TAIWAN Trends and Developments Contributed by: Lihuei Mao, Dennis Yu and David Tien, Lee and Li, Attorneys-at-Law
Prevention of PRC business activities in Taiwan via third-area companies To address increasing public concern over PRC investors disguising themselves as foreign investors (by using non-PRC intermediaries), Article 40-1 of the PRC Relations Act was also amended, in order to stipulate that a non-PRC profit-seeking enterprise (ie, a third-area entity) invested in by a PRC profit- seeking enterprise is prohibited from engaging in any business activities in Taiwan without the authority’s prior approval and without establishing a branch or a representative office in Taiwan; otherwise, criminal penalties may be imposed. The definition and scope of “PRC profit-seeking enterprises” and “non-PRC profit-seeking enterprise invested in by a PRC profit-seeking enterprise” are stipulated under the PRC Branch Regulations, which were amended by the MOEA on 17 November 2022. To prevent a mainland person from establishing branches or representative offices via a third-area company and operating businesses in Taiwan, the November 2022 amendment to the PRC Branch Regulations not only changes the name of the PRC Branch Regulations to “the Regulations Governing the Establishment of Branches or Representative Offices in Taiwan by PRC Businesses or Third-Area Com - panies Invested in by a Mainland Person” but also explicitly includes third-area companies as “PRC prof - it-seeking enterprises”. Under the prior PRC Branch Regulations, third-area companies were not expressly listed as “PRC profit-seeking enterprises”. Nonetheless, it has been the DIR’s long-standing posi - tion and practice to treat such third-area companies as “PRC profit-seeking enterprises” and to require those third-area companies that wish to establish a branch or representative office in Taiwan to apply for the DIR’s prior approval in accordance with the PRC Branch Regulations. Accordingly, this long-standing practice of the authority is now being expressly stipu - lated in the PRC Branch Regulations.
Taiwan Stock Exchange or the Taipei Exchange – in Taiwan via a contract or other arrangement; and • acquiring the business or assets of any such non- publicly listed corporation. Stricter restrictions on PRC investments by political or military affiliation The Amendments also expand the scope of PRC mili - tary affiliation restrictions. Prior to the Amendments, investments made by “corporations invested in by the PRC military or having military missions” in Taiwan were prohibited under the PRC Investment Rules. Now, the Amendments further stipulate that any legal entity, group or other institution invested in by govern - mental, military, administrative or political authorities (institutions) or groups in the PRC – or any third-area companies with such investment – will be deemed a PRC military affiliation. Moreover, given that the level of risk posed to Tai - wan’s national security by investments made by cor - porations with PRC political or military affiliations may vary from one case to another (eg, depending on the shareholding ratio of such PRC investors), the compe - tent authority may impose various restrictions on such investments on a case-by-case basis (eg, director - ship restrictions or ownership restrictions of the PRC investor in a Taiwan company, etc). Furthermore, if the DIR believes that the proposed investment will have a significant impact on Taiwan’s national security, it has ample discretion to reject such application. PRC Branch Regulations Versus PRC Investment Regulations Although all PRC investments require prior approval from the DIR, the scope of PRC investment under the PRC Investment Regulations does not cover PRC investors’ direct business activities in Taiwan nor their establishment of branches or representative offices in Taiwan. Such activities are not subject to the PRC Investment Regulations but to Article 40-1 of the PRC Relations Act and the Regulations Govern - ing the Establishment of Branches or Representative Offices in Taiwan by PRC Profit-Seeking Enterprises (the “PRC Branch Regulations”) – that is, a sublaw of the PRC Relations Act.
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