TAIWAN Law and Practice Contributed by: Lihuei Mao, Dennis Yu and David Tien, Lee and Li Attorneys-at-Law
• indirectly acquiring the business or property of a Taiwanese company that is not listed on the TWSE or the TPEX via a “third-area company”, which is any company that is incorporated in any jurisdic - tion other than China or Taiwan and owned/con - trolled by a mainland person(s) whereby: (a) the capital contributed or shares held directly or indirectly by such mainland person(s) in aggregate exceed 30% of the total number of shares or the total amount of capital contribu - tion of such third-area company; or (b) such third-area company is otherwise con - trolled by a PRC national(s). Once a PRC Investment Approval is granted, the PRC investor must remit the capital in full into Taiwan and complete the investment, and thereafter apply for the DIR’s capital verification within two months. 7.2 Criteria for National Security Review Foreign Investments Versus PRC Investments When reviewing an application for an FIA or PRC investment approval, the DIR will first determine whether an applicant is a “foreign investor” or a “PRC investor” based on the following rules. A PRC investor refers to: • an individual, juristic person, organisation or any other institution of China (the “mainland person”); and • any company located in any jurisdiction other than China or Taiwan and invested in by any mainland person whereby: (a) the capital contributed or shares held directly or indirectly by the mainland person(s) in aggre - gate exceed 30% of the total number of shares or total amount of capital contribution of said third-area intermediary; or (b) the mainland person(s) has “control” over the third-area intermediary. The above-mentioned “30%” should be examined and determined based on each upper-level share - holder individually. As regards the “control test”, according to a Let - ter dated 30 December 2020 (Ref No: Jing-Shen-
Zi-10904606720) issued by the MOEA, a company will be deemed to have control over another company if it: • has control over the majority of the votes pursuant to an agreement with other investors; • has control over the financial, operational and/or HR policies pursuant to the law or regulations or contractual commitments; • has the right to appoint or discharge the major - ity of the directors on the board (or any equivalent organisation that has the right to determine the company’s operation), which has control over the company’s operations; • has control over the majority of the votes of the directors on the board (or any equivalent organisa - tion that has the right to determine the company’s operation), which has control over the company’s operations; or • has control power under other circumstances as defined under the International Financial Reporting Standards (IFRS) or Enterprise Accounting Stand - ards (EAS). A foreign investor refers to any foreign investor other than a PRC investor. A Hong Kong/Macau investor is subject to the same foreign investment regulations as a foreign investor. Nonetheless, the recent tense cross-strait relationship between Taiwan and China has led to heightened scrutiny by the DIR of applica - tions from Hong Kong companies, particularly since Hong Kong’s enactment of its national security law. It will take more time to process DIR applications filed by Hong Kong investors than those filed by foreign investors from other areas. Foreign Investments No foreign investment in any of the following busi - nesses is permitted: • businesses that are in conflict with national secu - rity, public order and/or good morals or that might have an adverse impact on national security; and • any type of business in which foreign investments are otherwise prohibited by law (ie, the prohibited sectors prescribed under the Negative List – see below).
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