There’s more to buoyant two-way FDI flows than generous taxation policies.
Back in the 1600s, the Dutch were Taiwan’s first foreign investors, with their legendary Dutch East Indian Company setting up Fort Zeelandia in what is now the Anping district of Tainan.
Fast-forwarding to the present, the Netherlands for the past three years has been leading the pack as Taiwan’s main source of foreign direct investment (FDI). The 2018 total came to US$3.5 billion, well ahead of the $1.5 billion each from Japan and British Caribbean territories.
While the Netherlands has generally long been among the world’s top sources of FDI thanks to its generous fiscal attitude toward multinational companies and special purpose vehicles (SPVs), also known as letterbox companies, a substantial share of the money flow is feeding real economic activity by Dutch companies in Taiwan.
Cases in point are ASML, a manufacturer of production equipment for semiconductors; NXP Semiconductors, which focuses on making automotive chips; and DSM, a health, nutrition, and materials sciences company. There is also Sweden’s national flagship company, furniture-maker Ikea, which is actually headquartered in the Dutch city of Delft.
“The FDI statistics cannot paint the real picture, as many non-Dutch companies carry out FDI via the Netherlands,” explains Guy Wittich, head of the Netherlands Trade & Investment Office (NTIO) in Taipei. On the other hand, he notes that Dutch-based ASML was the largest contributor of new foreign investment in 2016 “by acquiring its Taiwanese peer Hermes Microvision for almost US$3 billion” and remained among Taiwan’s top foreign investors in 2018.
Both ASML and NXP are spin-offs from Dutch electronics conglomerate Philips, which played a key role in Taiwan’s evolution into a global electronics-exporting powerhouse by being Taiwan’s largest foreign investor in the 1980s and 1990s.
Philips was instrumental in the establishment of what is now Taiwan’s largest company, Taiwan Semiconductor Manufacturing (TSMC), serving as the biggest initial investor. (Philips sold its last TSMC shares in 2008.)
While the Netherlands seems headed toward making 2019 its fourth consecutive year as Taiwan’s largest FDI source, it is also a major destination for Taiwan’s outbound FDI. In 2018, it took in US$1.1 billion in Taiwanese investment to make it the largest recipient in the European Union.
Although that figure is less than the investment amount to the UK’s Caribbean overseas territories ($5.9 billion) and the U.S. ($2 billion), it is considerably more than to Vietnam ($900 million), which has become a magnet for investment by the Taiwanese manufacturing sector in recent years.
As much as 80% of the overall inbound FDI into the Netherlands tends to be immediately channeled abroad through the use of SPVs. Nevertheless, there are currently more than 200 Taiwanese companies operational in the Netherlands, compared to over 700 companies from Japan, about 600 from China, and some 100 from South Korea.
Among those on the list of Taiwanese investors with brick-and-mortar presences are electronics makers Acer, Asus, Giga Byte, BenQ, Pegatron, TSMC, and MSi; bicycle makers Giant and Merida; as well as container shipping line Evergreen and airline Eva Air.
According to a May 2019 report by professional services firm Ernst & Young listing the Netherlands’ largest FDI sources, Taiwan rose from 11th to 7th place with 14 projects in 2018, compared to seven projects in 2017. India and South Korea saw their number of projects double as well, rising to fifth and ninth places respectively.
“The historic reason for strong Taiwanese FDI in the Netherlands was Philips’ sourcing from Taiwanese electronics contract manufacturers, which were the first Taiwanese companies opening presences in the country,” says Dennis Bierman, Director of the Netherlands Foreign Investment Agency at the NTIO in Taipei.
“Three vibrant clusters of Taiwanese companies have been growing around Amsterdam, Eindhoven, and Rotterdam thanks to direct Amsterdam-Taipei flights, the strength of Rotterdam port, ease of doing business, a competitive tax climate, and the population’s general English-language competence,” Bierman says.
Although electronics remains the dominant sector, the range of Taiwanese-invested companies has been widening, notes Dominic Chen, secretary of the economic division of the Taipei Representative Office in the Netherlands. The country’s deferred value-added tax (VAT) payment scheme is an important factor driving this investment, as it facilitates the smooth importation of goods into the EU, he says. Without that option, companies would have to pre-pay the import VAT amount and then later apply for a refund if the goods are re-exported. The application process could take months or even a year.
“Taiwanese companies based in the Netherlands use this scheme to smoothly ship Taiwan-made imports, such as bicycles and gaming monitors, on to elsewhere in the EU – for example, Germany and the Czech Republic,” Chen says.
He adds that recently the importing business has also been aided by the European Commission’s decision in January to impose anti-dumping as well as anti-subsidy duties on e-bikes imported from China. As a result, there was a “420% year-on-year increase in the import of Taiwanese e-bikes in April,” he says.
Another reason for Taiwanese investors’ satisfaction with the Netherlands is the relative lack of labor-management friction compared to France and several other EU countries, Chen says. Wage adjustments are generally worked out amicably with the help of input from government and academics.
The authorities’ active outreach to foreign investors is a further plus, says Chen, citing a recent series of seminars across the country to inform companies about changes in the EU’s data-protection rules involving complicated compliance requirements.
“The Taiwanese businesspeople are well-integrated in the society here,” Chen says. “They know the Dutch way of doing business and can cope easily with the regulatory climate. Indeed, in the two years I have been based here, I haven’t heard of the Taiwanese businesspeople complaining of any big challenges.”
