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Impact on the Taiwan Branch of a Foreign Company from the 2018 Amendment to the Company Act
The 2018 amendment to the Company Act in Taiwan (the "2018 Amendment") does not significantly affect the establishment, operation or cessation of a foreign company, since most of the amendments relevant to foreign companies are changes to article numbers, wording and referred articles. However, whether the interpretation issued by the Ministry of Economic Affairs (MOEA) on May 28, 2004 (Jing-Shang-Zi No. 09302079890; "2004 Interpretation") (i.e., for the foreign company’s convenience of continuously operation in Taiwan, the recognized foreign company may apply for change of the recognition and change of the registered name of its Taiwan branch to generally assign a part of its business that can be separated from others, including the assets, liabilities and operation of the Taiwan branch, to another foreign company) still applies after the 2018 Amendment is an issue that is worth discussing.
For the convenience of discussion, the following scenario is assumed.
Alpha Company is a foreign company registered in the US and is recognized by the MOEA in accordance with the Company Act before the 2018 Amendment. It has established a Taiwan branch named Alpha Company, Taiwan Branch. A few years later, for some reasons, the business (including the assets, liabilities and operation) of Alpha Company, Taiwan Branch is to be generally assigned to Beta Company, a Japanese corporation. Beta Company is neither recognized in Taiwan, nor has a branch in Taiwan.
1. Before the 2018 Amendment (Recognition was Required for a Foreign Company)
(1) Before the publication of the 2004 Interpretation
While Beta Company must apply for recognition and for the establishment of a Taiwan Branch before its general assumption of the assets, liabilities and operation of Alpha Company, Taiwan Branch. Alpha Company must apply for the cancellation of its recognition and its Taiwan branch’s registration. In such a situation, the different VAT (GUI) numbers between Beta Company, Taiwan Branch and Alpha Company, Taiwan Branch may result in inconvenience in the operation of Beta Company, Taiwan Branch after the business assignment. In the worst case scenario, the cessation of operation of the Taiwan branch may occur.
(2) After the publication of the 2004 Interpretation
Beta Company only needs to apply for change of Alpha Company's recognized name and the Taiwan branch's registered name. After receiving approval from the authorities, "Alpha Company" and "Alpha Company, Taiwan Branch" will become "Beta Company" and "Beta Company, Taiwan Branch," respectively, and Beta Company, Taiwan Branch will assume the assets, liabilities and operation of Alpha Company, Taiwan Branch. In addition, Beta Company and its branch will be able to assume the VAT (GUI) numbers of "Alpha Company" and "Alpha Company, Taiwan Branch," which will not affect the operation of the branch.
2. After the 2018 Amendment (No Recognition is Required for a Foreign Company)
(1) The 2004 Interpretation may not apply
Since the word "recognition" is used several times in the 2004 Interpretation, and foreign companies need not be recognized after the 2018 Amendment, it seems that the 2004 Interpretation may not apply after the 2018 Amendment. In such case, the two foreign companies can no longer use the aforesaid method, i.e., apply for change of the branch's registered name to generally assign the assets, liabilities and operation of the Taiwan branch, which may result in the cessation of the operation of the branch.
(2) The 2004 Interpretation may still apply
During our discussion with the MOEA, the MOEA indicated that the 2004 Interpretation may still apply even though foreign companies need not be recognized. Therefore, Beta Company needs to apply for the change of the registered name from "Alpha Company" to "Beta Company" and change the registered name of the branch from "Alpha Company, Taiwan Branch" to "Beta Company, Taiwan Branch."