According to Taiwan's National Statistics, Taiwan surpassed China as Asia's fastest-growing economy for the first time in 30 years in 2020, with a growth rate of 3.36%, beating China's 2.2% increase. The economy continued to expand at a robust rate and reached a growth rate of 6.57% in 2021, an 11-year high that was much higher than the International Monetary Fund-predicted world economic growth rate of 5.9%.

The performance came as a result of strong global demand for the island’s tech exports, particularly semiconductors, and a rise in domestic investment in the fourth quarter of 2021, outweighing the impact of the COVID-19 pandemic.

Faced with escalating political tensions between the United States and China, and the aftermath of the COVID-19 outbreak, many Taiwanese firms re-evaluated their reliance on China. The Taiwanese government has provided incentives to attract foreign direct investment from both foreign enterprises and Taiwanese firms operating overseas. The incentives include tariff exemptions, preferential loan terms, land concessions and a reshoring incentive programme that was established in 2019 to encourage Taiwanese firms with operations in China to expand their investment in Taiwan; this reshoring programme has since been extended to 2024.

However, the local COVID-19 outbreak and the surge in prices of energy, minerals, food and other commodities due to the conflict in Ukraine has since led to a lower-than-anticipated growth rate of 3.14% and 3.08% for the first and second quarter of 2022 respectively.

In respect of monetary policy, the Central Bank of the Republic of China has followed the Federal Reserve System’s lead by raising key interest rates: discount rates increased from 1.125% to 1.375% on 18 March 2022 and then to 1.5% on 17 June 2022. The rate for refinancing secured loans increased from 1.5% to 1.75% on 18 March 2022 and then to 1.875% on 17 June 2022. The rate on temporary accommodations increased from 3.375 % to 3.625% on 18 March 2022 and then to 3.75 on 17 June 2022, marking the first increases in a decade.

In light of inflationary pressures, the Ministry of Finance announced expansionary fiscal policies at the end of 2021 by raising tax allowances, including comprehensive tax exemptions, standard deduction and income deduction allowances, and simultaneously increasing gifting and inheritance tax-free thresholds.

The Taiwanese government established the Special Act on COVID-19 Prevention, Relief and Restoration on 25 February 2020, allocating a special budget of TWD840 billion (USD30.1 billion) to enhance access to credit in 2020 for small and medium-sized enterprises and vulnerable populations.

The financial assistance includes measures such as extended loan terms, initial interest-free periods, state guarantees and a relaxation of proof criteria for loan scheme applications.

The economic relief has contributed significantly to the increase in outstanding loans on the lending market. According to Financial Supervisory Commission (FSC) figures, the total amount of credit provided by Taiwan’s domestic banks in 2021 increased by 7.02% over 2020. The non-performing loans (NPL) ratio decreased to 0.17% at the end of 2021, down from 0.22% at the end of 2020. Furthermore, the NPL Coverage Ratio increased to 776.24% at the end of 2021, up from 623.24% at the end of 2020.

In June 2022, the NPL ratio decreased to 0.16%, while the NPL Coverage Ratio increased to 829.74%. Overall, the banking sector maintained an optimistic outlook for the loan market.

Changes as a Result of COVID-19

On 20 May 2021, the FSC promulgated an enhanced control in response to a domestic COVID-19 outbreak, and requested that all public companies in Taiwan postpone their Annual General Meetings (AGMs) until July 2021 and convene their AGMs and other shareholders’ meetings via electronic means. In addition, the application standards have been eased during the pandemic in order to aid enterprises in listing and raising capital from the market. Furthermore, on 30 September 2020, the FSC promulgated regulations to assess whether remote working could be used for auditing the financial reports of public companies.

COVID-19 has also prompted established institutions to diverge from their standard procedures and be rather innovative in adopting electronic signatures and alternatives to offline ways of meeting and negotiating deals, thereby shaping the future of financial services in the digital economy.

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. For example, on 4 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.

On 29 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 self-regulation Guidance for Banks on Fair Treatment of Senior Customers, so as to provide an increased variety of financial services to investors over 65. on 8 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 in recent years, especially for individual investors over 65.

Lastly, in April 2022, the Insurance Bureau of the FSC announced that investment-linked insurance products can no longer invest in high-yield bond funds because high-yield bond funds have been renamed as non-investment grade bond funds, but the new regulations have not yet been introduced.

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 crowd-funding 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.

Banking and finance techniques are evolving, particularly with the introduction of new concepts associated with the blockchain system and virtual assets. More recently, the FSC announced the new anti-money laundering regulations, "Regulations Governing Anti-Money Laundering and Counter-Terrorism Financing for Enterprise Handling Virtual Currency Platform and Transaction" (the Regulation), which are intended to strengthen the AML requirements for cryptocurrency exchanges in line with the Financial Action Task Force Recommendations.

Enterprises handling virtual currency platforms or transactions (virtual asset service providers – VASPs) that are subject to this Regulation are required to set up internal control and audit systems against money laundering, and to establish an Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT) system including customer due diligence (CDD), the preservation of relevant records and the disclosing of suspicious transactions. The Regulation took effect on 1 July 2021.

As of March 2022, FSC has approved ten VASP enterprises.

Additionally, the FSC further loosened security token offering (STO)-related regulations for security business on 20 January 2022, by shortening the interval between two STOs on a single platform from a year to six months, provided that there is no major violation of relevant provisions, and by increasing the fundraising cap from TWD100 million to TWD200 million. However, there is currently insufficient data to estimate the impact of STO-related rules.

In light of the continued low level of interest rates over the past few years, the amendment to Article 205 of the Civil Code (passed by the Legislative Yuan on 30 December 2020 and came into effect on 20 July 2021) reduces the interest rate cap from 20% per annum to 16% per annum and modifies long-standing rules.

Previously, Article 205 of the Civil Code stated that the lender had no right to interest in excess of the annual ceiling of 20%. Thus, if the borrower pays interest in excess of 20% per year voluntarily, they forfeit the right to a refund from the lender.

However, under current law, any agreed interest on the excessive part shall be null and void if the agreed-upon interest rate between the borrower and the lender exceeds 16% per annum. Hence, if the borrower requests the lender to return the interest paid on the portion of the loan for which the yearly interest rate exceeds 16%, the court will support that request.

Furthermore, an amendment to Article 12 of the Civil Code was passed in the Legislative Yuan on 13 January 2021 and will come into force on 1 January 2023. As a result, the standard requirement of loan contracts will be lowered due to the lowering of the age limit. Perhaps more young people will enter into loan contracts in the future.

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 TWD1.41 trillion as of the end of March 2022, a rise of approximately TWD429.6 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.

However, in January 2022 the FSC issued an order concerning the Regulations Governing Offshore Funds, which stipulates that the content disclosed in the investor information summary of ESG-related offshore funds should include investment objective and metrics, investment strategies and approaches, investment proportion allocation, reference performance indicators, exclusion policies, risk warning and dedicated governance involvement.

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 by both the board of directors and the shareholders’ meeting.

Foreign lenders are not required to obtain a licence in Taiwan 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, the transfer of performing loans and non-performing loans is governed by distinct rules.

The Transfer of Performing Loans

According to a ruling issued on 31 December 2014, financial institutes may not transfer their performing loans to a third party, unless otherwise agreed upon by the lender and the borrower, or unless the loan is transferred to another financial institution pursuant to the Financial Institutions Merger Act or the Financial Asset Securitisation Act.

This is owing to the bank's obligation to maintain the confidentiality of its customers' information. Once the financial institution sells or transfers the performing loans to the third party, it may be seen to have violated the confidentiality obligation and the principle of good faith.

The Transfer of Non-performing Loans

According to the Directions Governing the Sale of Non-Performing Loans by the Financial Institutions, financial institutions are required to collect the debt outstanding from customers by themselves, except in limited instances, such as when the average NPL ratio of banks exceeds 3% in the preceding year.

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 Paragraph 3, Article 43-1 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 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, such as 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.

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 Income. 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.

See 1.6 Legal, Tax, Regulatory or Other Developments.

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, deposit 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 by both the board of directors and 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.

Any such arrangement may trigger concerns over the fiduciary duty of the target’s directors.

There are several statutory constraints on the provision of security.

The creation of a security interest in certain assets is prohibited, such as 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.

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, Taiwan 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 Taiwan 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 the Taiwan laws;
• the performance ordered by that judgment or its litigation procedure is contrary to Taiwan 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.

Along with judicial insolvency proceedings, private restructuring processes are very important. They 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 Articles 74 and 82 of the Taiwanese Bankruptcy Law, 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.

According to Article 369-7 of the Company Act, if a controlling company has caused, directly or indirectly, its subordinate company to conduct any business that is contrary to normal business practice or is not profitable, and if the controlling company has a claim upon that subordinate company, the controlling company shall not claim for offsetting any such claim against its indemnification liability, if any, to the subordinate company.

If the subordinate company enters into bankruptcy or composition procedures in accordance with the provisions of the Bankruptcy Act or enters into a reorganisation process or special liquidation of its company in accordance with the provisions of this Act, the claim mentioned, with or without the right to exclusion or priority, shall be satisfied in the order second to all other obligatory claims of the subordinate company.

According to the Bankruptcy Act of Taiwan, the bankrupt is not permitted to dispose of any property. Therefore, the third party can only claim their rights against the 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.

In recent decades, project finance was not frequently seen in local syndicated loan markets. Due to the non-recourse or limited recourse nature of project finance, which goes against the risk-averse mindset of Taiwanese banks, most Taiwanese banks do not actively participate in project finance. Another factor is the reluctance of local banks to invest in unfamiliar projects. State-owned banks are even more conservative about funding large-scale projects, especially after the high-profile loan fraud involving Ching Fu Shipbuilding Co, Ltd in 2017.

However, since the Taiwanese government is actively developing renewable energy to reach the 20% target by 2025, green energy projects have been the hottest topic of project finance in recent years. For example, the Formosa 1 Offshore Wind Power Project was the first offshore wind farm project in Taiwan, followed by the Formosa 2 Offshore Wind Power Project, the Yunlin Offshore Wind Farm Project and the Greater Changhua Offshore Wind Projects.

To date, most of the project financing has been arranged or funded by foreign banks, adopting the international standards and practices in those transactions. Some large local banks (such as CTBC Bank, Taipei Fubon Bank and Cathay United Bank) have also been actively participating in project finance relating to renewable energy of late.

There is no project finance-specific legal framework in place in Taiwan, but the Regulations Governing Members' Credit Extension provided by the Bankers Association provide guidance on the principles of project finance. Nevertheless, due to the limited number of past precedents, no local practice of project finance has yet been established and the relevant participants normally follow the international practice.

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; such co-operation is known as public-private partnerships (PPPs). 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 participations, 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 the 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 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.

In general, no governmental approvals are required for the financing of a project, although specific projects may trigger such requirements (see 8.7 The Acquisition and Export of Natural Resources).

Aside from security documents, no registration or filing of the transaction documents in connection with the financing is required by any governmental body.

The Bureau of Mines (an agency under the Ministry of Economic Affairs) is the competent authority for mining affairs in Taiwan. The Mining Act is the primary statute governing mining operations, and applies to all mineral resources, including oil, gas, coal, metal, etc. Pursuant to Article 2 of the Mining Act, all mineral resources in the territory of Taiwan are owned by the state, so any enterprises must acquire a mineral right before exploitation (including exploration) – eg, a Mining Right or Exploring Right. The procedure for obtaining a mining right is stipulated under Article 15 of the Mining Act. Once an enterprise acquires the Mining Right, that right shall be valid for a term of 20 years, whereas the Exploration Right is good for four years.

However, the enterprise could apply for extension before the expiry of this term. Each extension of a Mining Right shall not exceed 20 years in duration. Moreover, if any circumstances outlined in Article 11 of the Standards for Determining Specific Items and Scope of Environmental Impact Assessments for Development Activities (issued by the Environmental Protection Administration – EPA) occur, the enterprise seeking to acquire a Mining Right or Exploring Right must conduct an environmental impact assessment before submitting its application for the mineral rights.

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 toward 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 Chinese investor that intends to invest in the sector 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.

As mentioned in 8.4 The Responsible Government Body, 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 four 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 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 Commodity 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 EPA. Businesses investing in Taiwan must comply with these laws, or may attract civil, administrative or criminal liabilities.

In addition, on 18 August 2020, the FSC announced the Green Finance Action Plan 2.0, the purpose of which is to direct funds toward green and sustainable industries, to assist financial institutions in managing the risks of climate change, and to encourage enterprises to put effort into ESG and sustainability goals. Moreover, eight banks in Taiwan have already 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.

For listed or public companies to comply with Green Finance Action Plan 2.0, certain regulations governing the issuance of Sustainability Reports and ESG disclosure have been updated, including the Taiwan Stock Exchange Corporation Rules Governing the Preparation and Filing of Sustainability Reports by TWSE-Listed Companies and the Regulations Governing Information to be Published in Annual Reports of Public Companies by the end of 2021.

The most important health and safety law is the Occupational Safety and Health Act, which is implemented by the Department of Labour and aims to protect workers’ safety and health. Under the act, employers are obliged to prevent occupational accidents and to maintain sound and safe working environments, or they may attract legal liabilities.

Furthermore, the new Labour Occupational Accident Insurance and Protection Act was enacted in May 2022. This law has consolidated 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.