BusinessOffshoreTaiwanSubsidiary Vs Branch Office: Which Entity Is Most Suitable For A Foreign Entrepreneur

September 8, 2021by Tetra Consultants0
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As a foreign investor and business owner, it is imperative for you to understand which business structure you need to register company in Taiwan. In this article, we will discuss which entity- subsidiary vs branch office is more suitable for your business and also provide a step-by-step guide to setting up company in Taiwan.

For starting business in Taiwan as a foreigner, the first step you must take is to decide which business structure is most suited to your business. Either you can incorporate a subsidiary for your parent company which could be done by incorporating a Limited Liability Company in Taiwan or you can open a Branch Office.

In order to understand both forms of business entities, we compare the two using the following factors:

subsidiary-vs-branch-office-comparison

Definition of Subsidiary vs Branch Office:

Subsidiary: 

  • Incorporated as per the Company Act, subsidiaries are considered to be separate legal entities.
  • There are different forms of subsidiaries that foreign investors can choose to set up including:
    • Unlimited company
    • Unlimited company with limited liability shareholders
    • Limited company
    • Company limited by shares
  • Subsidiaries are suited for any local or foreign company wishing to expand operations in Taiwan.
  • Subsidiaries can be listed on the stock market and are provided with various tax benefits.

Branch Office:

  • Incorporated as per the Company Act, Branch offices can run their business independently but are dependent on the parent company.
  • Branch offices are suited for foreign companies that wish to expand operations in Taiwan.
  • A branch office cannot be listed on the stock market and does not receive tax benefits.

Incorporation Process of Subsidiary vs Branch Office:

Subsidiary: 

  • To register a subsidiary in Taiwan, you must meet the following requirements:
    • At least one corporate shareholder or two individual shareholders
    • At least three directors
    • At least one supervisor
    • Registered Office Address
  • You must also check for the availability of your preferred company name and register for it. There is no requirement for the business to have the same name as the foreign company.

Branch Office:

  • To register a subsidiary in Taiwan, you must meet the following requirements:
    • No minimum number of shareholders
    • At least one director
    • Registered Office Address
  • You must translate your foreign business name into the Chinese language and register the same. This name should also showcase the country of the parent company.

Tax Rate of Subsidiary vs Branch Office:

Subsidiary:

  • The government levies a 20% Corporate Income Tax on subsidiaries.
  • The government also charges a 21% Withholding Tax on dividends of subsidiaries.
  • Moreover, the undistributed profits of the business are also subjected to a 5% tax. 
  • As per the Taiwanese Act, this type of business may be provided with additional tax benefits and relief under the Statute for Industrial Innovation.

Branch Office:

  • The government levies a 20% Corporate Income Tax on Branch offices.
  • However, unlike subsidiaries, the dividends under this form of business are not subjected to withholding tax or tax on undistributed profits. Therefore, if one of the main objectives of the business is to repatriate profits to the home country, you should set up this type of business.

Benefits of Subsidiary vs Branch Office:

Subsidiary: 

  • For this type of business, the foreign investors have limited liability as this business entity is considered to be a separate legal entity. Therefore, shareholders are only liable to the company till the extent of their paid-up capital.
  • Foreign investors can have complete ownership of the business if the business is not on the Taiwanese government’s Negative List for Overseas Chinese and Foreign Nationals. You are required to apply for foreign investment approval with the Investment Commission of the Ministry of Economic Affairs (MOEAIC)

Branch Office:

  • For this type of business, the parent company will be held completely liable for any debts of the Taiwanese Branch Office. This is because Branch Offices are not considered to be separate legal entities.
  • You will not be required to submit any additional application to the MOEAIC. However, you will be required to complete Taiwanese business registration with the Central Region Office of the Ministry of Economic Affairs.

Best Use of Subsidiary vs Branch Office:

Subsidiary: 

  • You should set up a subsidiary if you wish to invest in Taiwan. This is because of the flexibility and fewer requirements set by the governmental authority. Moreover, if a Branch Office were to be conducting such activities, its dividends will be subjected to withholding tax.

Branch Office:

  • You should set up a Branch Office if you wish to regulate in industries such as financial services.
  • You should also set up a Branch Office if you wish to repatriate profits earned by the business back to the home country. This is because of the various tax benefits received by this form of business.

 

Steps to set up company in Taiwan

Now that we have discussed the various factors you need to keep in mind when selecting a suitable business structure for your company, we will explain the steps you need to undertake to register company in Taiwan.

steps-to-setup-company

Step 1: Choose a suitable business entity

  • There are multiple forms of business structures available to be set up in Taiwan. You must choose a business structure that is the best suited for your business.

Step 2: Reserve your preferred company name

  • You must reserve the company name with the Department of Commerce of the Ministry of Economic Affairs (MOEA).
  • Your preferred company name depends on the business entity of your choosing. 

Step 3: Apply for Foreign Investment approval (only for subsidiary)

  • You are required to apply for foreign investment approval with the Investment Commission of the Ministry of Economic Affairs (MOEAIC) if you wish to incorporate a subsidiary.

Step 4: Open a corporate bank account:

Step 5: Apply for Investment Capital Examination

Step 6: Register your business:

  • You must prepare the required incorporation documents including the Article of Association, Personal information of the various stakeholders of the company, and more.
  • You must then submit them to the Taiwan Department of Commerce to complete the registration process.
  • Once the documents are submitted you will receive a Certificate of Incorporation, Memorandum and Articles of Association, and more.

Step 7: Register for tax

  • You will then be required to register for tax with the State Tax Bureau.

Step 8: Compliant with local laws

  • Once the registration process is completed and the business is operational, you must ensure that your business remains compliant with the government regulations.
  • In order to remain compliant, you must meet the accounting and tax obligations of your business, which include obtaining any required licenses, annual tax return filing, and timely payments of taxes.

Looking to set up a Subsidiary or Branch Office?

  • Thus, the above are the steps to incorporate a firm. We at Tetra Consultants understand that this is a difficult process and would therefore like to offer you our services. Our service package includes planning and strategizing with our international clients to select the most suitable business entity for their business, assisting them through the incorporation process which can be a hassle if you do not know the steps, and ensuring that you are compliant with the government regulations.
  • Contact us now to find out more about the comprehensive range of services we offer for Taiwan business registration, and our team of experts will revert within the next 24 hours.

Tetra Consultants

Tetra Consultants is the consulting firm that works as your advisor and trusted partner in your business expansion. We tell our clients what they need to know, instead of what they want to hear. Most importantly, we are known for being a one-stop solution for our valued clients. Contact us now at enquiry@tetraconsultants.com for a non-obligatory free consultation. Our team of experts will be in touch with you within the next 24 hours.

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