I. Policy Initiatives

The semiconductor industry in Taiwan is a global leader and ranked first by market share in both wafer manufacturing and packaging & testing. Taiwan also ranks second in IC design, while 92% of global leading-edge chip manufacturing capacity is concentrated in Taiwan.

Taiwan's current semiconductor policy is focused on the development of AI chips and artificial intelligence (AI) applications to establish critical technologies that industries need to build smart system applications. Taiwan shall continue to leverage its heft in the semiconductor industry to support the 5+2 Industrial Innovation Plan and tap into its wealth of outstanding semiconductor talents to transform Taiwan into a hub for advanced semiconductor processing. To achieve this, Taiwan will be employing a four-pronged approach:

1. Ensuring a Sufficient Supply of Semiconductor Talent

2. Strengthening Leading Edge Semiconductor R&D Efforts

3. Promoting Semiconductor Clusters in Southern Taiwan

4. Further Industrial Development, More Incoming FDI

II. Overview of Industrial Development

1. Output Value

The semiconductor industry is a key pillar of economic growth in Taiwan and is one of Taiwan's most important industries in terms of output value, share of exports, and amount of investments. In 2021, Taiwan's semiconductor industry outperformed the global industry, posting 26.7% year-on-year growth by achieving output value of NT$4.08 trillion (US$145.8 billion), making it the second largest in the world with 26.2% of the output of the global semiconductor industry. Taiwan's continuous development of high- end processes and the continued growth of markets for equipment and materials will help consolidate Taiwan's lead in semiconductor industry development in 2022. The output value of Taiwan's semiconductor industry is forecasted to increase by 17.7% and reach NT$4.8 trillion in 2022 (see Fig. 1).

2. Industry Value Chains

Taiwan is home to the most complete semiconductor industry clusters and specializations in the world and has world-class companies in all the various sub-fields of the semiconductor industry. In the upstream segment, industry value chains include chip design and silicon intellectual property cores. Leading chip design firms include MediaTek, Novatek Microelectronics, Realtek Semiconductor, Etron Technology, and Sunplus Technology.

TSMC, the most prominent of Taiwan's midstream chipmakers, commands the No.1 share of the global foundry market and has highly advanced semiconductor processes, but in addition to TSMC there are also United Microelectronics, Vanguard International Semiconductor, and Powerchip Semiconductor. In the downstream packaging and testing segment, Taiwan has a host of home-grown packaging and testing firms with giant international reputations, including Advanced Semiconductor Engineering, Siliconware Precision, and Powertech Technology. Each segment of industry contributes its own irreplaceable value to the semiconductor industry that has arisen in Taiwan (see Fig. 2).

 3. Industrial Clusters

According to the 2021 Semiconductor Industry Yearbook, the 285 semiconductor firms currently operating in Taiwan employ some 290,000 persons. Most of these firms are concentrated in the Hsinchu Science Park and Taoyuan. However, in order to disperse risks associated with earthquakes and other natural disasters, a big share of more recently added production capacity has been built in science parks in central and southern Taiwan, while packaging and testing firms are mainly concentrated in Kaohsiung (see Fig. 3).

III. Potential Investment and Collaboration Opportunities in Taiwan

1. Joining the Core Cluster of the Global Semiconductor Industry

Taiwan is home to the most complete semiconductor industry clusters and specializations in the world. The semiconductor industry is regarded by the government as a cornerstone of Taiwan’s industry development. Every effort will be made to support the development requirements of the semiconductor industry, including the provision of related incentives. It is hoped that foreign companies can form technical partnerships with Taiwanese businesses to accelerate the development and application of semiconductor industries, and work together to build a new future for Taiwan's semiconductor industry.

2. Exploring the Growing Market for Semiconductor Equipment and Material

Due to its large number of foundries and packaging plants, Taiwan has been the largest consumer of semiconductor materials in the world for 12 consecutive years. Total market value reached US$14.7 billion in 2021. As the output value of Taiwan's IC industry continues to grow, the demand for new materials and equipment will continue to grow as well.

•       Business Opportunities in Semiconductor Equipment:

1. Front-end wafer production equipment: Deposition technology, dry etching technology, DUV and EUC exposure technology, photoresistor coating and developing technology, chemical-mechanical polishing technology.
2. Advanced packaging process equipment: Exposure technology, copperplating technology, deposition technology, dry etching technology.

3. Tap into the Fast-growing Asia Market, Establish Operations Centers with Different Functions

Mainland China, Taiwan, and South Korea remain the top three countries for equipment expenditures in 2021. Beyond that, the production in the semiconductor industry is expected to take on a role of greater importance in Japan. Countries of Southeast Asia will continue to develop stronger packaging and testing capabilities. In light of the trends described above, foreign firms can use Taiwan as a hub for servicing their Asia markets. They can set up equipment repair and refurbishment facilities in Taiwan, training facilities, experimental sites, and logistics centers for parts and modules. This approach is a good way for foreign firms to take advantage of opportunities afforded by the growth of the Asian semiconductor industry.

IV. Investment Incentive Measures

1. Tax Incentives

The income tax rate for profit-seeking enterprises in Taiwan is 20%. To encourage foreign investments in Taiwan, support industrial innovation, and promote industry-academia collaboration, Taiwan offers the following preferential taxes to foreign companies (Table 1):

                                                             Table 1 Preferential Taxes

2. Subsidies

(1) Global Innovation Partnership Initiatives Program

Foreign companies that complement Taiwan's industries are encouraged to invest Taiwan’s R&D innovation and work with Taiwanese companies to jointly develop forward-looking technologies, key technologies, or integrated technologies beyond our current capacities. Such businesses could exert a key influence on Taiwanese industry by: (a) inspiring R&D work on industrial technologies as well as the establishment and development of supply chains; (b) improving R&D efficiency; (c) accelerating the timetable from R&D to production; and (d) contributing actively to the expansion of international markets. Foreign companies successful in endeavors relating to this program will be eligible, upon approval from the MOEA, for subsidies of up to 50% of total R&D expenditures.

(2) Pioneers for Innovation Leadership on Technology Program 

The program aims to transform Taiwan into a high-tech R&D center and encourage leading international manufacturers to establish cutting-edge R&D bases in Taiwan, empowering their work in forward-looking technologies in Taiwan and connecting with Taiwan’s supply chain, thereby creating a division of labor in the areas of research, co-creation, and development, with an eye to strengthening the technological competitiveness of Taiwan's leading industries and accelerating the formation of clusters in emerging industries. Program funding of up to 50% of total expenditures may be granted for any project that has been approved by the Ministry of Economic Affairs.

(3) Taiwan Industry Innovation Platform Program

To guide industries in Taiwan to develop high-value products and encourage corporations to enter the high-end market to increase the industry's added value, the Industrial Development Administration, Ministry of Economic Affairs, and the Ministry of Science and Technology are promoting the "Taiwan Industry Innovation Platform Program". The program provides companies that have R&D teams in Taiwan with funding of up to 40%-50% of the project budget for themed R&D projects and funding of up to 40% for projects independently conducted by corporations.

V. Examples of Successes Achieved by Foreign Companies

The pandemic spurred a big increase in global demand for semiconductor products, and foreign firms in the semiconductor industry continued to increase investments in Taiwan. Investments in Taiwan by foreign firms fall into three categories:

  1. Expansion of Capacity to Meet Market Demand

1. German company Merck Group announced in December 2021 that it will invest approximately NT$17 billion in Taiwan to expand its new production line for electronics technologies as Merck's first large-scale semiconductor production and application R&D Mega Site. The new facilities will incorporate Merck's comprehensive range of semiconductor solutions including film materials, special gases, and graphic and flat materials, and provide key materials for advanced semiconductor production processes.
2. In light of the 5G communication, AI, and metaverse application fields that increased the demand for semiconductor chips in Taiwan, Japanese company ADEKA announced the construction of new machinery equipment and plants for high-end logic IC materials in February 2022. They are scheduled to commence operations in April 2024. ADEKA's plant in Taiwan is its second overseas production site after the construction of its plant in South Korea. It hopes to enter Taiwan's logic IC market with this investment and expand the scale of its semiconductor operations in Taiwan.
3. Diodes Technologies (a semiconductor design firm from Luxembourg), KIOXIA Corporation (a memory manufacturer headquartered in Japan), Mitsubishi Chemical (a leading chemicals manufacturer), Tokuyama Corporation (a major international maker of isopropyl alcohol), VALQUA (a Japanese maker of seal products), Sumitomo Bakelite (a Japanese company), and Air Liquide Far Eastern (ALFE, a French company) have all set up new factories in Taiwan to meet demand in the semiconductor market.

  2. Establishment of R&D Center (Laboratory) / Development Platform in Taiwan

1. Applied Materials from the US expanded in Southern Taiwan Science Park with its second display equipment production center to meet customer demand. It set up a R&D laboratory with two clean rooms and one laboratory to support the display technology ecosystem in Taiwan.
2. Well-known companies like Apple, Microsoft, Google, IBM, Amazon, AMD, and Shin-Etsu Chemical have all established R&D centers or data centers in Taiwan.

 3. Operations Centers with Different Functions

1. ASML, a world leader in lithography technology, has set up an EUV Training Center in the Southern Taiwan Science Park.
2. Applied Materials has established its newest global training center at the Hsinchu Science Park.
3. The world-famous memory manufacturer, Micron Technology, has decided to establish its global Center of Excellence for DRAM in Taiwan. It also plans to expand investments to US$150 billion in the next 10 years to maintain its technical lead and capacity for large-scale manufacturing of DRAM.