Taiwan's 16% Cap on Private Loan Interest

A note signed in Taichung records a loan to a business partner's brother at 2 percent interest a month (an invented example). The due date is six months out. No transfer slip is clipped to the paper.

What 2 percent a month does to the annual cap

Two percent a month, multiplied by twelve without compounding, comes to 24 percent a year. Article 205 of the Civil Code voids the agreement for the part of an agreed rate above 16 percent a year. Its effect stops at the excess. It does not invalidate the principal or interest within the cap on that ground.

Article 36, paragraph 5, of the Enforcement Act of the Part of Obligations of the Civil Code covers the December 29, 2020 amendment of Article 205, which took effect six months after promulgation. The amendment history of the Civil Code records the presidential order of January 20, 2021, together with that six-month clause. On October 13, 2026, the text of Article 205 on the statute database voids the excess over 16 percent a year.

The amended rule also applies to interest accruing after it took effect under an older agreement. Article 10-1 of that Act sets out that rule.

Check any interest limit under Korean, Japanese, or US state law with a professional there.

An upfront fee and interest added to principal

Article 206 forbids a creditor to take a benefit, by a discount or by any other device, beyond the interest Article 205 allows. One illustration is a fee kept back before the money is handed over, while the note still shows the gross amount. Whether that fee is the discount in the article depends on the figures. An illustration only. No court result is being reported.

Interest may not be folded into principal so that it earns interest again. Article 207, paragraph 1, prohibits this. A written agreement can make an exception, and only by saying that once interest is more than a year overdue and still unpaid after a demand, the creditor may fold that overdue interest into principal. If commercial custom is otherwise, paragraph 1 does not apply. That limit is paragraph 2 of the same article.

Where the agreed rate exceeds 12 percent a year, Article 204, paragraph 1, lets the debtor repay the principal at any time after one year, with one month's notice to the creditor. A contract may not remove that right or cut it down, under paragraph 2 of the same article. Repayment on the Taichung note is due at six months, before that one-year point.

A loan is a transfer plus a promise to return the same sum

One side transfers ownership of money or other fungible things, and the other agrees to return things of the same kind, quality, and quantity. That is a loan for consumption under Article 474, paragraph 1. An existing money debt can be turned into this kind of loan by agreement, without a fresh advance of money. Under paragraph 2, the loan is formed from that agreement. Neither paragraph requires a writing. An IOU can record the promise. This column does not address promissory notes.

Same-quantity return is the duty in Article 474, paragraph 1. Lending the sum does not fill in an interest term. Five percent a year is the rate in Article 203 when interest is already payable, no rate was agreed, and no other statute supplies a rate. Handing the money over does not by itself meet those conditions.

On a money debt in delay, Article 233, paragraph 1, lets the creditor claim delay interest at the statutory rate, and the agreed rate still governs if it is higher. Where interest is payable and neither an agreement nor another statute sets the rate, that statutory rate is the 5 percent a year in Article 203. No delay interest runs on interest, under Article 233, paragraph 2. If the creditor proves other damage, compensation for that damage may be claimed as well, under paragraph 3 of that article.

When interest is paid, and when the principal comes due

Interest, or any other compensation, is paid on the date the contract sets, under Article 477. If the parties set no interest-payment date, it is paid when the loan ends. If they still set no payment date and the loan lasts more than one year, it is paid at the end of each year.

Within the agreed term, Article 478 has the borrower return things of the same kind, quality, and quantity. If no repayment date was agreed, the borrower may return at any time, and the lender may fix a reasonable period of at least one month and demand return.

Where performance has a fixed due date, delay starts when that date passes under Article 229(1). For delay to start without a fixed date, paragraph 2 requires a demand when the creditor is entitled to performance. If the debtor still fails to perform, delay starts on receipt of that demand. Paragraph 3 provides a different starting point if the demand sets a period: delay starts when that period ends. These timing rules are subject to Article 230: the debtor bears no liability for delay if non-performance results from a cause not attributable to the debtor.

Service of a complaint, and service of a payment order in the demand procedure, have the same effect as a demand under the latter part of Article 229, paragraph 2. If no repayment date was agreed, the lender's demand carries the period of at least one month that Article 478 requires. A blank date line is read with any messages before that rule is used. Delay then starts when that period ends, under paragraph 3 of Article 229.

What the note shows, and what a transfer shows

Proof of a favorable fact rests on the party who asserts it. Another statute may provide otherwise, and so may a situation in which the ordinary burden would be grossly unfair. Article 277 of the Code of Civil Procedure states both the burden and those exceptions.

For an ordinary loan of money just advanced, such as the Taichung note, the lender has two facts to establish. Did ownership of the money pass? Did both sides agree that the same sum would be returned? Those are the two elements of Article 474, paragraph 1. A transfer record shows the day and the amount that moved. An IOU or a message is read for whether the money was a gift, a stake in the business, payment of some other debt, or a promise to return the same sum. Where an existing money debt is agreed to become the loan, no new advance is required, and paragraph 2 forms the loan from that agreement. On either path, Article 277 puts proof of the favorable facts on the party who asserts them, with the same exceptions.

Does the signature end the inquiry?

In the Taichung example, the note records the rate and a six-month due date. No transfer slip is attached. An IOU's date, amount, repayment date and signature need to be read with its wording for what they show about delivery and repayment. Under Code of Civil Procedure Article 222(1) and (3), unless a special provision applies, the court assesses the facts from the arguments as a whole and the evidence examined. Its assessment must follow logic and experience.

Foreign currency, two time limits, a payment order

Contract terms come first. Unless they say otherwise, Article 480 sets repayment currency: money that has lost legal-tender status is repaid in currency that has that status at repayment; a sum agreed to be converted into legal tender is repaid in the legal tender of that date, whether the currency received rose or fell; and a sum calculated in a special currency is repaid in that currency, or in legal tender at the market price at the time and place of repayment.

Ordinary loan-principal claims generally have a 15-year limitation period unless a shorter statutory period applies. Each claim for interest or other payments due annually or more frequently has a five-year period (Civil Code Articles 125 and 126).

The period runs from when the claim can be exercised under Article 128. Interruption and the fresh running of time must also be assessed under Articles 129, 130 and 137. In particular, interruption by a demand is treated as not having occurred if no action is brought within six months after that demand. Once the period is complete, the debtor may invoke the limitation defense and refuse payment under Article 144.

Creditors may seek a payment order for a fixed quantity of money, other fungible things, or securities (Code of Civil Procedure, Article 508(1)). They apply through the demand procedure. Article 509 bars this procedure if the applicant has not performed required counter-performance, or if the payment order must be served abroad or by public notice. The creditor must also substantiate the claim on a prima facie basis under Article 511(2). The payment-order path for an unpaid invoice is in payment orders and attachment. Costs and the hearing in a small case are in small-claims procedure. A guarantor on the loan, or a promissory note issued for the money, lies outside this column.

For questions about the note and any available payment records, contact Hovering International Law Firm at wei@hoveringlaw.com.tw.

On the Taichung note, 2 percent a month is 24 percent over twelve months, and Article 205 voids the part above 16 percent a year. The six-month due date is a fixed term. If the note and any messages reveal no agreed repayment date, Article 478 lets the lender fix a reasonable period of at least one month and demand the money back.

Official sources

• Civil Code Article 125, Article 126, Article 128, Article 129, Article 130, Article 137, Article 144, Article 203, Article 204, Article 205, Article 206, Article 207, Article 229, Article 230, Article 233, Article 474, Article 477, Article 478, Article 480
• Amendment history of the Civil Code (Article 205 promulgated by presidential order on January 20, 2021, effective six months after promulgation)
• Enforcement Act of the Part of Obligations of the Civil Code Article 10-1, Article 36
• Code of Civil Procedure Article 222, Article 277, Article 508, Article 509, Article 511

Checked: October 13, 2026 Rechecked: October 14, 2026