Due to multiple unfavourable factors, such as consecutive rises in interest rates by the US Federal Reserve, shrinking global end-use demand, and high manufacturing inventories, Taiwan’s economic growth has been affected. In the economic forecast released by the Directorate General of Budget, Accounting and Statistics (DGBAS) in May 2023, Taiwan’s GDP growth for the full year of 2023 was projected to be 2.04%. However, in August, this forecast was revised downward to​ ​1.16%.

Impacted by concerns of economic recession, there has been an increased demand for financial borrowing. The flourishing development of fintech in Taiwan resulted in substantial growth in consumers’ adoption of digital finance and a surge in both the number of retail credit loan applications and the loan values. According to the Joint Credit Information Center, by October 2022, the number of individuals applying for credit loans in Taiwan exceeded 1.58 million, reaching the highest record in history since 2012. The average value borrowed per person was nearly TWD643,000, also reaching an all-time high, with the aggregate credit balance nearing TWD1.02 trillion.

The Taiwanese financial market’s overall risk exposure to Russia and Ukraine, as reported by the Financial Supervisory Commission (FSC​)​ in March 2022, is approximately TWD217 billion, which is considered to be under manageable control.

The aggregate holdings of Russian and Ukrainian assets through mutual funds and overseas funds are both below 1% of their respective total, indicating limited financial risk exposure to the war.

Since the war began, the FSC has urged financial institutions and virtual asset service providers to implement anti-money laundering measures, to comply with international sanctions measures, and to be mindful of transactional risks. While Taiwan may not be directly affected by the war in Ukraine, these measures by the FSC still contribute to ensuring the stability of the financial system in Taiwan.

In Taiwan, high-yield bond funds must either seek FSC permission or report to the FSC. Typically, such a review procedure takes between two and three months.

Taiwanese domestic investors have had a strong demand for high-yield bond funds in recent years due to low interest rates. To avoid a rapid increase in the number of high-yield bond funds, the FSC promulgated new rules addressing information disclosure and advertising requirements. In November 2021, the FSC announced four measures to strengthen the monitoring requirements of high-yield bond funds and fund risk disclosure:

• all “high-yield bond funds” must be renamed “non-investment grade bond funds” within six months to avoid investor confusion;
• financial institutions should improve fund risk disclosure and provide more risk assessment reference information;
• sales institutions should fortify their ability to assess the customer’s fitness for funding; and
• investors are strongly encouraged to review the investment risk assessments included in the fund’s prospectus before subscribing.

In addition, the FSC requires fund companies to adequately communicate the risks associated with investing in their high-yield bond funds by including warning labels in parenthesis after the fund name.

In March 2022, the FSC continued to push for fair and reasonable treatment for individual investors over 65 years of age in banking industries, encouraging the Bankers Association of the Republic of China to establish the Self-Regulatory Rules for Fair Treatment by Banks of Elderly Customers, so as to provide an increased variety of financial services to investors over 65. In April 2022, the FSC urged the Chinese National Futures Association to update relevant self-regulations to promote enhanced protection measures for individual investors over 65 in the securities and futures market, including KYC and KYP procedures, legibility of relevant documents, and transaction monitoring mechanisms. Overall, the applicable regulations governing high-yield bond funds have become more stringent, especially for individual investors over 65.

Lastly, in April 2022, the Insurance Bureau of the FSC announced that investment-linked insurance products will no longer ​be able to ​invest in high-yield bond funds as they are renamed as non-investment grade bond funds. This has been in effect since July 2023.

In Taiwan, alternative credit provider financing has increased in popularity over the past few years. When collateral for a conventional bank loan is unavailable, small and mid-sized businesses typically seek other lending sources.

Business angel financing has grown in prominence as a source of early-stage capital for start-ups. The popularity of crowdfunding and peer-to-peer lending has also surged in recent years, but has remained relatively small in terms of total volume.

Insurance companies as well as bond (debt) funds also provide credit to corporate debtors as an alternative to a bank.

Taiwanese private borrowers typically issue convertible corporate bonds to reduce the risks investors are exposed to through equity investment. Upon borrowers satisfying certain pre-agreed milestones, lenders would typically have the option to convert their bond holding into preferred equity at a discount.

In an effort to encourage environmental sustainability and social responsibility, some public enterprises now issue FSC-approved sustainable bonds, offering investors more investment options:

• green bond – a bond whose proceeds are used exclusively for green projects;
• social bond – a bond whose proceeds are used exclusively for social projects;
• sustainability bond – a bond whose proceeds are used exclusively for a combination of both green projects and social projects; and
• sustainability-linked bond (SLB) – a bond for which the principal and interest payment terms are linked to the issuer’s sustainability performance targets (SPTs).

As of August 2023, there have been 154 sustainable bonds issued, and the outstanding balance of issued bonds is TWD442.545 billion.

The FSC approved the Green Finance Action Plan on 6 November 2017, in response to the international trend toward green finance. The action plan covers areas such as credit, investment, fundraising in capital markets, training and talent development, data transparency, further expansion of green finance products and services, and dissemination of sustainable and environmentally friendly concepts.

Plan 1.0 was a tremendous success in the credit sectors, supporting green energy enterprises in gaining financing or investment. The outstanding loans supplied by domestic banks to green energy companies hit TWD​1.41 trillion as of the end of March 2022, a rise of approximately TWD​429.6 billion since the commencement of Plan 1.0.

The FSC announced the “Green Finance Action Plan 2.0” in August 2020, which includes further steps to raise companies’ awareness of ESG issues. One of Plan 2.0’s primary objectives is to encourage financial institutions to finance and invest in sustainable development projects, as opposed to solely green energy industries, by easing lending and capital-raising laws and regulations.

In September 2022, the FSC rolled out the “Green Finance Action Plan 3.0”, aiming to promote a sustainable taxonomy for companies and financial institutions to refer to when formulating transition plans and to incorporate into the process of making lending or financing decisions, so as to reach the 2050 Net-Zero Emissions policy.

Providing loans to Taiwanese borrowers does not require a licence or other authorisation in Taiwan, so long as the lending activity does not involve deposits or foreign exchange business.

The Company Act places fundamental limitations on the ability of non-bank lenders to make loans to others. Pursuant to Article 15 of the Company Act, the parties to whom a company may lend its funds shall be limited to:

• any company having a business relationship with the company; or
• any company in need of funds for a short-term period, if the amount of the financing does not exceed 40% of the company’s net worth.

Furthermore, if the lender is a public company, that company shall establish its internal procedures for lending funds to other parties, and those internal procedures shall be approved both by the board of directors as well as in the shareholders’ meeting.

In Taiwan, foreign lenders are not required to obtain a licence in order to extend credit to Taiwanese businesses. To operate a lending business, however, international lenders need to establish a branch office in Taiwan.

There are no restrictions on granting security or guarantees to foreign lenders. For further information on the enforcement of security interests by foreign lenders, see 6.4 A Foreign Lender’s Ability to Enforce Its Rights.

Taiwan imposes no foreign exchange controls on trade, insurance or authorised investment transactions. Similarly, it does not restrict the repatriation of capital and profits related to direct or portfolio investment, provided that the investment has been permitted or approved by the Taiwan authorities.

Generally, a borrower is obliged to use the proceeds from loans or debt instruments for the purpose expressly stated in the relevant credit agreement. If a borrower uses the proceeds of financing for any purpose other than what is specified in the credit agreement, this will constitute a default, and the lenders can accelerate any outstanding loans and terminate unused commitments. In addition, loan documentation prohibits borrowers from using the loan proceeds for any purpose that is in violation of anti-money laundering regulations.

The agent concept is well recognised and established in Taiwan. In a syndicated loan arrangement, the borrower usually grants a mandate to a “lead bank”, which then arranges for the formation of a syndicate of banks to provide necessary finance to the borrower. The liability of the agent is usually limited by the underlying documentation appointing the agent.

The trust concept is generally recognised in Taiwan. The trust structure is often employed in real estate transactions, with real estate development trusts being the most popular. The landowner usually entrusts the land to the bank and deposits the funds into the trust account. All payments incurred by the construction project must be paid from the trust account until the construction is completed and the licence for use has been issued.

Typically, unless otherwise agreed upon by the lender and the borrower, or unless the nature of the claim is non-transferable, a loan can be transferred to the transferee without the borrower’s consent. All the ancillary rights and securities attached to the claim are also transferred to the transferee.

However, the FSC imposes additional loan transfer restrictions on financial institutions. Specifically, transfers of performing loans and non-performing loans are governed by distinct rules.

Debt buy-back is generally permitted, except for any contractual restrictions. Bond buy-back may trigger the application of securities market regulations.

The “certain funds” restrictions stipulated in Article 43-1, Paragraphs 3 and 4, of the Securities and Exchange Act and the Regulations Governing Public Tender Offers for Securities of Public Companies require bidders to produce documentation confirming their ability to finance their tender offer in full.

This requirement may be met by submitting either a letter of performance guarantee provided by a financial institution, or a cash confirmation provided by a financial adviser who is qualified as a securities underwriter or a certified public accountant.

In addition, the public acquisition rules require the board of directors of the target company to conduct a more in-depth assessment of the sources of takeover financing and the fairness of the terms and conditions of the tender offer, in order to protect the interest of the shareholders.

A bidder must disclose details of the financing of a takeover bid in the offer document before it takes effect. These details include the source and availability of funds to pay the offer, payment methods and other payment arrangements. If the money is borrowed from a bank, the offer document must also include crucial loan details, such as the parties to the loan, principal amount, interest rate, tenor and security arrangement.

The Constitutional Court recently made a decision on the constitutional controversy surrounding the provisions related to public tender offer in the Securities and Exchange Act and the Regulations Governing Public Tender Offers for Securities of Public Companies.

Since Article 43-1, Paragraph 3, of the Securities and Exchange Act does not itself specify the exact proportion of shares that a bidder proposes to acquire in order to trigger a public tender offer, adopting what is known as a “blank criminal law” framework, one must refer to Article 11, Paragraph 1, of the Regulations Governing Public Tender Offers for Securities of Public Companies to ascertain. The applicant therefore argued that the interpretation of the terms in the above-mentioned articles violate the principle of clarity of punishment. Moreover, the provision regarding public tender offers in the Securities and Exchange Act is considered special criminal law, yet the act delegates the constituent element of “certain proportion” and “certain conditions” to the regulatory authority to mandate, which violates the principle of explicit delegation.

In judgment 112-Hsien-Pan-5 of the Constitutional Court of Taiwan, the court upheld the constitutionality of the above-mentioned regulations. Given that the bidders are regulated by these regulations and have professional expertise in matters of public tender offers, the content specified in the articles is not difficult for them to comprehend and can be anticipated. Therefore, the articles are in accordance with the principle of clarity of punishment. Besides, in response to the rapid changes in the securities market, the Securities and Exchange Act delegates the competent authority to mandate the details of certain proportions and certain conditions, since it possesses the most comprehensive knowledge of security market activities. Furthermore, the provisions of the Securities and Exchange Act are sufficient to enable individuals to foresee the possibility of violating mandatory provisions of public tender offers. Therefore, there is no violation of the principle of the explicit delegation.

To assist businesses with achieving the government’s 2050 Net-Zero Emissions policy, and prompt public companies to reduce carbon emissions, in 2022, the FSC amended both the Regulations Governing Information to be Published in Annual Reports of Public Companies and the Regulations Governing Information to be Published in Public Offering and Issuance Prospectuses.

These revisions stipulate that public companies should disclose their progress concerning climate-related activities within their annual reports, starting from the year 2024. Considering the promotion of climate-related information disclosure ​​​​requires public companies to collect relevant information and develop greenhouse gas inventory capabilities, there is a one-year grace period before the regulations enter into force.

If the agreed rate of interest exceeds 16% per annum, the exceeded part of the agreement is invalid.

In order to eliminate contradicting information, Article 11 of the Regulations Governing Information to be Published in Public Tender Offer Prospectuses states that if the public tender offeror or any of its related parties have entered into any agreement or covenant concerning the present public tender offer with the director, supervisor or managerial officer of the subject company, or any shareholder owning more than a 10% stake in the subject company, or related parties of the target company, within the two years prior to declaring the public tender offer, the prospectus shall disclose all of the agreement or covenant documents.

Interest payments to non-resident lenders are subject to withholding tax at a rate of 15% or 20%, pursuant to Article 3 of the Standards of Withholding Rates for Various Incomes. This rate may be lowered by a tax treaty (generally to between 7% and 15%).

Financial services providers (including non-resident lenders) offering loans to Taiwanese borrowers are subject to a 5% or 2% gross business receipts tax. The granting and enforcement of a loan, a guarantee or a security interest are not subject to any form of stamp tax.

Additional taxes and costs that may apply to a loan transaction include registration fees and court expenses associated with the introduction of the judicial enforcement of security interests.

Foreign lenders who are either non-Taiwan residents or profit-seeking enterprises having no fixed places of business in Taiwan are subject to withholding tax, with an interest rate of 15% or 20%. However, Taiwan has signed double taxation agreements with 34 jurisdictions. The agreements mostly offer a preferential withholding rate of 10% or 15%, and foreign lenders are advised to review whether they are from these jurisdictions and then apply for a tax reduction, if applicable, so as to alleviate their tax burden and avoid double taxation.

Real Estate

In Taiwan, mortgages are the most prevalent form of real estate collateral. In order to construct and perfect a mortgage, the parties must execute a written agreement that establishes the security interest and record it in the land registry.

Movables

The perfection requirements on movables vary significantly depending on the type of security used. The creation and perfection requirements for a mortgage over movables are the same as those for a mortgage over real estate. A pledge over movables, to the contrary, does not need to be registered. A pledge is perfected when the pledgee takes possession of the collateral. Given that the pledgee’s possession or undue control of the movables may interrupt the business of the pledgor, a pledge over movables is usually undesirable for both parties. As a result, the use of a pledge over movables is uncommon in Taiwan.

Property Rights

A right of pledge can be used to obtain security over stock interests, receivables, deposits in bank accounts, and other property rights. Perfection requirements differ depending on the nature of the property rights. Typically, the creation of the right of pledge requires parties to enter into a written agreement and to deliver to the pledge creditor a certificate representing the pledged property rights.

A company’s current and future assets are not subject to a floating charge or other universal or comparable security interest under Taiwanese law. A chattel mortgage can only be created over certain types of movable property, such as machinery, equipment, tools, raw materials, semi-finished products, finished products and vehicles. In other words, a security provider can only grant security over specific assets currently owned by that security provider, as the security provider does not yet hold a proprietary interest in the assets.

There are no explicit statutory limitations or restrictions on downstream, upstream and cross-stream guarantees. However, the Taiwanese Companies Act imposes basic restrictions on the ability of a company to give a guarantee to a third party. In general, a company will not give any guarantee or security in connection with any loan, unless otherwise prescribed by law or set out in its articles of association. Furthermore, a public company may provide guarantees or security to the following firms:

• any company with which it has a business relationship;
• any company in which the public company, directly or indirectly, holds more than 50% of the voting shares; and
• any company that, both directly and indirectly, holds more than 50% of the voting shares in the public company.

Companies in which the public company holds, directly or indirectly, 90% or more of the voting shares may make guarantees for each other of up to 10% of the public company’s net worth, provided that this restriction shall not apply to guarantees made between companies in which the public company holds, directly or indirectly, 100% of the voting shares.

From a formal perspective, the granting of a downstream, upstream or cross-stream guarantee will be approved by the board of directors of the public company acting as guarantor and will adhere to its internal rules of operational procedures for a guarantee, which are approved both by the board of directors and in the general meeting of shareholders.

When the target grants guarantees or other security interests in exchange for obligations of an acquirer, any such security interest would be upstream in nature and therefore subject to the limitations discussed in 5.3 Downstream, Upstream and Cross-Stream Guarantees. Notably, the directors of the target will be exposed to the risk of breaching their fiduciary duties if the target provides a guarantee solely for the benefit of an acquirer in the absence of its own corporate benefit.

There are several statutory constraints on the provision of security.

The creation of a security interest in certain assets is prohibited, including the right to reimbursement of healthcare costs, the right to claim for a pension and insurance claims arising under an insurance policy. Additionally, a company cannot lend money using its own shares as collateral.

Security requiring registration shall be released by an application to the registrar jointly by the security provider and the creditor, or by the creditor alone. For unregistered security interests, the security is released by returning the relevant asset or notes to the pledgor.

Competing Security Interests

The general rule is that the precedence of competing security interests over an asset is determined by the order in which the security interests were perfected, with the earliest completed security having the highest priority. If the perfection requirements are not met, a security interest is not created, and those lenders will fall under the category of unsecured creditors.

Contractual Subordination

Regarding the ranking of security interests, contractual subordination can be created in many cases by changing the ranking and priority of repayment rights. In its simplest form, a subordination clause prevents the junior creditor from being paid until the senior creditor has been paid in full. In practice, the subordination clause is commonly used in the intercreditor agreement. Technically, a subordinated creditor would include all of the shareholders in the principal borrower, who usually agrees that creditors have priority over shareholders for claims on the company’s assets.

Mortgage of Real Property

The mortgagee has a preferential right to receive satisfaction of a claim from the proceeds from sale of real property without transferring possession. The enforcement of mortgaged real property is usually achieved through court proceedings. The mortgagee has to obtain the compulsory enforcement authorised by court to auction the mortgaged property. Alternatively, instead of engaging in court proceedings, the mortgagee can enter into a contract with the mortgagor to acquire ownership of the mortgaged property or dispose of it, after the debt is due.

Mortgage of Personal Property

If the debtor fails to perform the contract, the mortgagee may take possession of the personal property which is mortgaged and may sell the property without going through court proceedings, and satisfaction of the mortgagee’s claims from the sale proceeds shall have precedence over other claims.

If the debtor or a third party refuses to deliver the mortgaged property, the mortgagee may petition a court for provisional attachment.

Pledge of Personal Property

A pledgee possesses the personal property transferred by a debtor or a third party as security for the claim. After receiving no payment upon maturity of the claim, the pledgor may sell the pledged personal property by auction and receive payment preferentially from the proceeds of the sale.

Pledge of Rights

A pledge of rights is a pledge in which the subject is a transferable claim or other transferable right. For a pledged pecuniary claim with a maturity earlier than the claim it secures, the pledgee may demand the debtor lodge the payment for the pecuniary claim and may exercise its pledge against the thing lodged. Conversely, if the pledged pecuniary claim has a later maturity than the secured claim, the pledgee can demand payment at the maturity of the secured claim.

If the subject of a pledge is securities for which no rights holder is named, the pledgee may collect payments receivable on such securities even if the claim secured thereby has not matured.

A lender’s ability to enforce its security interest is contingent upon the secured debt remaining unpaid when due and payable. Loans, guarantees and other forms of security interests are typically enforced through judicial proceedings. The lender will usually petition the court for a judgment or payment order.

For joint suretyship, the lender can claim the guarantee in the event of a default. However, for a general guarantee, a guarantor may refuse performance to the creditor, as long as the creditor has not filed for compulsory execution against the property of the principal debtor.

For mortgage enforcement, the lender may claim to sell the collateral at the judicial auction process and be eligible for the proceeds. One of the problems with judicial enforcement is that the price is likely to be substantially lower than what would be realised through a private auction.

In general, Taiwanese courts recognise the validity of a submission to a foreign jurisdiction.

Taiwanese courts typically recognise the legality of the parties’ choice of a foreign law as a contract’s governing law. However, the parties cannot choose the governing law of security interests. Rather, the property rights of an object are governed by the law of the jurisdiction in which the object is located.

A final and binding judgment rendered by a foreign court is recognised by Taiwanese courts, except where:

• the foreign court lacks jurisdiction pursuant to the laws of Taiwan;
• a default judgment is rendered against the losing defendant, unless the notice or summons of the initiation of action had been legally served within a reasonable time in the foreign country or had been served through judicial assistance provided under Taiwanese law;
• the performance ordered by that judgment or its litigation procedure is contrary to Taiwanese public policy or morals; or
• there is no mutual recognition between the foreign country and Taiwan.

These provisions shall apply mutatis mutandis to a final and binding ruling rendered by a foreign court.

There is currently no restriction on the ability of a foreign lender to enforce its rights under a loan or security agreement.

According to Articles 74 and 82 of the Bankruptcy Act of Taiwan, lenders shall claim their right to the bankruptcy administrator. Under statutory insolvency proceedings, creditors of unsecured claims are generally prohibited from enforcing their loans once judicial insolvency proceedings have been initiated against the borrower.

Instead of general proceedings, unsecured creditors must recover their claims in accordance with the insolvency procedure, in terms of both the timing and the amount of the recovery. The same holds true for the enforcement of a guarantee in the event of the guarantor’s insolvency.

As the purpose of bankruptcy proceedings is to provide equitable satisfaction to creditors, in principle there is no difference in the order of creditors' rights. However, the law gives some precedence. The Labour Standards Act, for instance, gives priority to the settlement of outstanding wages, stating that unpaid wages and labour unions have priority to be reimbursed when a debtor declares bankruptcy.

In addition, if there is a mortgage or guarantee, the mortgage or guarantee can be executed and has priority over the collateral.

The length of insolvency processes differs on a case-by-case basis, depending on the debtor’s specific circumstances. While the liquidators shall complete the examination within a period of six months, it takes at least three to six months.

Under a bankruptcy proceeding, the assets of a company are usually disposed of by the trustee appointed by the court. The debts and administrative expenses in connection with the estate must be paid out first. Creditors secured by means of a pledge, mortgage or lien before the adjudication of bankruptcy can enforce their rights over the collateral without going through the bankruptcy proceeding. If the debts and expenses incurred in the bankruptcy proceeding exceed the value of the estate, however, the bankruptcy proceeding will be terminated, and the company must enter into a dissolution proceeding.

Along with judicial insolvency proceedings, private restructuring processes are very important. Private restructuring processes can be initiated by:

• shareholders who have been holding shares representing 10% or more of the total number of issued shares continuously for a period of six months or longer;
• creditors of the company who have claims equivalent to 10% or more of the capital from the total number of issued shares;
• labour unions; or
• two thirds or more of the employees of a company.

Corporate reorganisation is the process of restructuring a financially distressed public company. The purpose of the system is to preserve and rehabilitate the company under the supervision of the court to adjust the interests of creditors, shareholders and other stakeholders.

According to the Bankruptcy Act of Taiwan, a bankrupt is not permitted to dispose of any property. Therefore, a third party can only claim their rights against a bankrupt’s accountant during bankruptcy proceedings. Furthermore, when a party is adjudicated as bankrupt, all proceedings involving the bankruptcy estate are stayed automatically until a qualified person assumes the action, pursuant to the Bankruptcy Act, or until the bankruptcy proceeding is concluded. However, the mortgagee and secured parties have unrestricted rights to the collateral.

Due to the international trend of green finance, green energy projects, especially solar and wind farms, have been one of the main topics for project finance in Taiwan recently. In the National Development Plan (2021-2024), the green and renewable energy sector is listed as one of six core strategic industries that Taiwan plans to develop.

The completion of Formosa 1, Taiwan’s first offshore wind farm, was a momentous moment for green energy projects in the country. Subsequent projects include the Formosa 2, Yunlin, Changfang and Xidao, Greater Changhua, Zhong Neng, Foxwell and Hai Long offshore wind farms.

With the focus on green energy, Taiwan aims to be a nuclear-free area by 2025.

In order to relieve the government’s financial burden, there is a trend in Taiwan of co-operation between the public and private sectors to build public infrastructure; this type of co-operation is known as a public-private partnerships (PPP). There are numerous laws governing private participation in infrastructure projects, including:

• the Statute for Promotion of Private Participation in Transportation Infrastructure Projects;
• the Mass Rapid Transit Act;
• the National Property Act;
• the Local Government Public Property Administration Act;
• the Commercial Port Law;
• the Electricity Act; and
• the Act for Promotion of Private Participation in Infrastructure Projects (PPIP Act), which is the most important.

Pursuant to Article 8 of the PPIP Act, there are six types of private participation, as follows.

Build–Operate–Transfer (BOT)

The private institution invests in the construction and operation of new infrastructure and, upon the expiry of the operation period, transfers the ownership of such infrastructure to the government.

Build-Transfer-Operate (BTO)

The private entity invests in the construction of the infrastructure and, upon completion of the construction, relinquishes the ownership to the government without compensation; the government then lets the private entity operate the infrastructure. Upon the expiry of the operation period, the right to operate reverts to the government.

Alternatively, the private entity invests in the construction of the infrastructure. Upon completion of the construction, the government acquires the ownership by paying the construction expenses, in a lump sum or in instalments. The government then lets the private entity operate the infrastructure. Upon the expiry of the operation period, the right to operate reverts to the government.

Rehabilitate-Operate-Transfer (ROT)

The private institution invests in the extension, reconstruction and/or repair of existing infrastructure, and operates the infrastructure. Upon the expiry of the operation period, the right to operate reverts to the government.

Operate-Transfer (OT)

The private institution operates infrastructure built with investment from the government. Upon the expiry of the operation period, the right to operate reverts to the government.

Build-Own-Operate (BOO)

To support national policy, the private institution invests in the construction of infrastructure on private land provided by the private institution itself, has the ownership thereof upon completion of the construction, and then the operates the infrastructure itself or commissions a third party to operate it.

Foreign investor and Mainland China investors are welcome to join a PPP, although some limitations are imposed by applicable laws and regulations to safeguard national security, including:

• the Statute for Investment by Foreign Nationals;
• the Statute for Investment by Overseas Chinese;
• the Act Governing Relations between the People of the Taiwan Area and the Mainland Area; and
• the Negative List for Investment by Overseas Chinese and Foreign Nationals.

Foreign investors and Mainland China investors should comply with these laws and regulations.

Investment agreements, offtake contracts, financing agreements, project insurance policies and land acquisition agreements are governed by domestic law.

Parties to a contract are generally free to choose the governing law of the contract. It is common practice for the parties to select the law of Taiwan, Singapore, New York or England as the governing law for projects in Taiwan. However, government entities involved in investment agreements under the PPP Act typically do not accept foreign law as the governing law.

Foreign entities may not acquire forest lands, fisheries, hunting grounds, salt fields, land with mineral deposits, or sources of water and water rights. Apart from these restrictions, foreign entities with a branch in Taiwan, whose home countries entitle Taiwanese nationals to the same rights, may acquire land in Taiwan.

Project finance is a loan arrangement whereby finance is raised on a non-recourse or limited recourse basis by a special purpose vehicle (SPV), with the repayment being contingent on the cash flows generated by the project after its completion.

Parties in project financing deals typically face the same issues when structuring the deals. These issues may need to be viewed from a different perspective, taking into account the project’s potential extension. A comprehensive risk analysis will be conducted and the various risks, once identified, should be appropriately allocated in the transaction documents to the parties best positioned to bear such risks.

Banks may also want to have a clear understanding of the future cash flows and profit model of the project, in order to decide whether to implement additional protections such as credit enhancement tools and security. In practice, a traditional security package remains a crucial factor in project finance loan decisions. In addition to sufficient equity financing, banks typically require pledges on all relevant project assets and cash flows, the SPV’s bank accounts, and also the shares in the SPV itself.

Restrictions on Foreign Investment and Any Relevant Treaties

In contrast to its open and welcoming attitude towards foreign investment, the Taiwanese government takes a prudent and conservative attitude towards Chinese and Hong Kong investment. Foreign investors are normally permitted to invest in a project firm so long as their investment does not involve industries on the “negative list”, which is a list of sectors where foreign investment is limited or forbidden. In contrast, Chinese investors are only allowed to invest in the permitted industry sectors on the “positive list”. Even if the sector that the Chinese investor intends to invest in is on the positive list, the Investment Commission has the discretion to restrict or block a Chinese investment application due to national security concerns.

The typical financing sources for projects in Taiwan include domestic and foreign commercial lenders (including institutional investors such as insurance companies), government support such as funds from the National Development Council and the National Development Fund, international institutions such as the Asian Development Bank, and, to a lesser extent, project bond investors and export credit agencies.

Typically, a project company in Taiwan is an SPV organised as a limited liability corporation with a limited recourse financial structure. Equity is normally provided by a single sponsor or a consortium of sponsors. Projects may be purely private (such as independent power projects) or may involve a partnership between the public and private sectors.

All natural resources related to mining, including oil, gas, coal, metal and other mineral resources, are owned by the state (Article 2 of the Mining Act). However, an entity can still explore, extract and exploit these natural resources by applying for mining rights. Article 15 of the Mining Act establishes the procedure for businesses to apply for mining rights. In general, such rights are valid for a period of 4 or 20 years after approval by the government, and enterprises can apply for an extension before expiry.

Exporters must comply with the Foreign Trade Act and the Regulations Governing Import of Commodities while exporting natural resources; this legislation is administered by the Bureau of Foreign Trade (BOFT). In addition, since the Taiwan​ese​ government adopts a highly regulated policy in the field of energy affairs, the exportation of oil (petroleum products) is subject to strict control. Pursuant to Article 15 of the Petroleum Administration Act, a business is not allowed to start an oil export operation until its application has been approved and a registration certificate has been issued by the Bureau of Energy.

It should be noted that some natural resources are on the “Sensitive Commodities List”, such as nickel, chromium and titanium. Enterprises cannot export these natural resources to Iran or North Korea until they obtain approvals from the BOFT.

Taiwan has enacted a number of environmental protection laws, such as:

• the Air Pollution Control Act;
• the Water Pollution Control Act;
• the Soil and Groundwater Pollution Remediation Act;
• the Waste Disposal Act; and
• the Toxic and Concerned Chemical Substances Control Act.

These laws are implemented and enforced by the Environmental Protection Administration. Businesses investing in Taiwan must comply with these laws, otherwise they may attract civil, administrative or criminal liabilities.

Additionally, ​in September 2022, the FSC ​​rolled out ​the Green Finance Action Plan 3.0, ​aiming to enhance understanding of greenhouse gas emissions by financial institutions, in order to reduce carbon emissions and to achieve the 2050 Net-Zero Emissions policy.

​​​The plan contains five main aspects, the summaries of which follow:​​

• ​​​deployment – the financial industries are required to propose the time schedule for the disclosure and inventory of green gas emissions, and to develop monitoring mechanisms for climate risks and file analysis reports for climate-related risk management​​;
• ​​​funding – the FSC aims to develop and promote Taiwan’s sustainable taxonomy (and encourage companies to disclose their compliance with the taxonomy in terms of their economic activities), and formulate self-governing regulations for financial institutions as a reference for investment or financing assessments on financial products which adopt concepts such as “green”, “ESG” or “sustainability”;​​
• data – government agencies plan to build up and promote a data platform integrating climate change and ESG-related information and data for use by financial institutions​​;
• empowerment – the FSC plans to strengthen sustainable finance training for managers and regular employees of financial institutions, and to introduce sustainable finance certificates; and 
• ecosystem – the FSC plans to organise a sustainable finance evaluation to establish the financial industry’s net-zero working group and foster co-operation between financial institutions.​​​​

B​y 2023, ​​22 financial institutions in Taiwan​​ have​​ signed the Equator Principles, so it may be difficult for enterprises with poor records of compliance with environmental laws to obtain loans or acquire project finance.

The Occupational Safety and Health Act and the Labour Occupational Accident Insurance and Protection Act are the two main health and safety acts, with both being enforced by the Department of Labour. Under the Occupational Safety and Health Act, employers are obliged to prevent occupational accidents and to maintain sound and safe working environments, or they may attract legal liabilities. The Occupational Safety and Health Act and the Labour Occupational Accident Insurance and Protection Act consolidate occupational accident claims under various statutes into a single remedial appeal, allowing the insured to file a claim more easily and with a clearer legal standing.

According to the Act for Promotion of Private Participation in Infrastructure Projects, enforced by ​the ​Ministry of Finance, an authority in charge shall conduct a feasibility assessment before promoting the projects. Experts, scholars, local residents and civil groups shall be invited to public hearings. If the authority does not adopt the suggestions given or oppositions raised by the experts, scholars, local residents or civil groups, it shall state the reasons for this in its feasibility assessment report.