TAIWAN Trends and Developments Contributed by: Lihuei Mao, Dennis Yu and David Tien, Lee and Li, Attorneys-at-Law
Heavier Punishments for Indirect Shareholding Nominee Arrangements That Circumvent Regulations on PRC Investments In order to maintain the advantage of Taiwan’s hi-tech industries and national economic interests more com - prehensively, and to prevent the outflow of Taiwan’s core critical technologies, the PRC Relations Act and the National Security Act (NSA) were amended on 8 June 2022. Such amendments cover PRC invest - ments under the PRC Investment Regulations and PRC business activities in Taiwan under the PRC Branch Regulations. Prohibition on Taiwanese individuals offering or allowing use of their names by PRC investors Penalties for investing in Taiwan via Taiwanese nominees The penalties for violation of Article 73 of the PRC Relations Act as well as the PRC Investment Regula - tions are provided under Article 93-1 of the PRC Rela - tions Act. To prevent PRC investors from disguising themselves as Taiwanese individuals by using nomi - nees to invest in Taiwan, thereby circumventing the PRC Investment Regulations, Article 93-1 of the PRC Relations Act was amended to prohibit Taiwanese individuals from offering their names to – or allowing the use thereof by – PRC investors for the purpose of investing in Taiwan (ie, from being their nominees). For a violation of the above-mentioned requirements, both the PRC investor and the Taiwanese nominee would be subject to a fine of between NTD120,000 and NTD25 million. In addition, the DIR may order the violator to cease or withdraw such investment or to rectify it within a specified time limit, and it may suspend the violator’s shareholder rights if neces - sary. If the violator fails to act accordingly, the DIR may impose consecutive fines on the violator until the correction of such violation and may – if necessary – instruct the company registration authority to revoke or nullify the violator’s company registration. Penalties for engaging in business activities in Taiwan via Taiwanese nominees The penalties for violating Article 40-1 of the PRC Relations Act and the PRC Branch Regulations are stipulated under Article 93-2 of the PRC Relations Act, which was also amended to raise the criminal liabili -
ties for PRC profit-seeking enterprises conducting business activities in Taiwan by using non-PRC inter - mediaries or Taiwanese nominees (and for any such Taiwanese nominees). Pursuant to the amended Arti - cle 93-2, a violator will be subject to imprisonment for up to three years (prior to such amendment, this was one year), detention and/or a fine of up to NTD15 mil - lion (this was NTD150,000 before such amendment). Apart from criminal liabilities, a violator also bears civil liabilities; if there are two or more violators, they will be jointly and severally liable for any such civil liabilities. Moreover, the competent authorities will suspend the use of the violator’s company name. If the violator is a juristic person (entity), association or other institution, the person in charge of its act will be punished, and the juristic person (entity), association or institution will also be subject to the foregoing fine. Heavier Punishments for Theft of Taiwanese Core Technologies The 8 June 2022 amendment to the NSA also raised the criminal liabilities for the theft of Taiwanese core technologies. Such amendment was prompted by a number of incidents in recent years where the trade secrets of Taiwan’s hi-tech companies have fallen prey to PRC competitors. Before the amendment, an individual was prohibited from engaging in acts such as initiating, funding, host - ing, manipulating, directing or developing an organi - sation for foreign countries, Mainland China, Hong Kong, Macao or hostile foreign forces (collectively, the “offshore entities”). Other acts were also prohibited, such as disclosing, delivering, transmitting, spying on or collecting confidential documents, drawings, imag - es, messages, articles or electromagnetic records to be used in an official capacity by the offshore entities. Conducting these prohibited acts may lead to impris - onment for more than seven years and a fine of up to NTD100 million. However, before the amendment, the NSA did not include the protection of Taiwan’s criti - cal core technologies, which are also deemed trade secrets.
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