TAIWAN Law and Practice Contributed by: Lihuei Mao, Dennis Yu and David Tien, Lee and Li Attorneys-at-Law
Under the authorisation of the SIFN, the DIR published the Negative List, which sets forth the sectors in which foreign investment is either restricted or prohibited. Restricted sectors include forestry and the manufac - turing of transport equipment and parts. Prohibited sectors include: • the manufacturing of nitroglycerin for military use; • the manufacturing of gunpowder fuses, agents of fire and fulminating mercury; and • the manufacturing of cadmium smelting. Those sectors not on the Negative List are generally open to foreign investment without any restriction oth - er than the requirement to obtain an FIA in advance. For foreign investors, the criteria for reviewing part - nerships and joint ventures, acquisitions by foreign governments or government-affiliated entities, and non-controlling minority investments are similar. PRC Investments PRC investors are subject to more stringent scrutiny than foreign investors with regard to their investments in Taiwan. In terms of the business scope, PRC inves - tors may only invest in businesses explicitly stated on the “Positive List” promulgated by the DIR from time to time under the authorisation of the PRC Investment Regulations. Moreover, according to the PRC Invest - ment Regulations, even if a PRC investor wishes to invest in a sector that is on the Positive List, the DIR has the discretion to restrict or block the investment application made by a PRC investor if: • the invested entity has an exclusive, oligopoly or monopoly economic status; • the investment is politically, socially or culturally sensitive or would affect national security; or • the investment would have an adverse impact on local economic development or financial stability. In practice, the DIR has wide discretion in determin - ing whether a PRC investment falls under the above- mentioned three restricted categories. Given the dis - cretionary power of the DIR, investments made by a PRC investor are subject to greater uncertainties than those made by a foreign investor.
No PRC government or affiliated entities may make investments in Taiwan. 7.3 Remedies and Commitments There is no separate national security review regime; however, the DIR will review an application for FIA or PRC investment approval based on all factors, includ - ing national security concerns, which is often a more sensitive issue when it comes to applications for PRC investment approval. During the review process, the DIR may consult the opinion of other authorities, such as the National Security Bureau. The DIR has ample discretion to impose conditions on the FIA or the PRC investment approval, which is usually out of concern regarding the background of the investors and the industry sectors involved. Such conditions include the prohibition of any technology transfer due to the transitional service agreement between the seller and the target company, the inves - tor’s guaranty on not going public/listing in the PRC, and the investor’s assurance of the employee benefits remaining unchanged post-closing. 7.4 National Security Review Enforcement The DIR has the power to block the FDI either before or after the investment is made if the FDI is considered one of the prohibited types of investment as outlined in 7.2 Criteria for National Security Review . In such event, the PRC investor/foreign investor may first file an appeal against such decision with the Executive Yuan and further initiate an administrative lawsuit if the appeal is dismissed. The consequences of making an investment without the DIR’s prior approval (including if the approval is first granted and then revoked) are as follows. • The DIR may prevent a foreign investor from set - tling its income or profit from the investment in Taiwan and the interest accrued thereon or require the foreign investor to withdraw its investment in Taiwan and cancel its rights under the SIFN. • For a PRC investor, the consequences would be more severe. An investment without the DIR’s prior approval constitutes a violation of the Act Govern - ing Relations between the People of the Taiwan Area and the Mainland Area (the “PRC Relations
605 CHAMBERS.COM
Powered by FlippingBook