Fueling Innovation and Entrepreneurship in Taiwan’s Tech Sector

As technologies continue to evolve from devices to software, and technology start-ups continue to drive market growth, Taiwan is faced with the challenge of advancing its entrepreneurial ecosystem and promoting innovative technologies in order to retain technological leadership in the region.

In its position paper in the American Chamber of Commerce’s recently published 2017 Taiwan White Paper, the Chamber’s Technology Committee highlights the importance of attracting foreign technology startups to Taiwan. Foreign startups could develop Taiwan’s entrepreneurial ecosystem in a number of ways, including developing local talent and countering brain drain, generating employment opportunities, and creating a tighter network of overseas partnerships.

To attract foreign startups, the committee recommends relaxing the restriction on the types of business entities that can register to conduct business in Taiwan. Currently, a non-Taiwan business may register a Taiwan branch only when its legal structure is similar to that of a Taiwan limited company or a Taiwan company limited by shares, a restriction that excludes many businesses and closes off potential avenues for investment. The committee emphasized the importance of attracting more foreign venture capitalists and foreign talent, while continuing to cultivate and retain local talent.

In its position paper, the committee also advocated relaxing the revenue requirement imposed on entities with foreign investment that hire foreign executives. Under current regulations governing the hiring of foreigners, an entity with foreign investment seeking to hire a foreign manager or executive must meet high monetary thresholds to do so. These restrictions place serious limitations on early-stage technology start-ups, who must focus on investing in R&D and often do not bring in substantial revenue during their early years. The skills and insight of foreign professionals are crucial to any startup, particularly those in their early phases.

Technology startups frequently require an extended period for R&D, product development, and market penetration prior to making substantial profits. Though the absence of profit during the first few years may be completely in line with a company’s long-term goals, local tax offices often place intense pressure on companies to show minimum profit on their tax returns. The committee recommends easing tax pressures on technology startups, since they require an extended timeline for profitability.

The committee would also like to see clarification of the types of rights and restrictions that shareholders can agree on within a company’s articles of incorporation, as Taiwan law does not clearly stipulate the degree of flexibility shareholders have to assign different rights and restrictions to different shares.

In line with the recommendations of the Human Resources Committee, the Technology Committee also emphasized the need for Taiwan’s labor regulations to adjust to Taiwan’s increasingly knowledge-based economy. Current labor laws based on traditional labor-intensive methods are outdated and impractical for knowledge workers in the technology sector. The Technology Committee recommends allowing more flexible working hours and eliminating attendance records for workers in technology industries. As R&D activities can be conducted anywhere and anytime, the office is no longer the only place of work. Moreover, with varied time zones and the inconsistency of working hours, recording work hours is equally impractical.

The committee also recommends revising the proposed draft of the Protection of Dispatch Workers Act, which would cap the employment of dispatch labor at 3% of a company’s total workforce. “The 3% cap forces employers to have core employees handle non-core activities, and at the same time eliminates job opportunities for dispatched workers in emerging start-ups. The 3% cap also limits the speed with which innovation can be implemented,” the Technology Committee contends in the position paper.

Although not discussed in the Human Resources position paper, loosening labor restrictions on fixed-term contracts would also help Taiwan adjust to the increasingly knowledge based labor force. Tech companies often need to enter into fixed-term relationships with recruited workers who possess a special skill-set that is lacking in the regular team. Currently, there is a one-year limit on fixed-term contracts, a provision that places unnecessary strain on developing tech start-ups. The Technology Committee suggests that the one-year limit on fixed-term contracts be extended for an additional two years. The committee further recommends relaxing salary and working experience requirements for foreign white-collar workers. Salary and working experience requirements deny startups the crucial flexibility needed in R&D development.

Establishing a high-level department to take charge of integrating national IT development strategies would further advance Taiwan’s technological and entrepreneurial aims. Nearby Southeast Asian countries including Singapore, Thailand, Indonesia, Vietnam, and the Philippines have all established high-level agencies responsible for developing strategies for national IT advancement and supporting industry development.

“In Taiwan, the lack of a designated agency under the Executive Yuan to take charge of information integration makes it difficult to coordinate relevant policies and programs across different government departments,” the committee says in its position paper. A bill to establish an office of the Government Chief Information Officer (CIO) is currently before the Legislative Yuan. The committee urges the legislative to pass the draft “Government Chief Information Officer (CIO) Organization Act” and establish a cabinet-level organization dedicated to supervising the use of IT within the government.

To read the full Technology position paper, click here.