TAIWAN: An Introduction to Corporate/M&A

The following Overview featured in Global 2023 and is awaiting update from the firm.

Throughout 2022, Taiwan was ranked as a leading country on several indexes and was deemed to have an attractive investing environment. Despite the constant threats from China, Taiwan's economic growth rose to 3.76% in 2022. It has a friendly working and living environment, and offers attractive investment returns. The semiconductor industry remains in the global leading position, attracting foreign investors. With the semiconductor industry as the driving force, investments and M&A transactions are comparatively active in Taiwan.

The Taiwan government continues to develop the green energy industry in line with its promotion of energy transition under the national Net Zero Emissions project. More investment opportunities and M&A activities may occur in the relevant industries, including electric cars and data centres. While the global economic backdrop might mean a slowdown in M&A activities in Taiwan, there is cautious optimism that the other aspects of the green energy market would attract foreign investments and M&A over the next few years. The Taiwan government is also contemplating providing incentives to foreign investors in the green market, such as renewable energy projects and ESG-related financial products.

One of the notable developments in 2022 was is that Taiwanese companies started to seek IPOs in foreign capital markets, especially in the US, through special purpose acquisition companies (SPACs). While Taiwan's current securities regulations do not permit SPACs in Taiwan, companies are not forbidden from conducting SPACs offshore. Conducting offshore SPACs may require the making of investment outside of Taiwan, and such activities may require prior approval from the Investment Commission of the Ministry of Economic Affairs (IC), depending on the investment amount. Given the relatively relaxed regulations on offshore SPAC activities, there were three prominent cases in 2022, including Gogoro Inc. (IPO on Nasdaq), Gorilla Technology Group Inc. (IPO on Nasdaq) and Perfect Corp. (IPO on NYSE).

In terms of M&A legislation, amendments to the Business Mergers and Acquisitions Act (the “M&A Act”) came into effect on 15 December 2022, pursuant to which the protection of shareholders' rights is strengthened, the scope of whale-minnow M&A is expanded and the flexibility of relevant tax arrangements is increased. As implementing a whale-minnow M&A requires approval from the board but not the shareholders, it would be easier for companies to adopt a resolution on whale-minnow M&A.

The amendments to the tax arrangements rectify the current conundrum that some M&A costs are non-tax deductible. In addition, upon a corporation's dissolution due to a merger/spin-off, for individual shareholders who acquire the shares of the surviving company, the newly incorporated company or the foreign corporation as a result of a merger/spin-off, the tax assessment of the dividend income under the Income Tax Act may be deferred until the third year following the year of acquisition and taxed in equal instalments over three years, with the aim of promoting a friendly regulatory environment for the M&A of start-ups.

Not only has the legislation on investment eased, but many long-standing hurdles for M&A and foreign investments in Taiwan have also been resolved to a certain extent in recent years. In the past, the IC was known for its lengthy review process and strict approval standards, especially for complex transaction structures or shareholding structures of the investor(s). In terms of foreign investors obtaining the required foreign investment approval, the IC has become more amenable in reviewing foreign investment applications and has notably shortened its review timeframe. Currently, if all the application documents are well-prepared, the entire application process should be completed in a reasonable time.

Looking forward, Taiwan remains in a unique position in the global economy and continues to be a foreign investment-friendly place. It is reasonable to believe that there will continue to be considerable M&A activities and plenty of foreign investment opportunities in Taiwan.