot directly oppose this.

Q: How is the burden of proof allocated in name borrowing cases?

A: The party claiming the existence of a name borrowing relationship must bear the burden of proof to establish that the name borrowing contract has been validly formed. If that party fails to provide sufficient evidence, even if the other party cannot substantiate their defenses, the claim should still be rejected by the court. Name borrowing amongst family members or friends are usually formed verbally, leading to the disadvantage when claimants argue the existence of name borrowing. The claimant might therefore rely on other evidences to establish the fact, such as the actual use of the property, payment of related expenses, to convince the court.

Q: Is it valid for the lender to transfer the property to a third party?

A: According to the Supreme Court's legal interpretations in 2017, if the lender transfers the property to a third party, it is considered a legitimate act of disposition. The name borrowing contract is primarily a debt contract between the borrower and lender, and the lender, as the registered owner, has the authority to dispose of the property.

Q: How can the borrower protect their rights?

A: Considering the legal risks, burden of proof and the inconsistency between the actual owner and registered name, it is quite essential for both parties, particularly the borrower, to protect its right under name borrowing. The steps below can be adopted:

Establish a written name borrowing contract: Ensure that the contract clearly outlines terms, including the reason for the registration, the property scope, return timelines, and other obligations, to avoid future disputes.
Obtain notarization or lawyer's witness: This enhances the legal validity and authenticity of the contract, preventing future challenges. However, it should be noted that more and more notaries and lawyers declined to provide such services due to potential risks involved in name borrowing.
Save evidences: Since the borrowers bear the burden of proof when claiming the existence of name borrowing, the fact of their actual use of the property, payment of related expenses etc., would be crucial, especially in the absence of written contract.
File a registration of caution: By setting a registration of caution on the real property, the borrower can restrict the lender from unilaterally transferring or mortgaging the property without the borrower's consent, effectively safeguarding their rights.

AUTHOR: Hung Ou Yang

Managing Partner
Taipei
+886-2-2707-9976
[email protected]

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.