Questions on capitalization of foreigner owned local company

[jlick]

I’m very confused on the subject of capitalization and hoping someone can help stop my head spinning. I’m getting conflicting answers depending on who I ask, as is typical for Taiwan.

So there’s two basic types of businesses a foreign person may own: a “Limited Company” with TWD500k minimum capitalization or a “Company Limited By Shares” with TWD1m minimum capitalization. (These can take the form of a Branch, Subsidiary, Representative or Local company, but aside from some details they are the same.)

I’m having some trouble wrapping my head around the meaning of capitalization in Taiwan. Let’s say that I’m planning a business which would require startup expenses of around TWD2m and want to establish it as a Limited Company. Since the minimum capitalization is TWD500k, does this mean I need to form the company with a capitalization of TWD2.5m so that I’m still above TWD500k in the bank after startup expenses? If some of those startup costs involved equipment, does the value of the equipment count as capital still for the purposes of minimum capitalization? If some of those startup costs have been paid out of pocket before or after the company is formed should they be considered part of capitalization or as expenses? Are such out of pocket payments considered foreign investment which needs MOEA approval?

Basically I’ve been told that I can form the company with minimum capitalization now and then worry about paying startup costs later, and I’ve also been told that any money I spend on the business is considered foreign investment and needs to be MOEA approved and remittance of all that money made and then proven to MOEA. Or if more capital needs to be added later, additional MOEA approval is needed.

Next question is on the remittance requirements. The foreign remittance requirements are quite simple. All you have to do is wire the money in and show the receipt. It could come from anywhere as far as they are concerned. If the money is remitted as NTD then they need a DNA sample from anyone whoever touched that money, or at least substantial proof of where it came from (income tax receipts, etc.).

My problem here is that I already have quite a bit of money in a local bank account that I now want to use for the business. It was all remitted from the US previously for the purpose of living expenses. I only have one of the foreign exchange receipts, though my bank book shows that with the exception of the opening balance, all deposits were made in US$. I’ve been told that it probably won’t matter, and I’ve also been told that it’ll be a major problem to form a company using NTD this way. Anyone else formed a company with NTD instead of foreign remittance?

And finally, if I apply for foreign investment with MOEA, do I need to remit all the money at once or can the money be remitted say over four remittances space 1 month apart?

(I know that a lot of you have registered a company in your spouse’s name instead of your own to avoid these kinds of headaches. In this particular case this solution is not practical.)

Thanks! I’m almost more confused now than when I started this post.

[acearle]

[quote=“jlick”]I’m very confused on the subject of capitalization and hoping someone can help stop my head spinning. I’m getting conflicting answers depending on who I ask, as is typical for Taiwan.

So there’s two basic types of businesses a foreign person may own: a “Limited Company” with TWD500k minimum capitalization or a “Company Limited By Shares” with TWD1m minimum capitalization. (These can take the form of a Branch, Subsidiary, Representative or Local company, but aside from some details they are the same.)

I’m having some trouble wrapping my head around the meaning of capitalization in Taiwan. Let’s say that I’m planning a business which would require startup expenses of around TWD2m and want to establish it as a Limited Company. Since the minimum capitalization is TWD500k, does this mean I need to form the company with a capitalization of TWD2.5m so that I’m still above TWD500k in the bank after startup expenses? If some of those startup costs involved equipment, does the value of the equipment count as capital still for the purposes of minimum capitalization? If some of those startup costs have been paid out of pocket before or after the company is formed should they be considered part of capitalization or as expenses? Are such out of pocket payments considered foreign investment which needs MOEA approval?

Basically I’ve been told that I can form the company with minimum capitalization now and then worry about paying startup costs later, and I’ve also been told that any money I spend on the business is considered foreign investment and needs to be MOEA approved and remittance of all that money made and then proven to MOEA. Or if more capital needs to be added later, additional MOEA approval is needed.

Next question is on the remittance requirements. The foreign remittance requirements are quite simple. All you have to do is wire the money in and show the receipt. It could come from anywhere as far as they are concerned. If the money is remitted as NTD then they need a DNA sample from anyone whoever touched that money, or at least substantial proof of where it came from (income tax receipts, etc.).

My problem here is that I already have quite a bit of money in a local bank account that I now want to use for the business. It was all remitted from the US previously for the purpose of living expenses. I only have one of the foreign exchange receipts, though my bank book shows that with the exception of the opening balance, all deposits were made in US$. I’ve been told that it probably won’t matter, and I’ve also been told that it’ll be a major problem to form a company using NTD this way. Anyone else formed a company with NTD instead of foreign remittance?

And finally, if I apply for foreign investment with MOEA, do I need to remit all the money at once or can the money be remitted say over four remittances space 1 month apart?

(I know that a lot of you have registered a company in your spouse’s name instead of your own to avoid these kinds of headaches. In this particular case this solution is not practical.)

Thanks! I’m almost more confused now than when I started this post.[/quote]

Yep, the school is in my wife’s name, the photography business isn’t even registered because I don’t do business here.

I recall her borrowing 500K or 200K or something like that from her father for 3 days during the registration pricess, then we emptied the account and gave it back to him. Once you’ve got the registration, I don’t think anything else matters (but really am ignorant on the details as for me in my business, it makes zero sense to pursue a domestic market in Taiwan).

I’ve heard all sorts of rumors that even with high capitalization, foreigners aren’t allowed to (in one rumor) open certain types of businesses OR (in another rumor) to open ANY kind of business.

In fact, funny that you should mention it, but I just had a conversation with someone who had registered a Delaware Corp and opened a “branch” in Taiwan, said it was far, far easier and didn’t have the local shareholder requirements, can’t recall the type of business or the details, but that might be something to look into (err, maybe it isn’t Delaware, but there are a couple of states that will allow you to register a corp as a non-resident…should be able to find out with a quick Google search)…

[jlick]

[quote=“acearle”]Yep, the school is in my wife’s name, the photography business isn’t even registered because I don’t do business here.

I recall her borrowing 500K or 200K or something like that from her father for 3 days during the registration pricess, then we emptied the account and gave it back to him. Once you’ve got the registration, I don’t think anything else matters (but really am ignorant on the details as for me in my business, it makes zero sense to pursue a domestic market in Taiwan).[/quote]

Thanks for that info, but the rules for a business owned by a foreigner are much more stringent on the requirements. For foreigner owned business the MOEA Investment Council has a whole raft of additional paperwork and official documentation in order to do business that a local would not need to do.

@acearle

I’ve heard all sorts of rumors that even with high capitalization, foreigners aren’t allowed to (in one rumor) open certain types of businesses OR (in another rumor) to open ANY kind of business.

The former is true, the latter is not true (they just make it very painful). Here’s the list of prohibited and restricted types of businesses for foreign investment:

Negative List for Investment by Overseas Chinese and Foreign Nationals

[Mother_Theresa]

@jlick

Let’s say that I’m planning a business which would require startup expenses of around TWD2m and want to establish it as a Limited Company. Since the minimum capitalization is TWD500k, does this mean I need to form the company with a capitalization of TWD2.5m so that I’m still above TWD500k in the bank after startup expenses?

At the law firm where I used to work, I helped form several companies for foreigners and the required capital was only required during the initial startup process. Register the company name, file the necessary applications with the government, remit the required capital into and account, provide proof of the remittance to the MOEA, obtain foreign investment approval and you’re all set. According to our managing partner/founder of the firm, one can then take all the capital out the next day. Of course that’s totally contrary to the purpose of the requirement – to ensure that the company has capital to pay its liabilities (which is why the owners are immune from personal liability) – and completely contrary to US law. But I asked about this repeatedly and was assured it’s true. To be honest, I still don’t believe it. I still think he was pulling a sleazy, dishonest chabuduo tactic, but the government’s unlikely to check up on your capitalization in the future, so it’s probably safe to not worry about it after you’ve been approved.

If some of those startup costs involved equipment, does the value of the equipment count as capital still for the purposes of minimum capitalization?

No. I’m almost certain for FIA procedures, it must be cash in the bank, verified to the MOEA.

Basically I’ve been told that I can form the company with minimum capitalization now and then worry about paying startup costs later…

Based on my experiences described above, after forming the company and obtaining FIA, you can then spend the money as you wish on equipment, beer or KTV girls.

. . . and I’ve also been told that any money I spend on the business is considered foreign investment and needs to be MOEA approved and remittance of all that money made and then proven to MOEA. Or if more capital needs to be added later, additional MOEA approval is needed.

I don’t think so, but I’d check with an accountant or another lawyer.

Next question is on the remittance requirements. The foreign remittance requirements are quite simple. All you have to do is wire the money in and show the receipt. It could come from anywhere as far as they are concerned.

I believe that’s correct. Even borrowed funds should suffice, wrong as that would be conceptually.

My problem here is that I already have quite a bit of money in a local bank account that I now want to use for the business. It was all remitted from the US previously for the purpose of living expenses. I only have one of the foreign exchange receipts, though my bank book shows that with the exception of the opening balance, all deposits were made in US$. I’ve been told that it probably won’t matter, and I’ve also been told that it’ll be a major problem to form a company using NTD this way.

I’m in the former camp – won’t make any difference. But I can’t guarantee it. Again, in Taiwan lots of accountants form companies routinely and should be able to tell you (if they speak decent english and are halfway competent, both of which may be hard to find).

And finally, if I apply for foreign investment with MOEA, do I need to remit all the money at once or can the money be remitted say over four remittances space 1 month apart?

I don’t know why it would make a difference. It just needs to all be there at once eventually for verification.

NOTWITHSTANDING THE ABOVE, I don’t claim to be an expert on the subject and I won’t be offended at all if others give different (or the same) opinions or experiences.

[jlick]

Thanks for the response MT, but I still have some questions:

@Mother Theresa

At the law firm where I used to work, I helped form several companies for foreigners and the required capital was only required during the initial startup process. Register the company name, file the necessary applications with the government, remit the required capital into and account, provide proof of the remittance to the MOEA, obtain foreign investment approval and you’re all set. According to our managing partner/founder of the firm, one can then take all the capital out the next day.

My question was more on the lines of whether or not I can put more money into the business after the Foreign Investment is approved. My reading of the foreign investment rules say no, but I have also been advised to just do all the paperwork with the minimum capitalization and then you can adjust it later.

To make it less complicated, I was told to file for TWD500k foreign investment, remit that amount from abroad to avoid the stupid hoop jumping for investing from domestic funds, then cycle in other funds later to cover startup expenses. That’s the part that worries me.

No. I’m almost certain for FIA procedures, it must be cash in the bank, verified to the MOEA.

My question on whether equipment counts as capitalization referred to getting the foreign investment approved and then buying equipment. So for example say I set up with 500k, get it all approved and verified and then go out and buy 250k in equipment. Now I only have 250k in the bank, but I also have 250k in equipment (though with a five year depreciation that’s only ‘worth’ 200k after a year). Do I still have 500k in capitalization even though only part of it is $$? You’ve already said that companies just empty out the books the day after things are approved which makes that a moot point, but my understanding is that such a practice is illegal.

I’m in the former camp – won’t make any difference. But I can’t guarantee it. Again, in Taiwan lots of accountants form companies routinely and should be able to tell you (if they speak decent English and are halfway competent, both of which may be hard to find).

I’ve talked to two different accountants this week and got the different answers which is why I posted this. I’ve got an email into ML McLean asking for help too, so maybe they’ll help sort me out.

NOTWITHSTANDING THE ABOVE, I don’t claim to be an expert on the subject and I won’t be offended at all if others give different (or the same) opinions or experiences. Not valid in Wisconsin.

Sheesh, if you’re gonna put a lawyerly disclaimer on there, at least use the font size option to make it fine print.

[Mr_He]

putting money in for the registration and then removing every cent afterwards is very illegal here. If caught you are looking at doing serious time.

I would suggest you to take those questions to the forumosa Entreperneurship club this upcoming Sunday at noon. Look at the sticky at the top for setails.

[Jive_Turkey]

@Mother Theresa

Based on my experiences described above, after forming the company and obtaining FIA, you can then spend the money as you wish on equipment, beer or KTV girls.

Don’t worry. I’m sure nobody will tell Mrs. MT.

[ML_McLean]

The foreigner rules in Taiwan have gotten increasingly more convoluted. The business startup rules are hard to peg and as a result ML McLean won’t be handling these types of cases until things settle down.

If people are interested, we would recommend the following service providers:

1. Justin B. Lim
   Alliance Law Office
   +886 2-2597-4521 (ext 212)
   justin.lim@ailo.com.tw

2. Ann Hu CPA
   Universal Law CPA Group
   +886 2-2381-1022 Ext.11
   ulc@ms13.hinet.net

Good luck.

[acearle]

[quote=“Mr He”]putting money in for the registration and then removing every cent afterwards is very illegal here. If caught you are looking at doing serious time.

I would suggest you to take those questions to the forumosa Entreperneurship club this upcoming Sunday at noon. Look at the sticky at the top for setails.[/quote]

DOiing serious time for following the directions we were given by the government official during the registration process? Typical.

[Mother_Theresa]

@acearle

[quote=“Mr He”]putting money in for the registration and then removing every cent afterwards is very illegal here. If caught you are looking at doing serious time.

DOiing serious time for following the directions we were given by the government official during the registration process? Typical.[/quote]

Yea, I’ve requested further confirmation on that point from several attorneys at the law firm where I used to work and never did receive it; I’m still curious to know the facts.

You’re right that such practice should be illegal Mr. He and it is definitely illegal in the US. The main reason people form corporations is to do business while avoiding the risk of personal liability. If someone gets injured by the corp, they usually can’t recover compensation from the owners personally and can only recover from the corp, which is why laws exist that mandate a certain amount of capital in the company.

In the US one can sue a company and attempt to “pierce the corporate veil” if the company lacks sufficient capital, comingles its assets with the owners’ personal assets, fails to hold proper meetings, take minutes or perform other standard corporate formalities.

I can’t read Chinese, so I can only rely on what others tell me (or articles I read that may or may not be correct) about Taiwan law. I would love to be able to read the statutes, regulations, and court opinions personally, but I can’t. But I’ve been told repeatedly that Taiwan law only requires one to remit a certain amount of capital into a corporation in order to get initial approval and then one can remove it. That seems completely wrong and, as I said, I don’t know whether it’s really the law or just a sleazy, illegal tactic employed by those forming companies (and quite possibly confirmed by ignorant MOEA employees who should know better).

So, Mr. He, it’s not that I don’t believe you. You may well be correct. But I’d be curious to know the legal basis for your opinion. Do you know what law, regulation, ruling or whatever requires one to keep a certain amount of capital in a Taiwan company after formation?

[jlick]

@Mother Theresa

I can’t read Chinese, so I can only rely on what others tell me (or articles I read that may or may not be correct) about Taiwan law. I would love to be able to read the statutes, regulations, and court opinions personally, but I can’t.

Laws are almost always available in English on law.moj.gov.tw/ and Regulations are sometimes there, or sometimes you need to go to the competent authority’s web site. Their search function is a bit weak though.

Some of the laws and regulations relating to this topic:

Company Law
Rules Governing Certification of Capital upon Registration Applicaitons of Companies
Statute For Investment By Foreign Nationals
Regulations for Verification of Investment by Overseas Chinese and Foreign Nationals

[Mr_He]

No accountants in the Yangmei and Zhongli area are willing to do it anymore - IE lending you the money and then taking them back after the 3 days - and several warned us directly against the procedure.

MT, it is quite illegal here, see Jlick’s excellent links for futrher details. Article 9 of the company law states it rather clearly - however good news are that they won’t lock you up for more than 5 years, and the maximum amount of the fine is NT$2.5m. Perhaps a proprietorship is a better option?

Since when has information from the government been trustworthy?

[Mother_Theresa]

@jlick

Laws are almost always available in English on law.moj.gov.tw/ and Regulations are sometimes there. . .

Well, many laws are there. Many others are not. In my prior job I needed to look up Taiwan laws fairly frequently and some I could find on government websites, others I couldn’t. Also, one can never be certain about the translation and, with legal matters, precise wording is essential.

@Mr He

MT, it is quite illegal here, see Jlick’s excellent links for futrher details. Article 9 of the company law states it rather clearly. . .

You are absolutely correct:

where the share prices have been paid up by its shareholders but are subsequently refunded to its shareholders or withdrawn by such shareholders with the permission of the company after having completed the procedures for company incorporation, the responsible persons shall each be punished with imprisonment for a term of not more than five years, detention, or in lieu thereof or in addition thereto a fine in AN amount of not less than New Taiwan Dollar Five Hundred Thousand (NT$ 500,000). . .

I guess my boss was routinely giving stupid legal advice. What a surprise.

[Dottie]

@Mother Theresa

[quote=“Mr He”]MT, it is quite illegal here, see Jlick’s excellent links for futrher details. Article 9 of the company law states it rather clearly. . .

You are absolutely correct:

where the share prices have been paid up by its shareholders but are subsequently refunded to its shareholders or withdrawn by such shareholders with the permission of the company after having completed the procedures for company incorporation, the responsible persons shall each be punished with imprisonment for a term of not more than five years, detention, or in lieu thereof or in addition thereto a fine in AN amount of not less than New Taiwan Dollar Five Hundred Thousand (NT$ 500,000). . . [/quote]

It’s still not clear to me whether the capital can be used for legitimate company purposes (such as start-up costs as Jlick mentioned) or whether the half million/one million minimum has to be kept in the bank at all times.

[jlick]

@Dottie

It’s still not clear to me whether the capital can be used for legitimate company purposes (such as start-up costs as Jlick mentioned) or whether the half million/one million minimum has to be kept in the bank at all times.

Right. Article 9 only seems to cover “refunding to” or “withdrawl by” the shareholders. It’s not clear whether legitimate business expenses can draw down cash below minimum capitalization, and it also isn’t clear whether the value of capital equipment counts towards minimum capitalization. In US companies the closest concept seems to be Working Capital which refers to liquid assets needed to run the business, and is typically kept at a level to cover several months of expenses. In that case, illiquid assets like equipment wouldn’t count. But there are enough differences to make me confused on these points.

[Feiren]

One quick note of caution about the MOJ site. While this is a very useful site, the English translations are often out of date since important laws like the Company seem to get amended almost every year. The translations alas are rarely updated. And in addition to the very real possibility of mistranslation, one needs to understand how the laws are applied and interpreted in practice by the government agencies that administer them. So you can read the law in English and have a good chance of misunderstanding what it actually means even if the translation is correct.

Still, it’s certainly better than NOT having the translations at all.

[Mr_He]

Well, according to what I hear, you can use the money there for running the company - and buying what you need to start, be it equipment etc. The money are not meant to sit in a bank account for the rest of the life of the company, after all.

[mingshah]

@Mr He

Well, according to what I hear, you can use the money there for running the company - and buying what you need to start, be it equipment etc. The money are not meant to sit in a bank account for the rest of the life of the company, after all.

That would be quite similiar to the rules in Austria. You need that money for startup. That’s your capital and it is put into the balance of the company. But even when you buy things like furniture, computer or what ever this “money” stays still in the company as the value of this stuff will be listed in the balance of the company. It just can’t disaper (for example withdrawal for private use).
The reason is because for any kind of capital based company you need this value for the safty as you don’t have the personal liabilaty (limited to the capital). But it doesn’t matter that the capital is not money. It is just important that there is the value in the company. It is just not possible to get the money out of the company like with an personal withdrawing.
But again, that’s just like it is handled in Europe and we all know that here it is not always working how it would make sense.

[jlick]

[quote=“ML McLean”]Ann Hu CPA
Universal Law CPA Group
+886 2-2381-1022 Ext.11
ulc@ms13.hinet.net[/quote]

This turns out to have been the best advice. Ann has been very helpful and good about explaining all these issues. If you’re thinking of starting a business, go with someone experienced in setting up businesses for foreigners.

It is fine to use funds from your minimum capitalization for startup expenses, but they expect you to have some amount in accounts for ongoing business expenses, so you can’t completely drain it out. You can’t take any of the minimum capitalization and distribute it to shareholders, though it seems to be a common but risky practice.

As far as using funds already present in Taiwan, there is no way to do this unless you can prove you legally earned it in Taiwan (i.e. with tax receipts to show for it). If it was wired in without investment approval it cannot be used for investment, no way, no how. An ROC citizen can invest any amount of local funds in a company without any proof of where it came from though. If you want to invest local funds as yourself and can’t prove any legal income in Taiwan, the only option is to wire it out and then wire it back in. Yes, really. (And you’ll lose more than 2% on currency exchange and fees in the process. Whee.) If you are thinking of starting a company in Taiwan, DO NOT wire in any money until you have foreign investment approval. You only need to go with the minimum capitalization to form the company though.

[Ironman]

[quote=“jlick”]
The former is true, the latter is not true (they just make it very painful). Here’s the list of prohibited and restricted types of businesses for foreign investment:

Negative List for Investment by Overseas Chinese and Foreign Nationals[/quote]

If you’re not making swords or military aircraft it seems you have a reasonable chance.