TAIWAN Trends and Developments Contributed by: Lihuei Mao, Dennis Yu and David Tien, Lee and Li, Attorneys-at-Law
is subject to more stringent scrutiny by the MOEA’s Department of Investment Review (DIR) than invest - ments by other foreign investors. Under the Regula - tions Governing Investments by Nationals in Mainland China (the “PRC Investment Regulations” – a sublaw of Article 73 of the PRC Relations Act), a “PRC inves - tor” includes any individual, juristic person, organi - sation or any other institution of Mainland China (a “mainland person”) or of any third area that is owned or controlled by a mainland person (a “third-area com - pany”). Specifically, if a mainland person directly or indirect - ly contributes more than 30% of the total shares or capital contribution of a third-area company (“equity control”) or has the power/capability to control a third- area company (“substantial control”), such third-area company will be deemed a PRC-invested company and thus a PRC investor. Such third-area company’s investment in Taiwan will be subject to the PRC Invest - ment Regulations rather than the Statute for Invest - ment by Foreign Nationals (which applies to non-PRC investments). To filter and scrutinise PRC investments, and to avoid any circumvention via indirect investment structures or other investment arrangements (ie, PRC invest - ments in the guise of foreign investments), the DIR promulgated amendments to the PRC Investment Rules (the “Amendments”) and – based on its function and power as the governing authority for FDI – issued relevant rulings (the “New Rulings”) on 30 December 2020. Such Amendments and New Rulings have had a significant impact on both PRC investments and foreign investments. Stricter criteria for identifying PRC investments through a third-area company The Amendments and the New Rulings did not change the principle that if a mainland person holds more than 30% of the shares in a third-area company or has control over the third-area company, such third-area company will be deemed a PRC investor. Nevertheless, the New Rulings stipulate a more comprehensive set of criteria for determining equity control, whereby said 30% shareholding rule will be applied to each level of the shareholding structure –
rather than the total percentages of direct and indirect PRC investment simply being multiplied by ownership percentages at each level. In other words, under the New Rulings, a third-area company is deemed a PRC investor as long as any mainland person directly or indirectly holds more than 30% of any holding com - pany of such third-area company. In addition, any subsidiary of such third-area company where more than 30% of the shares are held by such third-area company will also be considered a PRC investor. The New Rulings also broaden the definition of sub - stantial control. Under the previous criteria for iden - tifying substantial control, one of the standards was whether the board of directors (or any equivalent gov - erning body) was controlled by PRC investors. Under the New Rulings, this standard has been changed to apply to a “board of directors (or any other organ in charge of the direction of the [third-area] company’s operation)”, so as to cover any other organisation that is capable of affecting the operation of the third-area company (such as a sub-committee with decision- making power under the board of directors). Expansion of scope of PRC investment activities that are subject to regulatory approval The Amendments have also expanded the scope of investment activities requiring the DIR’s approval. Pri - or to the Amendment, a PRC investor had to obtain the DIR’s approval before conducting any of the fol - lowing activities: • holding shares or contributing to a company or business in Taiwan; • establishing any branch office, sole proprietorship or partnership in Taiwan; and • providing loans with a term of more than one year to the above-mentioned businesses. The Amendment has expanded this scope of activities to include the following: • establishing or holding any sole proprietorship, partnership or limited partnership in Taiwan; • controlling any sole proprietorship, partnership, limited partnership or any non-publicly listed cor - poration – the securities of which are not registered on the Emerging Stock Market or listed on the
615 CHAMBERS.COM
Powered by FlippingBook