Changes in Law and Regulations

Amendments to the Labor Standards Act — On January 11th, 2018, the Legislative Yuan passed amendments to the Labor Standards Act, which were promulgated by the President’s Order on January 31st, 2018. Highlights of the amendment include: (1) if employee works on the flexible rest day, the overtime pay shall be made based on the employee’s actual working hours; (2) employer may adjust and extend employee’s maximum overtime work hours to 54 hours in a month within a three month cycle, provided that the consent of the labor union is obtained (or the Labor-Management Meeting if there is no labor union), and that the total overtime work hours within such three month period does not exceed 138 hours; (3) employee may choose compensatory leaves with the approval of employer when there is overtime work or work on the flexible rest day; (4) employer may adjust employee’s rest period to a minimum of 8 continuous hours upon obtaining the consent of the labor union (or the Labor-Management Meeting if there is no labor union); (5) employer and employee in a qualified business sector designated by the Ministry of Labor may mutually agree to adjust the mandatory day off to be on any day within a seven day cycle, provided that such adjusgment is approved by the relevant competent authority and the labor union (or the Labor-Management Meeting if there is no labor union); and (6) employee’s unused annual leave may be deferred to the following year by mutual agreement by employer and employee. The new amendment became effective on March 1, 2018. 

Enactment of the Act on Financial Technology Innovations and Experiments – The “Act on Financial Technology Innovations and Experiments” (the “Act”) was passed by the Legislative Yuan on December 29, 2017, and promulgated by the President on January 31, 2018. The implementation date of the Act will be determined by the Administrative Yuan. Under the Act, the applicant for the financial technology experiments shall prepare the experiment plan for the Financial Supervisory Commission’s (the “FSC”) review and approval, and conduct the experiment within a definite term after the approval. After the expiry of the term of the experiment, the applicant shall submit written report of the experiment to the FSC. Based on such report, the FSC will consider modifying the relevant financial regulations or providing necessary assistance. While the competent authorities may exempt the experiment from the relevant financial regulations and other applicable administrative rules in full or in part and dispens with the applicant’s relevant administrative liabilities during the term of experiment, the provisions of the Anti-money Laundering Control Act and the Terrorism Financing Prevention Act, and the regulations, rules and order related thereto shall nonetheless remain applicable. 

Securities Investment Trust and Consulting Act has been amended in order to improve the efficiency and flexibility of fund managements and to protect investors’ assets ─ The Lesgilative Yuan promulgated the amended provisions of Securities Investment Trust and Consulting Act on December 29, 2017 (promulgated by the President on January 31, 2018). The amdnedment provides that: (1) the maximum number of subscribers for a private placement is increased from 35 people to 99 people; (2) the clients of discretionary investment who meet certain qualification are not subject to relevant regulations over safekeeping procedure and entering into contracts regarding the clients’ assets; (3) for purpose of protecting the safety of investor’s assets, the assets obtained by the investment consultants and trustees of a securities business on their own names or accounts on behalf of the investors clients pursuant to the applicable laws and regulations shall not be commigled with the securities business’s own assets; nor shall such investors’ assets be subject to the claims or rights of the securities business’s creditors for debts arise out of the securities business’s own assets. 

Amendment to the Income Tax Act changes the highest tax bracket and abolishes the Integrated Income Tax System-The amendment to the Income Tax Act was passed by the Legislative Yuan on January 18, 2018 and promulgated by the President on February 7, 2018. The major aspects of the amendment include: (1) the tax bracket of 45% has been eliminated and the highest tax bracket is now at the rate of 40%; (2) the amount of the standard deduction is increased; (3) the Integrated Income Tax System regarding the taxation of dividends has been abolished, and the taxpayers may now choose to either include the dividend income in the total income or to separate them when filing income tax returns; and (4) the Profit‐seeking Enterprise Income Tax rate is increased to 20%. For those profit‐seeking enterprises with taxable income lower than NT$500,000, the Profit‐seeking Enterprise Income Tax will increase 1% per year for 3 consecutive years. 

The Ministry of Finance (“MOF”) amended the Enforcement Rules of the Customs Act (the “Engorcement Rules”) – By virtue of the new Article 43 of the Enforcement Rules, which coincides the the legislative purpose of exempting exhibition goods from customs duty, the custom duty exemption in Article 52 Paragraph 1 of the Customs Act is applicable to the consumable goods approved by the MOF to be used for demonstration in government-sponsored exhibitions (such as flowers and plants). According to Article 43 Paragraph 3 of the Enforcement Rules, the consumable goods for exhibition shall be considered re-exported in the same state if they are determined by the competent authority to be consumed during the exhibition and approved by the Customs to be written off from the Statement of Actual Consumption as items having no commercial value. 

Opinions and Views in Practice / Legal News

The Ministry of Economic Affairs (“MOEA”) ruled that company specimen is no longer required on the letter of consent issued by a shareholder of unlimited company, limited company or unlimited company with limited liability shareholders for those matters requiring shareholder’s consent — On January 30, 2018, the MOEA stated in a letter ruling that company specimen is no longer required on the letter of consent issued by a shareholder of unlimited company, limited company or unlimited company with limited liability shareholders for those matters requiring shareholder’s consent (e.g., amendment to articles of organization).  The ruling took effect upon the date of publication. 

The company limited by share may issue the shares less than NTD 1 par value —On February 1 2018, the MOEA issued a letter ruling stating that while Article 156 of the Company Act provides that the capital of a company limited by shares shall be divided into shares and each share shall have the same par value.  It does not prohibit issuing the shares at the par value of a figure less than one dollar.  Hence, the MOEA retracked its own ruling in 1992 that requires the par value of shares be one dollar, two dollars or three dollars, etc. 

The Financial Supervisory Commission Relaxes the Regulations on Investment by Commercial Banks in Venture Capital and Management Consulting Business – On December 25, 2017, the FSC promulgated the “Regulations on Application for Investment in Venture Capital and Management Consulting Business by Commercial Banks” (the “Regulations”), which provides that venture capital business and management consulting business conducting establishment or public offering of venture capital business are “the other financial related business designated by the competent authorities” referred to in Article 74 Paragraph 4 of the Banking Act that the commercial banks may invest.  The Regulations provides that the total investment amount in the venture capital business and management consulting business conducting establishment or public offering of venture capital business by the commercial bank shall not exceed 3% of commercial bank’s net worth as of the date of the investment.  The Regulations further provides that the shareholding of the commercial bank and its subsidiaries in the business invested through the venture capital business and management consulting business conducting establishment or public offering of venture capital business shall not exceed 15% of the voting shares of such business, excpt that the above restriction shall not apply if only the venture business subsidiary of the commercial bank participates in such investment and the amount of the investment does not exceed certain threshold.  In addition, the Regulations prohibits the person-in-charge or employees of the commercial bank from holding the managerial position in the business that it investes through the venture capital business. 

The Ministry of Finance promulgated the “Regulations Governing the Reduction and Exemption of Income Tax of Foreign Special Professionals”, which provides tax benefits in favor of foreign special professionals – To attract foreign special professionals to come to Taiwan, the MOF promulgated the “Regulations Governing the Reduction and Exemption of Income Tax of Foreign Special Professionals” (the “Regulations”) on January 30, 2018.  The Regulations provides that during the three year period beginning the tax year in which a foreign special professional resides in Taiwan for a full 183 days and earns an annual salary of more than three million dollars for the first time, half of the portion of his/her salary exceeding three million dollars may be excluded from his/her gross income for purpose of calculating income tax liability in each qualified tax year.  According to the Regulations, if a foreign special professional has not resided in Taiwan for a period of 183 days or has not earned an annual salary of more than three million dollars, the beginning of the three year period where the aforementioned tax benefit may be applicable can be deferred to the year in which he/she first meets said threshold.  The maximum number of tax years that a foreign special professional may enjoy the aforementioned tax benefit shall be three years.  The standards of definding “foreign special professionals” will be determined and published by the competent authorities of various industries respectively. 

The Ministry of Finance announced the amendment to Standards of Withholding Rates for Various Incomes and increased the withholding rate of distributed dividends applied to foreign investors to 21% - For purpose of balancing the taxes imposed on domestic and foreign investors, the MOF announced the amendment to Standards of Withholding Rates for Various Incomes, and increased the withholding rate of distributed dividends/profits applied to foreign investors to 21% on December 29, 2017, to take effect beginng the year of 2018. 

The Ministry of Finance ruled on calculation of income tax imposed on cross-border sales of electronic services conducted by foreign profit-seeking enterprises - On January 2, 2018, the MOF issued a letter ruling on income tax imposed on cross-border sales of electronic services conducted by foreign profit-seeking enterprises.  The important points include: (1) the meaning of domestic source income: other than the income derived from the merchandise produced and manufactured overseas, which is in principle not considered domestic source income, the income or remuneration received from the electronic services via the internet or other electronic means that carry instantaneity, interactivity, conveniency and continuity, the electronic services used for sales at a domestic physical location and the online platforms that are used for cross-border transactions are domestic source income if either transaction party is a national of this country or or a domestic service with physical location in this country; (2) deduction of expense: the expense may be calculated according to the actual data or by referring to the ratio of expense to the net profit from the main business item of the entities in the same industry, or deemed to be 30% of the income if the above-mentioned calculation methods are not applicable, provided, however, that if the auditing authority should determine from examination of actual data that the ratio is higher, then the high ratio of expense calculated from the actual data shall be used; (3) ratio of contribution to profit from domestic source income versus foreign source income: except that the contribution to profit by domestic source income shall be 100% where the entire transaction process takes place in this country or the service is both rendered and used in this country, the contribution ratio shall be determined according to the actual data or deemed to be 50% each, provided, however, that if the auditing authority should determine thereafter from examination of the actual data that the contribution rate of domestic source income is higher than 50%, then the higher ratio calculated from the actual datat shall be used. 

Commentary

Run for Grid Allocation – Competitive Market of Offshore Wind Farms

According to the global survey done by 4C Offshore Company, a marine consultancy, 16 out of the 20 world’s best wind farm sites are located in Taiwan Strait.  To utilize this valuable green energy, Taiwan government has established a goal that 20% of the electricity consumption will be generated by renewable energy by 2025, which includes 5.5GW that is expected to be generated from offshore wind farms to be installed by 2025.  Encouraged by the wind resourses and the Taiwan government policy, many developers have been planning to invest in offsore wind farm projects in Taiwan.  According to local news, there are 23 projects, in an aggregate capacity of 10.68GW, have passd the preliminary Environmental Impact Assessment (EIA) as of November 2017.  Said potential capacity has far exceeded Taiwan government’s target.  As a result, how the competent authority in Taiwan, i.e., Ministry of Economic Affairs (“MOEA”), will determine the grid allocation for the 5.5GW to be generated by 2025 (“Grid Allocation”) has become the the focus of the future development of the offshore wind farm projects.

For managing the grid allocation for the offshore wind farm, MOEA’s Bureau of Energy (“BOE”) promulgated the “Guidelines for Allocating Installed Capacity of Offshore Wind Potential Zones” (“Allocation Guidelines”) on January 18, 2018.  In the explainray notes, BOE indicated that the main subjects of the Allocation Guidelines include, among other things, corresponding the schedule of construction of domestic infrastructure (e.g., grid), orderly achieving the goal and target time table of offshore wind power generation, and promoting the establishment of domestic supply chain.

Under BOE’s plan, the targeted 5.5GW installed capacity will be allocated through two different procedure, namely, 3.5GW thereof will be allocated in accordance with the “Selection Procedure”, and the remaining 2GW will be allocated in accordance with the “Competitive Auction Procedure”.  The Allocation Guidelines requires the qualified developers to apply for capacity allocation with BOE no later than March 30, 2018.  The Offshore Wind Development Site Approval issued by BOE under the “Guidelines of Application for Offshore Wind Site Selection” would become invalid if the a qualified developler should fail to timely apply for grid allocation.

The Selection Procedure provides for different standards of selection for grid connection to be completed by 2020 (Stage 1) and for grid connection to be completed between 2021 and 2025 (Stage 2).  The first selection criteria is technical capabilities (60%), and the second criteria is financial capabilities (40%).  The Stage 1 applicants are further required to provide the plans and demonstrate that the grid connection will be complete by 2020.  As to the highly debated issue of localization of the supplying chain, BOE now requires all Stage 2 applicants to submit an undertaking on provding the substantial supply chain plan (to be reviewed by Industrial Development Bereau), and make such undertaking a binding obligation by administrative contract after the applicants are successfully selected.

The applicants who scored 60 points or above but is not allocated the entire capacity of the project in the Selection Procedure are qualified to participate in the the Competitive Auction Procedure.  The qualified applicants who submits the lower bids will compete for the remaining capacity from the 5.5GW that has not been allocated in the Selection Procedure.  The idea is that the cost of electricity may be lower through the Competitive Auction Procedure due to advancement of related technology.

To ensure the their performance of the plans and promises submitted in the application process, the selected applicants are required to provide performance bonds before signing an administrative contract with the MOEA.  The State 1 performance bond of is NT$ 4 million per MW, and the Stage 2 performance bond is NT$ 2 million per MW.  After signing the administrative contract, the MOEA will issue Offshore Wind Power System Installation Approval.  As part of the requirement to maintain such status, each of the selected applicatns through the above-mentioned procedures is required to obtain the electricity establishment permit before the end of 2019, and the construction permit in the year committed by such applicant.

The BOE currently estimates that the Selection Procedure will be completed by the end of April 2018, and that the Competitive Auction Procedure will be completed by the end of June 2018.  All offshore wind farm developers shall apply for grid allocation no later than March 30, 2018.  Those developers not awarded with any of the grid allocation would have to wait for the next allocation project announced by the government.  We have to wait and see who would pass the tests of this grid allocation contest.