Insights for Japanese companies investing in Taiwan in 2025

Japan has historically been active in investing in Taiwan. Since the liberalisation of foreign investment in 1952, Japan has maintained stable investment trends. During the late 1980s economic bubble, Japanese investment in Taiwan surged, accounting for 40% of total annual investment. In the 2000s, Japan made an average of 200 to 300 investments per year, increasing to 400 per year in the 2010s, peaking in 2012 and 2013 with 619 and 618 investments, respectively. However, this momentum was disrupted by the covid-19 pandemic, reducing investment activity to about 200 cases annually.

Although investment rebounded in 2022, reaching a record high of USD1.7 billion, it has since declined, dropping to about USD450 million in 2024 – only a quarter of the 2022 peak.

Despite the decline, Taiwan remains an attractive destination for Japanese manufacturing due to its skilled labour force and relatively low industrial electricity and water costs, making it an ideal base for semiconductor and high-tech industries. Strong historical and cultural ties have also made Japanese cuisine and culture widely embraced in Taiwan, making sectors such as food service, retail and hospitality a success.

As of 2024, the sector with the highest number of Japanese investments in Taiwan was wholesale and retail, with 88 cases (about 30%). The sector with the highest investment value was manufacturing, totalling about USD126 million.

Geopolitical tensions, including US-China trade friction and the uncertainties surrounding the Trump administration’s foreign policy, continue to impact upon Taiwan’s foreign investment climate.

Stable investment regulations

Despite external uncertainties, Taiwan’s legal framework for corporate and investment regulations is widely regarded as mature and stable.

Taiwan differentiates between Chinese and foreign capital in its investment regulations. While Chinese investment faces stricter scrutiny, foreign investment generally follows the principle of approval with exceptions for restrictions or prohibitions. Foreign investment is allowed unless it falls under the negative list, which includes industries such as agriculture, arms manufacturing and transportation.

Offshore wind power investment has been booming in Taiwan. Since power generation is not on the negative list, foreign investment in this sector is not restricted. However, under the foreign investment act, new investments in non-listed companies require prior approval. Subsequent changes to investment plans (e.g. adjustments in shares, capital or amendments to corporate articles) may require either prior approval or post-facto reporting, depending on the case. Investors should consult legal experts to navigate these procedures.

Taiwan’s foreign investment approval system is somewhat similar to Japan’s Foreign Exchange and Foreign Trade Act regulations on inward direct investment. However, Taiwan’s negative list provides clearer criteria, explicitly stating which businesses are prohibited or restricted and under what conditions. This clarity makes Taiwan’s system more transparent than Japan’s pre-notification system.

Clear corporate legal system

For Japanese companies, Taiwan’s corporate legal system is relatively easy to understand. Its corporate structures closely resemble Japan’s commercial code, with similar governance structures for private companies, including a shareholders’ meeting, a board of directors (or one to two directors), and an auditor (which may not be required under certain conditions).

Recent amendments to Taiwan’s Company Act have increased corporate governance flexibility, further aligning it with Japan’s system. Many Japanese firms in Taiwan operate as single-shareholder corporations, which does not require a board of directors or an auditor – similar to Japan’s non-board director corporations – thus reducing maintenance costs.

Operational efficiency has improved with new regulations allowing private companies to pass board resolutions in writing without holding physical meetings, provided their articles of incorporation permit it. Private companies can now hold shareholder meetings via video conferences. These measures were introduced after the covid-19 pandemic, when listed companies struggled to hold their general meetings.

The role of directors in Taiwan is similar to that in Japan, but director selection has unique aspects. Directors are usually elected through a cumulative voting system, allowing corporate shareholders to nominate multiple representatives. If elected, these representatives serve as both corporate directors and designated representatives of the corporate shareholder. This system allows corporate shareholders to replace their representatives without re-election, making it easy to maintain control over Taiwanese subsidiaries.

Diverse options for restructuring

When investing in Taiwan through corporate restructuring, most methods align with Japanese practices. In addition to the Company Act, Taiwan has a special law – the Mergers and Acquisitions Act (M&A Act) – which takes precedence over general corporate regulations in governing M&A transactions.

Under the M&A Act, payments for acquisitions are flexible and can be made in cash or shares. Amendments in 2022 strengthened minority shareholder protections through enhanced disclosure requirements and expanded share purchase rights. Other changes included expanding the scope of asymmetric acquisitions (allowing certain M&A deals to proceed with only board approval, rather than requiring a shareholder vote) and introducing tax incentives to encourage corporate restructuring.

Taiwan also has a well-developed public tender offer system for listed companies. To prevent abrupt cancellations that could destabilise the market, stricter financial proof requirements were introduced. However, Taiwan’s system aligns closely with international standards, and many foreign companies have successfully conducted tender offers in Taiwan.

Business-friendly laws

Previously, Taiwan’s Company Act allowed only certain types of special shares with transfer restrictions. Unlike Japan, which permits closely held companies with restricted stock transfers, Taiwan lacked such a system until 2015, when it introduced the concept of a “closely held company”.

This new corporate structure offers greater flexibility in governance, making it particularly beneficial for startups and joint ventures. Companies operating under this structure can avoid some regulatory constraints and customise their internal governance, risk distribution and profit-sharing arrangements.

Taiwan’s Company Act also recognises the validity of shareholder agreements, including voting agreements. Several court cases have upheld their enforceability, increasing legal certainty for joint ventures. This reliability helps facilitate smoother business partnerships.

Whether through establishing wholly owned subsidiaries, forming joint ventures, acquiring Taiwanese firms via M&A, or launching public tender offers, Taiwan’s legal framework supports various investment approaches, accommodating the diverse needs of Japanese businesses.

Taiwan’s investment and corporate legal systems have remained relatively stable in recent years, making the regulatory environment predictable. This stability enables experienced legal professionals to effectively guide Japanese companies in their investment activities in Taiwan.