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Non-competition Clause; Labor Pension; Controlled Foreign Company

Updated: Oct 27, 2023

The Taiwan Supreme Court made the civil judgment (Year 2021, Tai-Shang-Zi, No. 2040) on July 7th, 2022, stating that the non-competition clause can be valid if the scope of non-competition is limited,while the compensation of the violation of non-competition shall also be reasonable. According to Article 9-1 of Labor Standards Act, “An employer shall not make an after-resignation business strife limitation agreement with an employee unless the following requirements have been met: (1) The employer has proper business interests that require being protected. (2) The position or job of the employee entitles him or her to have access to or be able to use the employer’s trade secrets. (3) The period, area, scope of occupational activities and prospective employers respecting the business strife limitation shall not exceed a reasonable range. (4) The employer shall reasonably compensate the employee concerned, who is not engaging in business strife activities for the losses incurred by him or her.” The Taiwan Supreme Court considered that the position of the employee is important if he is allowed to have access to sensible information that may affect the business of the company and if it can be disclosed to competitors. Since the non-competition clause only confines that the employee cannot find work in the same industry, and the non-competition duration is limited to 18 months, the non-competition clause is valid. However, the Supreme Court considers that the amount of compensation shall be reasonable, so the court decreased the compensation down to to 2.5 million TWD. Source : Lawbank Website


The Rules of Labor Pension shall also be Applied to Part Time Workers

The Taiwan Ministry of Labor announced on July 9th, 2022 that part time workers shall also be benefit from Labor Pension. The employer of part time workers shall pay for the labor pension, and the amount of labor pension shall not be included in the agreed salary. According to Article 6 of Labor Pension Act, “Employers shall on a monthly basis contribute to labor pension funds, and to individual labor pension accounts at the Bureau for employees, covered by the Act.” According to the Taiwan Ministry of Labor, rules of working hours and salary calculation are the same for both part time and full time workers, so the benefit of labor pension for part time workers shall also be the same for full time workers. Therefore, for all workers under Labor Standards Act, the employer shall pay the labor pension pursuant to Article 6 of Labor Pension Act. In addition, as for full time workers, the payment of labor pension by the employer shall not be less than 6% of the employee’s monthly salary, and shall not be deducted from the salary paid to the employee. Source : Lawbank Website


The Rule of Controlled Foreign Company will be Valid from 2023

The Taiwan Ministry of Finance has announced that the new rule of Controlled Foreign Company (“CFC”) will be valid as from 2023. For the purpose of avoiding the tax evasion in tax haven by foreign company, article 43-3 has been added in Income Tax Act in 2016, and it is confirmed that the new rule will be valid as from the year 2023. According to article 43-3 of Income Tax Act, and excepting the surplus of the year of controlled foreign company is less than TWD 7 million, the surplus of the year of controlled foreign company shall be added into the annual revenue of the tax payer, after deduction of the legal reserves and accumulated loss, based on the ratio of holding shares or capital and the holding duration. To avoid double taxation, when the tax payer is distributing the dividends or surplus, the parts are to be added into the annual revenue, the tax payer shall not be taxed, and the income which has been taxed, pursuant to the local tax laws, can be deducted.


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