TAIWAN Law and Practice Contributed by: Susan Lo, Chi Lee and Evelyn Shih, Lee and Li Attorneys-at-Law
9.3 Exit Strategy Freedom to Determine the Exit Strategy
The JV participants can also proceed, under the Com - pany Act, with liquidation and dissolution procedures to wind up the company. The key actions for the liq - uidation process include issuing a public announce - ment for the creditors to report any debts, settling the outstanding debts and taxes, making up for any losses and repaying the debts of the JV entity before distributing the profits, if the JV entity decides to wind up. Moreover, when there is a foreign participant, the DIR’s approval regarding the dismissal of a foreign investment is required before a foreign JV participant can remit the residual overseas upon the conclusion of liquidation proceedings. 9.2 Asset Redistribution and Transfers Tax incentives may be one consideration when trans - ferring JV assets. Under the BMAA, if the company acquires assets amounting to more than 65% of the compensation of the share purchase, it will be exempted from stamp tax, deed tax and securities exchange tax. Depending on the value and percentage of the JV’s total assets, the transfer of assets will be subject to certain statutory procedural requirements. For exam - ple, the transfer of assets requires the majority vote of the shareholder’s meeting for the transfer to have a material impact on the JV company’s operation. For foreign JV participants, it is pivotal to also take the withholding tax issue into consideration. When the JV entity declares dividends and repatriates dividends offshore to foreign JV participants, it will be subject to a withholding tax of 21%. If the foreign JV participant is incorporated in a country that has signed a tax trea - ty with Taiwan, a lower withholding tax rate may apply.
Generally, JV parties may freely negotiate and incor - porate mechanisms such as put and call options, tag-along and drag-along rights, deadlock-triggered buyouts and pre-emptive rights. These provisions are generally enforceable under Taiwan law, so long as they are clearly drafted and do not contravene manda - tory legal norms or public policy. Common Exit Mechanisms in Taiwan Frequently used JV exit strategies in Taiwan JVs include: • sale of shares – subject to any agreed restric - tions, this is the most straightforward and flexible method; • dissolution and liquidation – used when the JV has fulfilled its purpose or when the parties cannot resolve a deadlock; • M&A – a strategic exit route, particularly where one party seeks to consolidate control or monetise its investment; and • initial public offering (IPO) – less common but viable for JVs with scalable operations and long- term growth potential. Each exit route should be aligned with the JV’s com - mercial objectives, governance structure and regula - tory obligations.
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