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Taiwan RISK & COMPLIANCE REPORT DATE: March 2018

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Taiwan RISK & COMPLIANCE REPORT DATE: March 2018 Taiwan RISK & COMPLIANCE REPORT DATE: March 2018 KNOWYOURCOUNTRY.COM Executive Summary - Taiwan Sanctions: None FAFT list of AML No Deficient Countries Offshore Financial Centre Higher Risk Areas: Weakness in Government Legislation to combat Money Laundering Not on EU White list equivalent jurisdictions US Dept of State Money Laundering assessment Medium Risk Areas: Compliance with FATF 40 + 9 Recommendations Failed States Index (Political Issues)(Average Score) Major Investment Areas: Agriculture - products: rice, vegetables, fruit, tea, flowers; pigs, poultry; fish Industries: electronics, communications and information technology products, petroleum refining, armaments, chemicals, textiles, iron and steel, machinery, cement, food processing, vehicles, consumer products, pharmaceuticals Exports - commodities: electronics, flat panels, machinery; metals; textiles, plastics, chemicals; optical, photographic, measuring, and medical instruments Exports - partners: China 27.1%, Hong Kong 13.2%, US 10.3%, Japan 6.4%, Singapore 4.4% (2012 est.) Imports - commodities: electronics, machinery, crude petroleum, precision instruments, organic chemicals, metals Imports - partners: Japan 17.6%, China 16.1%, US 9.5% (2012 est.) 1 Investment Restrictions: Taiwan maintains a "negative" list of industries closed to foreign investment for security and environmental protection reasons, including public utilities, power distribution, natural gas, postal service, telecommunications, mass media firms, and air and sea transportation. These account for less than one percent of manufacturing categories and less than five percent of service industries. Railway transport, freight transport by small trucks, pesticide manufacture, real estate development, brokerage, leasing, and trading are all open to foreign investment. While most foreign ownership limits have been removed, the foreign ownership limit on wireless and fixed line telecommunications firms is 60%, including a direct foreign investment limit of 49%. State-owned Chunghwa Telecom Co., which controls 97% of the fixed line telecom market, maintains a 55% limit on indirect foreign investment and a 49% limit on direct foreign investment. There is a 20% limit on foreign direct investment in cable television broadcast services, but foreign ownership of up to 60% is allowed through indirect investment via a Taiwan entity. Foreign investors control one of the five largest cable TV networks in Taiwan. In addition, there is a foreign ownership limit of 49.99% for satellite television broadcasting services and piped distribution of natural gas, and a 49% limit for high-speed railways. The foreign ownership cap on ground-handling firms, air- catering companies, aviation transportation businesses (airlines), and general aviation business (commercial helicopters and business jet planes) is less than 50%, with a separate limit of 25% for any single foreign investor. For Taiwan-flagged merchant ships, foreign investment is limited to 50% for Taiwan shipping companies operating international routes. Taiwan has been gradually relaxing restrictions on investments from the People’s Republic of China (PRC, or “mainland” China) as cross-Strait relations have improved. Since 2009, Taiwan has eased restrictions on investments from mainland China in three stages. Most of Taiwan's manufacturing industry and half of its services and public construction sectors are now open to mainland investment. However, due to restrictions limiting percentage of ownership, and restrictions on mainland investors' participation in Taiwan business operations, investment liberalization to date has not drawn significant interest from mainland investors. Taiwan is planning the fourth stage of investment liberalization, expected in early 2013, and progressing towards the goal of normalization of cross-Strait investment ties through a negative list to be developed in the near future. In 2009, Taiwan launched the first phase of opening up to Chinese investment. Under the new policy, “Regulations Governing Permission for People from the Mainland Area to Invest in Taiwan,” Taiwan has opened 64 sectors in manufacturing, 117 in services, and 11 in public construction. In order to own shares in a Taiwan company or establish a presence in Taiwan, mainland entities and foreign companies in which mainland entities have over 30% shares must first obtain permission from the interagency Investment Commission (IC) housed in the Ministry of Economic Affairs (MOEA). The Taiwan authorities may also prohibit or restrict investment from mainland Chinese enterprises that: (1) have military shareholders or have a military purpose; (2) would create a monopoly; (3)would threaten national security, or; (4) would negatively impact domestic economic development. 2 In the second round of investment liberalization, Taiwan announced in 2011 an additional 42 categories, including 25 sectors in manufacturing, eight in services and nine in public infrastructure, which would be open for investment from mainland China. The manufacturing categories include medical devices, machinery for making metal products, and petrochemicals. In March 2012, Taiwan announced a third tranche of relaxed restrictions on mainland investments. As a result, Taiwan has opened more than two-thirds of Taiwan's aggregate industrial categories, excluding agriculture, to PRC investors, with manufacturing topping the list, in which 97 percent of the sector is now opened to Chinese capital. In the public construction and service sectors, investment opened to PRC investors expanded to 51 percent. Mainland Chinese investors, however, continue to be prohibited from serving as a Taiwan company's CEO, although a mainland Chinese board member may retain management control rights of a Taiwan company. Reports indicate that in the fourth round of liberalization of Chinese investment in Taiwan, MOEA plans to remove prohibitions on Chinese ownership of controlling stakes in seven key industries, including the light emitting diode (LED), integrated circuit assemblies, semiconductor manufacturing equipment, semiconductor packaging and testing, metal cutting tool machines, and solar batteries. MOEA proposes to impose a shareholding ceiling of 50 percent for Chinese investment in companies in these industries, and retain the mechanism for screening investment applications on a case-by-case basis. The MOEA proposal is subject to the Executive Yuan's (EY) final approval. 3 Contents Section 1 - Background ....................................................................................................................... 5 Section 2 - Anti – Money Laundering / Terrorist Financing ............................................................ 6 FATF status ................................................................................................................................................ 6 Compliance with FATF Recommendations ....................................................................................... 6 Key Findings from latest Mutual Evaluation Report (2007): ............................................................ 6 US Department of State Money Laundering assessment (INCSR) ................................................ 7 Reports .................................................................................................................................................... 11 International Sanctions ........................................................................................................................ 14 Bribery & Corruption ............................................................................................................................. 15 Section 3 - Economy ........................................................................................................................ 20 Banking ................................................................................................................................................... 21 Stock Exchange .................................................................................................................................... 21 Section 4 - Investment Climate ....................................................................................................... 23 Section 5 - Government ................................................................................................................... 38 Section 6 - Tax ................................................................................................................................... 40 Methodology and Sources ................................................................................................................ 42 4 Section 1 - Background In 1895, military defeat forced China's Qing Dynasty to cede Taiwan to Japan. Taiwan came under Chinese Nationalist control after World War II. Following the communist victory on the mainland in 1949, 2 million Nationalists fled to Taiwan and established a government using the 1947 constitution drawn up for all of China. Beginning in the 1950s, the ruling authorities gradually democratized and incorporated the local population within the governing structure. This process expanded rapidly in the 1980s. In 2000, Taiwan underwent its first peaceful transfer of power from the Nationalist to the Democratic Progressive Party. Throughout this period, the island prospered and became one of East Asia's economic "Tigers." The dominant political issues continue to be the relationship between Taiwan
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