Foreign direct investment (FDI) in Taiwan, China

FDI in Figures

Global foreign direct investment (FDI) flows in 2021 were USD 1.58 trillion, up 64 per cent from the exceptionally low level in 2020. The recovery showed significant rebound momentum, with booming merger and acquisition (M&A) markets and rapid growth in international project finance because of loose financing conditions and major infrastructure stimulus packages. However, the global environment for international business and cross-border investment changed dramatically in 2022. The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world. Investor uncertainty could put significant downward pressure on global FDI in 2022. The 2021 growth momentum is unlikely to be sustained. Indeed, world flows in the second quarter of 2022, the latest data available, were down 31% from the first quarter and 7% less than the quarterly average of 2021 (UNCTAD Global Investment Trends Monitor, October 2022). The negative trend reflects a shift in investor sentiment due to the food, fuel and finance crises around the world, the Ukraine war, rising inflation and interest rates, and fears of a coming recession. Expectations for the full year are for a marked slowdown. In developing Asia, despite successive waves of COVID-19, FDI rose to an all-time high for the third consecutive year, reaching $619 billion. Asia is the largest recipient region, accounting for 40 per cent of global FDI. However, inflows remain highly concentrated; six economies account for more than 80 per cent of FDI to the region (UNCTAD, October 2022).

According to UNCTAD's World Investment Report 2022, FDI flows to Taiwan stood at USD 6.05 billion in 2020, compared to 8.24 billion in 2019 and 5.40 billion in 2021. The stock of FDI was about USD 110.50 billion in 2020 and 115.91 billion in 2021.  In an uncertain global environment due to the outbreak of the Covid-19 pandemic, Taiwan's FDI performance was impressive. According to Taiwan's official statistics, 1,313 foreign direct investment (FDI) projects totaling USD 2.3 billion were approved from January to June 2021. As for inbound investment from mainland China, 20 cases were approved with an amount of USD 2.7 million from January to June 2021 (Ministry of Economic Affairs, Taiwan, 2021). The Netherlands, the British Virgin Islands and Japan are the largest investors in the country (excluding investment from Mainland China). Manufacturing, financial services, and IT attract most foreign investment. While Europe and Taiwan have a wealth of similar interests, the investment relationship between the two has become decidedly lopsided in recent years. Led by the Netherlands—historically the largest single source of FDI in Taiwan—the EU has become the foremost investor in Taiwan, accounting for 38.8 percent of total FDI in Taiwan in 2021. Taiwan's finance, wholesale and retail, and electronics sectors remain top targets of inward FDI. Taiwan slso attracts a wide range of U.S. investors, including in advanced technology, digital, traditional manufacturing, and services sectors.

Foreign direct investment (FDI) into Taiwan in the first half of 2022 rose 275% from a year earlier, hitting more than USD 8 billion and paving the way for 2022's FDI to reach a 15-year high (Nikkei Asia, 2022).

Taiwan is an attractive destination for foreign direct investment (FDI) as its economy benefits from regional economic dynamism, a population with high purchasing power and the prominence of high-tech. However, the global economic crisis, the subsequent Eurozone crisis and the slowdown in China have negatively impacted FDI flows. Speculative activities, rising house prices, excessive bureaucracy and the rigidity of the legislative framework are all obstacles to investment. Nonetheless, Taiwan's business environment remains very attractive. Taiwan has one of the world’s best regulatory system for protecting minority investors (transparency). In 2019, Taiwan made paying taxes costlier by increasing the corporate income tax rate.

The latest United NationAsia-Pacific Trade and Investment Trends Report provides additional information on FDI in Asia-Pacific in 2022 and 2023.

What to consider if you invest in Taiwan, China

Strong Points

Advantages for FDI in Taiwan include:

• The country has a very internationally oriented economy and the trade balance is largely in surplus
• A strategic geographical location: the country is a gateway to China and to the ASEAN markets
• Taiwan has a large industrial base (being for example the 4th largest electronics producer in the world) and strong R&D capacity (supported by public spending)
• Robust external financial position
• Support for R&D through public expenditure
• The workforce is abundant, skilled and affordable
• The financial markets are booming and present many opportunities for foreign investors.
• Overall, the business environment is very positive and Taiwan ranked in the 15th place in the World Bank's Doing Business 2020 report is a good indication of its strengths.

Weak Points

With an export-oriented economy, Taiwan is dependent on the global economy and is particularly vulnerable to the development of trade with China and the USA, its main trading partners. Some of the disadvatages for the FDI include :

• Lack of a direct channel of communication with Mainland China
• Reduced size of the domestic market, which considerably limits local opportunities
• Poorly protected intellectual property
• A lack of diversity in the economy (low competitiveness of the services sector for example)
• Delays of infrastructure projects compared to other advanced Asian economies.

Government Measures to Motivate or Restrict FDI

Taiwan welcomes and actively promotes foreign direct investment. Local authorities offer investment incentives and support to foreign investors in the form of tax incentives, tariff exemptions, low-interest loans, R&D subsidies and other favourable terms.

Current regulations provide preferential tax incentives to foreign professionals employed in Taiwan, and are aimed at improving the overall environment for recruiting and attracting professionals from other countries (Foreign Talent Retention Act). A network of science and industrial parks, export processing zones, and free trade zones has been developed. Furthermore, in 2019 Taiwan launched a reshoring incentive program to attract Taiwan firms operating in mainland China to return to Taiwan, receiving positive responses from ICT manufacturers.

The national agency Invest Taiwan is responsible for promoting investments and acts as a single-window service provider. For investments of over NTD 500 million (around USD 17 million), the authorities will assign a dedicated project manager to the investment process.

Bilateral investment conventions signed by Taiwan, China

To see the list of investment treaties signed by Taiwan, consult UNCTAD's International Investment Agreements Navigator.