Setting up a company in Taiwan is a strategic move for many entrepreneurs and foreign investors seeking access to the Asian market. However, there are times when a company is successfully registered but does not begin operations immediately. Whether due to market shifts, internal delays, or strategic planning, business owners may find themselves with a registered but inactive company. This raises an important question: Do you need to apply for business suspension in Taiwan?
This article explains the legal requirements for inactive companies in Taiwan, the necessity of business suspension, and how to manage your company’s status properly.
Legal Background: What Does Taiwanese Law Say About Inactive Companies?
According to Taiwanese regulations, once a company is incorporated and registered with the Ministry of Economic Affairs (MOEA), it is obligated to fulfill tax filing requirements, even if it is not generating revenue. This includes corporate income tax returns and VAT filings, if applicable.
Fortunately, the law allows companies to temporarily suspend operations, commonly referred to as “business suspension” (停業). By applying for business suspension, a company can legally pause its operations without undergoing dissolution or liquidation.
Why Consider Applying for Business Suspension?
If your company is temporarily inactive, applying for suspension offers several benefits:
- Regulatory Compliance: Taiwan’s tax authorities periodically review business activity. Applying for suspension formally notifies them of inactivity and helps avoid penalties.
- Reduced Filing Burden: During suspension, certain filing obligations may be reduced, lowering administrative costs.
- Preserve Legal Entity: Suspension keeps your company legally intact, allowing for easier resumption of business in the future.
- Strategic Flexibility: Suspension provides breathing room to adjust your business model or timeline without legal complications.
When Is Business Suspension Recommended?
While not mandatory, business suspension is recommended in the following scenarios:
- Your company expects to remain inactive for a long period (typically over six months).
- You want to avoid penalties for failing to file required reports or returns.
- You are not yet ready to dissolve the company but need to pause operations for the time being.
If your company is in its early stages or has minimal activity, you may choose to remain active and file as a low- or zero-activity business.
How to Apply for Business Suspension in Taiwan
The process of applying for suspension involves:
- Internal Company Resolution: The board of directors or shareholders must pass a resolution approving the suspension.
- Submit Application to Tax Authority: Submit the resolution and suspension application to the National Taxation Bureau in the company’s registered district, specifying the intended period of suspension.
- Suspension Period Limits: Each application for suspension or extension must not exceed one year. Therefore, whether it’s the initial suspension or an extension, the maximum approved period is one year per application.
- Ongoing Compliance During Suspension: Even while suspended, the company must maintain accounting records and update registration details if there are changes.
Financial and Tax Implications During Suspension
Before suspension, the company must file and pay VAT for its last operational tax period. During the suspension period, if the company does not purchase government invoices (uniform invoices), it may be exempt from monthly filings. However, if the company sells goods or disposes of assets during the suspension, it must issue invoices and declare VAT accordingly.
It’s also important to understand that suspension does not terminate the company’s legal status. Therefore, all financial and tax obligations still apply. If the company continues to pay salaries, rent, or other expenses, proper accounting and tax withholding must be maintained. For corporate income tax purposes, the annual filing can be prorated based on the actual operating period within the fiscal year. The taxable income for the year is calculated as if the company operated the full year, then adjusted proportionally based on the months it was active.
Alternative to Suspension: Company Dissolution
If your company is unlikely to resume operations in the future, you may consider dissolution as a more permanent solution:
- Voluntary Dissolution and Liquidation: If there are no future business plans, formally dissolving and liquidating the company removes future compliance burdens. This includes deregistration from the MOEA, National Taxation Bureau, local tax office, and other relevant authorities.
Risks of Ignoring an Inactive Company
Failing to properly manage an inactive company can lead to:
- Fines and Penalties: Neglecting required filings or failing to notify tax authorities of inactivity can result in financial penalties.
- Forced Suspension or Dissolution: Regulatory authorities may forcibly suspend or dissolve companies that fail to comply with operational or reporting requirements.
- Credit and Reputation Damage: A company with tax arrears or legal violations may damage your business record and affect future ventures or credit applications.
Best Practices for Managing an Inactive Company in Taiwan
- Assess your future business plans and decide whether to apply for suspension or proceed with company dissolution.
- Engage a professional accounting or legal advisor to ensure that all procedures are completed correctly and lawfully.
- Stay current with tax filings, even during suspension, to avoid penalties or blacklisting.
- Keep your registration details (e.g., responsible person, address, business scope) up to date with the authorities.
Final Thoughts
Establishing a company in Taiwan is a significant business decision, but managing periods of inactivity is just as important. Business suspension is a compliant and flexible tool for pausing operations without dissolving the company.
If you are unsure whether to suspend, maintain, or dissolve your company, consult with a local advisor to protect your investment and ensure legal compliance.
