Capitalization and Indebtedness Not applicable. Reasons for the Offer and Use of Proceeds Not applicable. Risk Factors We wish to caution readers that the following important factors, and those important factors described in other reports submitted to, or filed with, the U.S. Securities and Exchange Commission (“U.S. SEC”), among other factors, could affect our actual results and could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf, and that such factors may adversely affect our business and financial status and therefore the value of your investment. Risks Relating to Our Business Any global systemic political, economic and financial crisis (as well as the indirect effects flowing therefrom) could negatively affect our business, results of operations, and financial condition. In recent times, several major systemic political, economic and financial crises negatively affected global business, banking and financial sectors, including the semiconductor industry and markets. Since 2018, political and trade tensions among a number of the world’s major economies have been on the rise. These tensions have resulted or may result in the implementation of tariffs, non-tariff trade barriers, sanctions, export controls and other measures that have been particularly impactful to the semiconductor industry and related markets. Prolonged or increased use of such measures may negatively impact the growth of the global economy and the semiconductor industry, resulting in declines in electronic products sales from which we generate our income through our products and services. For example, in April 2025, the U.S. President announced a 10% baseline tariff on imports into the U.S. from all countries, as well as varying reciprocal tariffs on most of the U.S.’s trading partners under the International Emergency Economic Powers Act (“IEEPA”). Collection of the reciprocal tariffs was delayed until August 2025, and while they excluded semiconductors, semiconductor manufacturing equipment and their respective derivative products (collectively “Semiconductor Items”), these tariffs nonetheless affected our cost of operations in the U.S. These tariffs were declared unlawful by a February 2026 U.S. Supreme Court ruling. While the ruling removes IEEPA as a basis for tariffs, its broader impact on the U.S.’s tariff and trade agenda, international trade activities, and the global economy remains uncertain. Following the Supreme Court ruling, the U.S. imposed a replacement tariff under Section 122 of the Trade Act of 1974 and in March 2026, the U.S. Trade Representative, using authority in Section 301 of the Trade Act of 1974, initiated two investigations relating to alleged manufacturing overcapacity and failures to take action on forced labor, targeting various economies, including Taiwan, which could result in trade actions such as the imposition of additional tariffs. Also, in April 2025, the U.S. government initiated a Section 232 investigation related to imports of Semiconductor Items, which concluded in December 2025. As a result, the U.S. issues a proclamation imposing a 25% ad valorem tariff on the import of certain advanced computing chips and derivative products meeting specified technical performance thresholds, unless such products are imported for designated use in the U.S. The proclamation also signaled the potential for broader tariffs on Semiconductor Items following further trade negotiations, accompanied by a tariff offset program intended to incentivize the U.S. domestic manufacturing. Further, in January 2026, the U.S. announced it had reached a trade and investment agreement with Taiwan which would reduce U.S. reciprocal tariff rates on Taiwanese goods to no more than 15%. The agreement also grants preferential Section 232 treatment for Taiwanese semiconductor producers investing in U.S. manufacturing capacity. However, details regarding the impacts of the U.S. Supreme Court decision 4 striking down the IEEPA reciprocal tariffs as well as the preferential treatment with respect to Section 232 tariffs, including any offsets, are still unclear. Any tariffs imposed on imports of semiconductors and products incorporating chips into the U.S. may result in increased costs for purchasing such products, which may, in turn, lead to decreased demand for our products and services and adversely affect our business and future growth. Any tariffs imposed on imports of semiconductor manufacturing materials and equipment into the U.S. may result in increased costs for our manufacturing operations in the U.S. and reduce our profitability. Additionally, any increase in the use of export control restrictions and sanctions to target certain countries and entities, any expansion of the extraterritorial jurisdiction of such measures, or a complete or partial ban on semiconductor products sales to certain entities could impact not only our ability to continue supplying products to those customers, but also our customers’ demand for our products, and could even lead to changes in semiconductor supply chains. For example, in October 2022 and October 2023, the U.S. adopted additional export controls (the “October Rules”) over specified countries (including China) under the U.S. Export Administration Regulations (“U.S. EAR”) on certain advanced computing integrated circuits (“ICs”). In January 2025, the U.S. further issued new rules to reinforce controls on exports of advanced computing ICs, pursuant to which we may need to obtain an export license prior to shipping products using 16- nanometer or below process to specified destinations unless specific conditions are met. As a result, shipments of certain products may be delayed or prohibited due to the license requirements and our financial results may be adversely affected. The October Rules also impose license requirements for items subject to the U.S. EAR where the items are destined to a semiconductor fabrication facility in China that fabricates specified advanced node ICs as well as for U.S. persons’ activities supporting such facility or semiconductor manufacturing items. In response, we obtained from the U.S. Department of Commerce a Validated End-User (the “VEU”) authorization for our fab located in Nanjing, China, which allowed our fab in Nanjing to receive exports of eligible items from the U.S. without separate licenses. Although the VEU authorization expired in December 2025, the U.S. Department of Commerce has granted TSMC Nanjing Company Limited (“TSMC Nanjing”) an annual export license that allows U.S. export-controlled items to be supplied to TSMC Nanjing, which ensures uninterrupted fab operations and product deliveries. However, there is no assurance that this annual export license will not be terminated, or we can timely get the license renewed in the future. On the other hand, measures adopted by an affected country to counteract the impact of another country’s actions or regulations could lead to significant legal liability to multinational corporations including our own. For example, in January 2021, China adopted a blocking statute that, among other matters, entitles Chinese entities incurring damages from a multinational’s compliance with foreign laws to seek civil remedies. As of the date of this annual report, our current results of operations have not been materially affected by the expanded export control regulations or the novel rules or measures adopted to counteract them. Nevertheless, depending on future developments in global trade tensions and military conflicts, such regulations, rules, or measures may have an adverse impact on our business and operations, and we may incur significant legal liability and financial losses as a result. Please see “Our failure to comply with applicable laws and regulations material to our operations, such as export control, environmental and climate related laws and regulations, or the inability to timely obtain requisite approvals necessary for the conduct of our business, such as fab land and construction approvals, could harm our business and operational results or subject us to potential significant legal liability” for a further discussion. Any future systemic political, economic or financial crisis or market volatility, including but not limited to interest rate and foreign exchange rate fluctuations, inflation or deflation or changes in economic, fiscal and monetary policies in major economies, could cause revenue or profits for the semiconductor industry as a whole to decline dramatically. If the economic conditions or financial conditions of our customers were to deteriorate, the demand for our products and services may decrease and additional accounting related allowances may be required, which could reduce our revenue and income. For example, the geopolitical instability resulting from military conflicts cause, among others, supply chains disruptions, inflation, heightened regulatory uncertainty and volatility in financial markets, which may lead to broader negative impacts on the global economy. In addition, sufficient external financing may not be available to us on a timely basis, on commercially reasonable terms to us, or at all. If sufficient external financing is not available when we need such financing to meet our capital requirements, we may be forced to curtail our expansion, modify plans or delay the deployment of new or expanded services until we obtain such financing. In conclusion, any of these events, including any future global systemic crisis or further escalation of trade tensions as described above, could materially and adversely affect our results of operations. 5 Our global manufacturing, design and sales activities subject us to risks associated with political, economic, financial, military or other conditions or developments in various jurisdictions, including in particular the R.O.C., as well as in international trade, which could negatively affect our business and financial status and therefore the market value of your investment. The majority of our principal executive officers and our principal production facilities are located in the R.O.C., and the majority of our net revenue is derived from our operations in the R.O.C. In addition, we have operations worldwide and a significant percentage of our revenue comes from sales to locations outside the R.O.C. Operating in the R.O.C. and overseas exposes us to changes in laws, rules, regulations and the enforcements of such laws, rules and regulations in certain key areas that could have a material impact on our operations, such as intellectual property, labor, antitrust, export controls, import restrictions, and trade barriers or disputes. In addition, deterioration in general political, economic, financial or social conditions, military conflicts, the risk of outbreak of war or hostilities, terrorism events, security risks, social unrest, health conditions and possible disruptions in transportation networks in the various jurisdictions in which we operate or elsewhere, could have an adverse impact on our business and results of operations as well as the market price and the liquidity of our ADSs and common shares. Furthermore, any major change in economic, fiscal and/or trade policies in the U.S. from which we derive a substantial portion of our revenue or in another major jurisdiction could severely affect our business, financial condition and results of operations. For example, recent political and trade tensions among major economies as well as military conflicts (such as the conflict in Ukraine since early 2022) have resulted in the imposition of trade barriers, such as sanctions and import and export controls, which could increase our manufacturing costs, limit our access to certain supplies, make our pricing less competitive, and limit our ability to offer our products and services in some markets or source key materials and key production equipment, which may have adverse direct or indirect effects on our sales. Any law or government policy that encourages our customers to relocate their manufacturing capacity or supply chain to their own countries or require their respective contractors, subcontractors and relevant agents to do so could also impair our ability to sustain our current level of productivity and manufacturing efficiency. An important aspect of our business operation is an ecosystem of interconnected semiconductor fabs, employees and suppliers that provides us with significant operational synergies, flexibility and efficiencies. For example, we are able to temporarily reassign thousands of our engineers and other relevant personnel from one manufacturing site to another to refine specific designs and adapt manufacturing processes in a timely manner. These advantages permit us to operate our manufacturing fabs efficiently and resolve any technical or commercial difficulties quickly to maintain our competitive edge. Restrictions on our ability to transfer people among our operations in the R.O.C., the United States, the P.R.C., Japan, and Europe efficiently due to challenges such as regional employment rules and regulations, and immigration or travel restrictions, may impair or reduce these advantages, and we may not be able to sustain our current ability to supply our customers with goods and services at the current level of cost, quality, quantity and delivery schedule to which our customers have been accustomed. In addition, the financial markets have viewed certain past developments in relations between the R.O.C. and the P.R.C. as occasions to depress general market prices of the securities of R.O.C. companies, including our own. Also, we may face potential operational risks arising from applicable export controls which impose license requirements on our P.R.C. fab’s acquisition of certain manufacturing tools. If we are unable to successfully manage the complexity of our global operations and deal with the challenges and risks related to our global expansion, our business, financial condition and results of operations could be adversely affected. We have multiple expansion projects that are currently underway, including the design and construction of new fabs worldwide. Global expansion has required and will continue to require considerable managerial, financial and other resources. We expect to face particular challenges in global expansion and operations, including but not limited to: •higher costs associated with the construction of new fabs, establishing supply chains for various materials in different locations, sustaining our current level of productivity and manufacturing efficiency provided by our ecosystem, and recruiting and retaining talent; •labor shortages, interruptions in the supply chains for various materials, and construction issues, which could substantially delay the completion of our expansion projects, and could further result in substantial additional costs or failure to meet our capacity expansion plans; •disruptions to our operations caused by natural or man-made disasters, including earthquakes, flooding, typhoons, droughts, tsunamis, sandstorms, wildfires, volcanic eruptions, fire, gas/chemical leakage or spill, 6 pandemic, cyberattacks, supply chain disruption, geopolitical tensions, labor issues, sabotage, failure of critical facilities and equipment, and disruptions in utilities, such as water, electricity and natural gas, etc.; •scarcity of industrial-use land and access to utilities which could limit our future expansion of operations; •compliance with applicable foreign laws and regulations, and the risk of penalties if our practices are deemed not to be in compliance; •challenges in managing information technology infrastructure in multiple locations and across different systems and risks of our information technology infrastructure succumbing to cyberattacks worldwide; •adverse changes relating to government grants or other government incentives, including non-receipt, delay and potential clawbacks of government grants; •challenges in creating an inclusive workplace in new sites to embrace the cultural differences and managing the operation over large geographic distances and in the context of different employment practices and labor laws and regulations; •increased intellectual property infringement assertions and enforcement actions against us; and •exposure to different tax jurisdictions and potential adverse tax consequences. If we are unable to overcome the above challenges, our business, financial condition and results of operations could be adversely affected. Decreases in demand and average selling prices for products that contain semiconductors may adversely affect demand for our products and may result in a decrease in our revenue and earnings. A vast majority of our revenue is derived from customers who use our products in HPC (including AI applications), smartphones, IoT, automotive, and digital consumer electronics. Any deterioration in or a slowdown in the growth of such end markets, driven by various factors such as shortages in the supply of certain components, constraints in power supply or environmental, social, and governance (“ESG”) concerns, which results in a substantial decrease in the demand for overall global semiconductor foundry services, including our products and services, could adversely affect our revenue. Further, semiconductor manufacturing facilities require substantial investment to construct and are largely fixed cost assets once they are in operation. Because we own most of our manufacturing capacities, a significant portion of our operating costs is fixed. In general, these costs do not decline when customer demand or our capacity utilization rates drop, and thus declines in customer demand, among other factors, may significantly decrease our margins. Conversely, as product demand rises and factory utilization increases, the fixed costs are spread over increased output, which can improve our margins. In addition, the historical trend of declining average selling prices (“ASP”) of end-use applications places downward pressure on the prices of the components that go into such applications. Decreases in the ASP of end-use applications may increase pricing pressure on components produced by us, which, in turn, may negatively impact our revenue, margin and earnings. Since we are dependent on the highly cyclical semiconductor and electronics industries, which have experienced significant and sometimes prolonged periods of downturn and overcapacity, our revenue, margins and earnings may fluctuate significantly. The electronics industries and semiconductor market are cyclical and subject to significant and often rapid fluctuations in product demand, which could impact our semiconductor foundry business. Variations in customer order levels may result in volatility in our revenue and earnings. From time to time, the electronics and semiconductor industries have experienced significant and occasionally prolonged periods of downturn and overcapacity. Because we are, and will continue to be, dependent on the demand of electronics and semiconductor companies for our services, periods of downturn and overcapacity in the general electronics and semiconductor industries could lead to reduced demand for overall semiconductor foundry services, including our services. If we are not able to take appropriate actions, such as reducing our costs to sufficiently offset declines in demand, our revenue, margins, and earnings will likely suffer during periods of downturn and overcapacity. 7 If we are unable to remain a technological leader in the semiconductor industry, unable to timely respond to fast- changing semiconductor market dynamics, or unable to maintain our edge in product quality, we may become less competitive. The semiconductor industry and its technologies are constantly changing. We compete by developing process technologies using increasingly advanced nodes and manufacturing products with more functions. We also compete by developing new derivative technologies. If we do not anticipate these changes in technologies and rapidly develop new and innovative technologies, or our competitors unforeseeably gain sudden access to additional technologies, we may not be able to provide services on competitive terms. For example, the global surge in the development of AI has had a significant impact on customer demand for advanced semiconductor chips and the market dynamics in our industry; thus, our ability to continuously develop relevant technologies, products and services to meet these customer needs and changes in the AI industry will be critical for us to effectively compete in this space. In addition, our customers have accelerated the cadence of introducing new products and services to the market. If we are unable to meet these shorter product time-to-market, we risk losing these customers. These factors have also been intensified by the shift of the global technology market to AI- related products, such as AI smartphones, AI PCs, and AI accelerators, and increasing competition and concentration of customers (all further discussed among these risk factors). The uncertainty and instability inherent in advanced technologies impose challenges for achieving expected product quality and product yield. If we fail to overcome these challenges, it may result in loss of revenue and additional cost, as well as loss of business or customer trust. We also believe that the effective use of AI in our internal operations is important to our long-term success. As the AI technologies are rapidly evolving, if we are unable to effectively deploy new AI technologies in our internal operations, it may hurt our competitive position. If we are unable to overcome the above factors, we may become less competitive and our revenue may decline significantly. If we are unable to compete effectively in the highly competitive foundry segment of the semiconductor industry, including through equal access to governmental financial incentives, especially those available to our competitors, we may lose customers and/or our profit margin and earnings may decrease. The competition in the semiconductor foundry segment is fierce. We compete with other foundry service providers, as well as a number of integrated device manufacturers. Some of these companies may have access to more advanced or different technologies than us. Other companies may have greater financial and other resources than us, such as the possibility of receiving direct or indirect government subsidies, economic stimulus funds, or other incentives that may be unavailable to us. The governments of the United States, China, Europe, South Korea and Japan provide various incentive programs to promote developments of their domestic semiconductor industries, such as the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (the “U.S. CHIPS Act”), which provides financial incentives to incentivize the development of U.S. semiconductor industry. In November 2024, TSMC Arizona Corporation (“TSMC Arizona”) entered into agreements with the U.S. Department of Commerce for the receipt of certain incentives pursuant to the U.S. CHIPS Act, which includes up to US$6.6 billion in total direct funding and up to US$5 billion of proposed loans. Please see “Item 4. Information on The Company – Our Subsidiaries and Affiliates.” In December 2024, ESMC, our subsidiary in Germany, entered into an agreement with the Federal Republic of Germany for the receipt of up to EUR5 billion state aid under the European Chips Act (Regulation (EU) 2023/1781). Although governments in certain countries or regions where we are currently expanding or planning to expand our production capacity have extended or may in the future extend certain financial incentives to us, there is no assurance that we will be able to receive such financial incentives, including pursuant to the U.S. CHIPS Act, at the levels we anticipate or at all. Additionally, any financial incentives we receive may be subject to conditions and requirements imposed by the grantors, such as restrictions on the expansion of facilities in foreign countries of concern and on joint research and technology licensing efforts with foreign entities of concern on any technology or product that raises national security concerns. Noncompliance with the terms and conditions of the grants that we may receive could result in a delay or forfeiture of all or a portion of any future amounts to be received, as well as obligate us to repay all or a portion of amounts already received pursuant to the grants. Even if we satisfy the conditions and requirements for the funding disbursement, it is possible that the grantor may delay the disbursement or be unable to provide the funding. While we expect to continue benefiting from government incentives, failure to obtain grants that we seek, to fully utilize available grants, or to comply with the terms and conditions of grants could impact our ability to achieve our goals for the projects that would otherwise benefit from grant funding and could have an adverse effect on our business, results of operations, and financial condition. 8 Moreover, our competitors may, from time to time, also decide to undertake aggressive pricing initiatives. Our competitors may also compete for our customers who seek to diversify their supply chains. These competitive activities may decrease our customer base, our pricing, or both. If we are unable to compete effectively with such competitors on technology, manufacturing capacity, product quality, supply chain diversification and resilience, and customer satisfaction, we risk losing customers or business to such contenders and our profit margin and earnings may decrease. If we are unable to manage our capacity and production facilities effectively, our competitiveness may be weakened. We perform long-term market demand forecasts on a regular basis for our products and services to manage our overall capacity. Based on market demand, we have continued to add capacity to meet market needs for our products and services, including in Taiwan, in Arizona, U.S., in Kumamoto, Japan and in Dresden, Germany. Implementing these capacity expansion plans will increase our costs, and the increases may be substantial. For example, we would need to build new facilities, purchase additional equipment and hire and train personnel to operate the new equipment. If the market demand does not materialize, and/or we do not increase our net revenue accordingly, our financial performance may be adversely affected by these increased costs. See “Item 4. Information on The Company – Capacity Management and Technology Upgrade Plans” for a further discussion. In addition, market conditions are dynamic, and our market demand forecasts may change significantly at any time. During periods of decreased demand, certain manufacturing lines or tools in some of our manufacturing facilities may be suspended or shut down temporarily. However, if demand subsequently increases rapidly over a short period of time, we may not be able to restore the capacity in a timely manner to take advantage of the upturn. In such circumstances, our financial performance and competitiveness may be adversely affected. Having one or more large customers that account for a significant percentage of our revenue may render us vulnerable to the loss of or significant curtailment of purchases by such customers that could in turn adversely affect our results of operations. Similarly, the increasing consolidation of our customers may further increase our revenue concentration. Over the years, our customer profile and the nature of our customers’ business have changed dramatically. While we generate revenue from hundreds of customers worldwide, our ten largest customers in 2023, 2024 and 2025 accounted for approximately, 70%, 76% and 78% of our net revenue in the respective year. Our largest customer in 2023, 2024 and 2025 accounted for 25%, 22% and 19% of our net revenue in the respective year. Our second largest customer in 2023, 2024 and 2025 accounted for 11%, 12%, and 17% of our net revenue in the respective year. A more concentrated customer base may subject our revenue to seasonal demand fluctuations from our large customers and cause different seasonal patterns in our business. This customer concentration results in part from the changing dynamics of the electronics industry with the structural shift to HPC and smartphone applications and software that provide the content for such devices. There are only a limited number of customers who are successfully exploiting this new business model paradigm. Also, we have seen changes in the nature of our customers’ business models in response to this new business model paradigm. For example, there is a growing trend among system companies designing their own semiconductors and working directly with the semiconductor foundries, which makes their products and services more marketable in a changing consumer market. These shifting business models could lead to significant variations in our sales if the growth of their products and services, particularly in the AI sector, is volatile or not sustainable. Also, since the global semiconductor industry has become increasingly competitive, some of our customers have engaged in industry consolidations in order to remain competitive. Such consolidations have taken the form of mergers and acquisitions. If more of our major customers consolidate, this will further decrease the overall number of our customer pool. In addition, regulatory restrictions, such as export controls directed at our major customers, could impact our ability to supply products to those customers or reduce those customers’ demand for our products and services and thus impact their business operations. The loss of, or significant curtailment of purchases by, one or more of our top customers including curtailments due to increased competitive pressures, industry consolidation, changes in applicable regulatory restrictions, product designs, manufacturing sourcing or outsourcing policies or practices of these customers, the timing of customer inventory adjustments, or changes in our major customers’ business models, may adversely affect our results of operations and financial condition. 9 If our information technology systems or those of our service providers with whom we share our confidential information succumb to cyberattacks by third parties worldwide, our business and operations may be severely interrupted or even shut down, and our results of operations, financial condition, prospects and reputation may also be materially and adversely affected. Even though we have established a comprehensive internet and computing security network, we cannot guarantee that our computing systems which control or maintain vital corporate functions, such as our manufacturing operations and enterprise accounting, would be completely immune to crippling cyberattacks. In the event of a serious cyberattack, our systems may lose important corporate data or our production lines may be shut down pending the resolution of such attack. Major cyberattacks could also lead to loss or divulgence of trade secrets and other sensitive information, such as proprietary information of our customers and other stakeholders and personal information of our employees. While we seek to continuously review and assess our cybersecurity policies and procedures to ensure their adequacy and effectiveness, we cannot guarantee that we will not be susceptible to new and emerging risks and attacks in the evolving landscape of cybersecurity threats. For example, as AI continues to evolve, cyber-attackers could also use AI to develop malicious codes and sophisticated phishing attempts. Malicious hackers may also try to introduce computer viruses, corrupted software or ransomware into our network systems to disrupt our operations, blackmail us to regain control of our computing systems, or spy on us for sensitive information. These attacks may result in us having to pay damages for our delayed or disrupted orders or incur significant expenses in implementing remedial and improvement measures to further enhance our cybersecurity network, and may also expose us to significant legal liabilities arising from or related to legal proceedings or regulatory investigations associated with such breaches. In the past, we experienced and may in the future be subject to attack by malicious software. We have implemented and continually update rigorous cybersecurity measures to prevent and minimize harm caused by such attacks. See “Item 16K. Cybersecurity” for a further discussion. While these ongoing enhancements further improve our cybersecurity defense solutions, there can be no assurance that we are immune to cyberattacks. In addition, we employ certain third-party service providers for us and our affiliates worldwide with whom we need to share highly sensitive and confidential information to enable them to provide the relevant services. While we require such third-party service providers to strictly fulfill the confidentiality and/or internet security requirements in our service agreements with them, there is no assurance that each of them will comply with such obligations. Moreover, such third- party service providers may also be susceptible to cyberattacks. If we or our service providers are not able to timely resolve the respective technical difficulties caused by such cyberattacks, or ensure the integrity and availability of our data (and data belonging to our customers and other third parties) or maintain control of our or our service providers’ computing systems, our commitments to our customers and other stakeholders may be materially impaired and our results of operations, financial condition, prospects and reputation may also be materially and adversely affected. We may not be able to implement our planned growth and development or maintain our leading position if we are unable to recruit and retain key executives, managers, and skilled technical and service personnel. We rely on the continued services and contributions of our management team, as well as skilled technical and professional personnel. Our business could suffer from the inability to fulfill personnel needs with high quality professionals in a timely fashion caused by the loss of personnel, talent shortages, illegal talent poaching, immigration controls, or related changes in market demand for our products and services. The fierce competition for talent could potentially lead to our being unable to ensure timely fulfillment of our personnel demand. We may be unable to obtain in a timely manner and at a reasonable cost equipment that is necessary for us to remain competitive. Our operations and ongoing expansion plans depend on our ability to obtain necessary equipment and related services available from a limited number of suppliers. As a result, we may encounter the situation of limited supply and/or long delivery cycles. To better manage our supply chain, we evaluate and project delivery lead times to minimize the impact of supply chain risks on operating costs. We have also implemented various collaborative business models and risk management contingencies with suppliers to ensure supply and shorten the procurement lead time. To enhance our sourcing capabilities for our global sites, we have also taken steps to strengthen our understanding of local regulations, policies, and supply chains. However, if we are unable to acquire in a timely manner the equipment and parts we need, we may fail to successfully implement capacity expansion plans and exploit time sensitive business opportunities. Additionally, ongoing trade tensions could result in increased prices for, or even unavailability of, key equipment, through 10 delay or denial of necessary export licenses, adoption of additional export control measures and other tariff or non-tariff barriers. If we are unable to obtain equipment in a timely fashion to fulfill our customers’ demand for technology and production capacity, or unable to do so at a reasonable cost, our financial condition and results of operations could be negatively impacted. Our revenue and profitability may decline if we are unable to obtain adequate supplies of raw materials in a timely manner and at commercially reasonable prices. Our production operations require that we obtain adequate supplies of raw materials, such as silicon wafers, gases, chemicals, and photoresist, on a timely basis and at commercially reasonable prices. In the past, shortages in the supply of some materials, whether by specific suppliers or by the semiconductor industry generally, have resulted in occasional industry-wide price adjustments and delivery delays. Moreover, major natural disasters, trade barriers and political or economic turmoil, including military conflicts and inflation, occurring within the country of origin of such raw materials may also significantly disrupt the availability of such raw materials or increase their prices. Also, since we procure some of our raw materials from sole-sourced suppliers, there is a risk that our need for such raw materials may not be met or that back-up supplies may not be readily available. Importation and domestic production limitations may also restrict our ability to obtain adequate supplies of raw materials as well as materials of the necessary quality. In addition, recent trade tensions could result in increased prices or even unavailability of raw materials due to tariffs, export control or other non-tariff barriers. Our revenue and earnings could be adversely affected if we are unable to obtain adequate supplies of the necessary raw materials in a timely manner or if there are significant increases in the costs of raw materials. Any inability to obtain, preserve, enforce, defend and protect our technologies, intellectual property rights and third- party licenses could harm our competitive position. Our ability to compete successfully and to achieve future growth depends in part on the continued strength of our intellectual property portfolio. While we actively enforce and protect our intellectual property rights, there can be no assurance that our efforts will be adequate to prevent the misappropriation or improper use of our proprietary technologies, software, trade secrets or know-how. Also, we cannot assure you that, as our business or business models expand into new areas, we will be able to develop independently the technologies, patents, software, trade secrets or know-how necessary to conduct our business or that we can do so without unknowingly infringing the intellectual property rights of others. As a result, we may have to rely on, to a certain degree, licensed technologies and patent licenses from others. To the extent that we rely on licenses from others, there can be no assurance that we will be able to obtain any or all of the necessary licenses in the future on terms we consider reasonable or at all. The lack of necessary licenses could expose us to claims for damages and/or injunctions from third parties, as well as claims for indemnification by our customers in instances where we have contractually agreed to indemnify our customers against damages resulting from infringement claims. We have received, from time to time, communications from third parties, including non-practicing entities and semiconductor companies, asserting that our technologies, our manufacturing processes, or the design IPs of the semiconductors made by us or the use of those semiconductors by our customers may infringe their patents or other intellectual property rights. Because of the nature of the industry, our market position, and the expansion of our manufacturing operations outside of Taiwan, we may receive an increased number of such communications in the future. The assertions made and lawsuits initiated by litigious, well-funded, non-practicing entities are particularly aggressive in their monetary demand and in seeking court-issued injunctions. Recent developments at the U.S. Patent and Trademark Office limiting access to inter partes review to remove erroneously issued patents may result in an increase of such assertions and lawsuits, and hinder our ability to reach a reasonable resolution with patent owners. Such lawsuits and assertions may increase our cost of doing business and may potentially be extremely disruptive if these asserting entities succeed in blocking the trade of products made and services offered by us. See “Item 8. Financial Information – Legal Proceedings” for a further discussion. Also, with the expansion of our manufacturing operations into certain non-R.O.C jurisdictions, we have faced increased challenges in managing risks of intellectual property misappropriation. Despite our efforts to adopt robust measures to mitigate the risk of intellectual property misappropriation in such new jurisdictions, we cannot guarantee that the protection measures we adopted will be sufficient to prevent us from potential infringements by others, or at all. If we fail to obtain or maintain certain technologies or intellectual property licenses or fail to prevent our intellectual property from being misappropriated and, if litigation relating to alleged intellectual property matters occurs, it could: (i) prevent us from manufacturing particular products or selling particular services or applying particular technologies; and (ii) reduce our ability to compete effectively against entities benefiting from our misappropriated intellectual property, which could reduce our opportunities to generate revenue. 11 Our operational results could also be materially and adversely affected by disruptive events or industrial accidents, in the locations in which we, our customers or our suppliers operate. Our operations are vulnerable to interruptions from various natural and man-made disasters. These include earthquakes, flooding, typhoons, droughts, tsunamis, sandstorms, wildfires, volcanic eruptions, fire, gas/chemical leakage or spill, pandemic, cyberattacks, supply chain disruption, geopolitical tensions, sabotage and terrorism. Additionally, the failure of critical facilities and equipment, along with disruptions in utility services such as water, electricity and natural gas, could also interrupt our operations. Most of our production facilities, as well as those of many of our suppliers, customers and upstream providers of complementary semiconductor manufacturing services, are located in areas susceptible to various natural disasters. These locations may also face potential shortages of electricity and/or water, which could cause interruptions to our operations. For instance, in April 2024 and January 2025, several earthquakes struck Taiwan, causing damage to our inventories, plant facilities, machinery and equipment. We recognized approximately NT$3 billion and NT$5.3 billion in losses from earthquakes, net of insurance claim, respectively, in the second quarter of 2024 and the first quarter of 2025. If one or more natural disasters were to create a prolonged disruption to our operations, or those of our suppliers, it could significantly reduce our manufacturing capacity and lead to the loss of important customers. In addition, disruption to our customers’ operations could reduce demand for our products and services. Either scenario could therefore have an adverse and material impact on our operational and financial performance. Our operations may be interrupted, and our expansion may be limited, by power or other utility outages or shortages, and our financial results may be adversely affected by increased prices of power or other utilities. We have occasionally experienced power outages, dips or surges caused by difficulties encountered by our electricity supplier or other power consumers on the same power grid. Some of these incidents have resulted in interruptions to our operations. Such outages, shortages or interruptions in our electricity supply could further be exacerbated by changes in government energy policy or shortages in the supply of power generation fuels. If we are unable to secure reliable and uninterrupted supply of electricity for our manufacturing fabs, our ability to fulfill customers’ orders would be jeopardized. Moreover, we have experienced, and may continue to encounter utility price increases. Higher electricity prices could increase our manufacturing costs and therefore adversely impact our financial results. In addition, government measures taken in response to severe weather events, such as water rationing and conservation measures in response to droughts, may materially affect our operations and our suppliers’ production. This could, in turn, cause interruptions to our operations and expansion plans. If such events were to occur over prolonged periods, our operations and financial performance may be materially adversely affected and our future capacity expansions could be curtailed. Adverse fluctuations in exchange rates could decrease our operating margin and/or revenue. Substantially all of our sales are denominated in U.S. dollars and over half of our capital expenditures are denominated in currencies other than the NT dollar, primarily in U.S. dollars, Euros and Japanese yen. As a result, any significant fluctuations to our disadvantage in the exchange rate of the NT dollar against such currencies, in particular a weakening of the U.S. dollar against the NT dollar, would have an adverse impact on our revenue and operating profit as expressed in NT dollars. For example, every 1% depreciation of the U.S. dollar against the NT dollar would result in an approximately 0.3 percentage point decrease in our operating margin based on our 2025 results. Conversely, if the U.S. dollar appreciates significantly versus other major currencies, the demand for the products and services of our customers and for our goods and services will likely decrease, which will negatively affect our revenue. Please see “Item 11. Quantitative and Qualitative Disclosures About Market Risk” for a further discussion. Our failure to comply with applicable laws and regulations material to our operations, such as export control, antitrust, environmental and climate related laws and regulations, or the inability to timely obtain requisite approvals necessary for the conduct of our business, such as fab land and construction approvals, could harm our business and operational results or subject us to potential significant legal liability. Because we engage in manufacturing activities in multiple jurisdictions and conduct business with our customers located worldwide, such activities are subject to a myriad of governmental regulations. For example, the manufacturing, 12 assembling and testing of our products require the use of equipment that is subject to export control laws and regulations, as well as metals, chemicals, and materials that are subject to environmental, climate-related, health and safety, and humanitarian forced labor prohibition and conflict-free sourcing laws, regulations and guidelines issued worldwide. Our failure to comply with any such laws or regulations, as amended from time to time, and our failure to comply with any information and document sharing requests from the relevant authorities in a timely manner could result in: •significant penalties and legal liabilities, such as the denial of import or export permits or third party private lawsuits, criminal or administrative proceedings; •the temporary or permanent suspension of production of the affected products; •the temporary or permanent inability to procure or use certain production critical chemicals or materials; •unfavorable alterations in our manufacturing, fabrication and assembly and test processes; •challenges from our customers that place us at a significant competitive disadvantage, such as loss of revenue in case we are unable to satisfy the applicable legal standard or customer requirement; •restrictions on our operations or sales; •loss of tax benefits, including termination of current tax incentives, disqualification of tax credit application and repayment of the tax benefits that we are not entitled to; and •damages to our goodwill and reputation. Our role in the semiconductor supply chain inherently limits our visibility into the downstream use or user of final products that incorporate our customer’ semiconductor products manufactured by us. This constraint impedes our ability to fully ensure such semiconductors will not be diverted to unintended end use or end-user, including potentially by our customers, or by third parties. In addition, export controls over certain semiconductors often depend on the products’ specific features or performance characteristics that foundries may not be able to verify independently. If our customers’ activities or products are found to be subject to such export controls and our exports to them did not obtain the required authorization, we could be found in violation of applicable export control or sanctions laws. This could adversely affect us through reputational harm, government investigations, penalties or other financial exposures resulting from relevant legal proceedings, or other adverse consequences. In October 2024, we notified relevant U.S. and Taiwan authorities that one type of our customer’s chip manufactured by us might have been diverted to a restricted entity or incorporated into a restricted entity’s product, and since then have been cooperating with the authorities’ requests for additional information and documents. Despite our best efforts to comply with all relevant export control and sanctions laws and regulations, there is no assurance that our business activities will not be found incompliant with export control laws and regulations. We are subject to antitrust laws and regulations in multiple jurisdictions, and from time to time receive related inquiries from enforcement agencies. With our success in the foundry business and the increasing criticism on the concentration of the semiconductor industry and sometimes directly on us, we are subject to heightened risks of antitrust investigations. Any adverse results of potential antitrust proceedings could harm our business and distract our management, and thereby have a material adverse effect on our results of operations or prospects, and subject us to potential significant legal liability. Complying with applicable laws and regulations, such as environmental and climate related laws and regulations, could also require us, among other things, to do the following: (a) purchase, use or install remedial equipment; (b) implement remedial programs such as climate change mitigation programs and air pollution reduction plans; (c) modify our product designs and manufacturing processes, or incur other significant expenses such as paying any incurred carbon fees if our emission levels exceed applicable thresholds, and obtaining renewable energy sources, renewable energy certificates or carbon credits, substitute raw materials or chemicals that may cost more or be less available for our operations. Our inability to timely obtain approvals necessary for the conduct of our business could impair our operational and financial results. For example, if we are unable to timely obtain environmental related approvals needed to undertake the development and construction of a new fab or expansion project, then such inability may delay, limit, or increase the cost of our expansion plans that could also in turn adversely affect our business and operational results. In light of increased public interest in environmental issues, our operations and expansion plans may be adversely affected or delayed in response to public concern and social environmental pressures even if we comply with all applicable laws and regulations. 13 For further details, please see our compliance record with Taiwan and international environmental and climate related laws and regulations as well as our business continuity management of climate change policy in “Item 4. Information on The Company – Environmental and Climate Related Laws and Regulations”. Any impairment charges may have a material adverse effect on our net income. Under IFRSs, we are required to evaluate our tangible assets, right-of-use assets and intangible assets for impairment whenever triggering events or changes in circumstances indicate that the asset may be impaired. If certain criteria are met, we are required to record an impairment charge. We are not able to estimate the extent or timing of any impairment charge for future years. Any impairment charge required may have a material adverse effect on our net income. The determination of an impairment charge at any given time is mainly based on the projected results of operations over several years subsequent to that time. Consequently, an impairment charge is more likely to occur during a period when our operating results are otherwise already depressed. See “Item 5. Operating and Financial Reviews and Prospects – Critical Accounting Policies, Judgments and Key Sources of Estimation and Uncertainty” for a discussion of how we assess if an impairment charge is required and, if so, how the amount is determined. Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business and results of operations. Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and to effectively prevent fraud. If we cannot provide reasonable assurance with respect to our financial reports and effectively prevent fraud and corruption, our reputation and results of operations could be harmed. We are required to comply with various R.O.C. and U.S. laws and regulations on internal controls, but internal controls may not prevent or detect misstatements because of their inherent limitations, including the possibility of human error, the circumvention or overriding of controls, fraud or corruption. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, our business and operating results could be harmed, we could fail to meet our reporting obligations, and there could be a material adverse effect on the market price of our common shares and ADSs. Any amendments to existing tax regulations or the implementation of any new tax laws in the R.O.C., the United States or other jurisdictions in which we operate our business may have an adverse effect on our net income. While we are subject to tax laws and regulations in various jurisdictions in which we operate or conduct business, our principal operations are in the R.O.C. and we are exposed primarily to taxes levied by the R.O.C. government. Any unfavorable changes of tax laws and regulations in these jurisdictions could increase our effective tax rate and adversely affect our operating results. Further, changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting (“BEPS”) project that was undertaken by the Organisation for Economic Cooperation and Development (“OECD”). These changes may increase tax uncertainty and have an adverse effect on our operating results. See “Item 5. Operating and Financial Reviews and Prospects – Taxation” for further discussion of significant tax regulation changes. Risks Relating to Ownership of ADSs Your voting rights as a holder of ADSs will be limited. Holders of American Depositary Receipts (“ADRs”) evidencing ADSs may exercise voting rights with respect to the common shares represented by these ADSs only in accordance with the provisions of our ADS deposit agreement. The deposit agreement provides that, upon receipt of notice of any meeting of holders of our common shares, the depositary bank will, as soon as practicable thereafter, mail to the holders (i) the notice of the meeting sent by us, (ii) voting instruction forms and (iii) a statement as to the manner in which instructions may be given by the holders. ADS holders will not generally be able to exercise the voting rights attaching to the deposited securities on an individual basis. According to the provisions of our ADS deposit agreement, the voting rights attaching to the deposited securities must be exercised as to all matters subject to a vote of shareholders collectively in the same manner, except in the case of an election of directors. Election of directors is by means of cumulative voting. See “Item 10. Additional 14 Information – Voting of Deposited Securities” for a more detailed discussion of the manner in which a holder of ADSs can exercise its voting rights. You may not be able to participate in rights offerings and may experience dilution of your holdings. We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under our ADS deposit agreement, the depositary bank will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the United States Securities Act of 1933, as amended, (the “Securities Act”), with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. Although we may be eligible to take advantage of certain exemptions for rights offerings by certain foreign companies, we can give no assurance that we can establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to any such rights or underlying securities or to endeavor to have such a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result. If the depositary bank is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case you will receive no value for these rights. The value of your investment may be reduced by possible future sales of common shares or ADSs by us or our shareholders or fluctuations in foreign exchange. One or more of our existing shareholders may, from time to time, dispose of significant numbers of our common shares or ADSs. For example, the National Development Fund of the R.O.C., which owned 6.38% of TSMC’s outstanding shares as of February 28, 2026, had from time to time in the past sold our shares in the form of ADSs in several transactions. We cannot predict the effect, if any, that future sales of ADSs or common shares, or the availability of ADSs or common shares for future sales, will have on the market price of ADSs or common shares prevailing from time to time. Sales of substantial amounts of ADSs or common shares in the public market, or the perception that such sales may occur, could depress the prevailing market price of our ADSs or common shares. In addition, fluctuations in the exchange rate between the U.S. dollar and the NT dollar may affect the U.S. dollar value of our common shares and the market price of the ADSs and the U.S. dollar value of any cash dividends paid in NT dollars on our common shares represented by ADSs. The market value of our shares may fluctuate due to the volatility of, and government intervention in, the R.O.C. securities market. The Taiwan Stock Exchange has experienced from time to time substantial fluctuations in the prices and volumes of sales of listed securities. There are currently limits on the range of daily price movements on the Taiwan Stock Exchange. In response to past declines and volatility in the securities markets in Taiwan, and in line with similar activities by other countries in Asia, the government of the R.O.C. formed the Stabilization Fund, which had purchased and may from time to time purchase shares of Taiwan companies to support these markets. In addition, other funds associated with the R.O.C. government had in the past purchased, and may from time to time purchase, shares of Taiwan companies on the Taiwan Stock Exchange or other markets. These funds had disposed and may from time to time dispose shares of Taiwan companies so purchased at a later time. In the future, market activity by government entities, or the perception that such activity is taking place, may take place or cease, may cause fluctuations in the market prices of our ADSs and common shares.