TAIWAN Law and Practice Contributed by: Lihuei Mao (Grace), Derrick Yang, Yu-Ting Su and Rose Huang, Lee and Li Attorneys-at-Law
Outbound Investments by Insurance Businesses to loosen restrictions on insurance companies invest - ing in core strategic industries through private equity funds. These regulatory changes have boosted invest - ments by private equity funds in industries including green energy, biotechnology, intelligent machinery and new agriculture. 3. Regulatory Framework 3.1 Primary Regulators and Regulatory Issues Primary Issues Relating to Potential National Security Concerns Taiwan regulates inbound investments by separat - ing foreign or PRC investors through two different regimes, both reviewed by the Department of Invest - ment Review (DIR) of the Ministry of Economic Affairs (MOEA). A foreign investor is generally permitted to invest in a Taiwan company unless the company engages in prohibited or restricted businesses. On the other hand, due to the political tensions across the strait, a PRC investor can only invest in a limited num - ber of industries on the “positive list” published by the government. A PRC investor means (i) an individual, juristic person, organisation or any other institution of the People’s Republic of China (a “PRC National”); and (ii) any company located in any third area (an area other than the PRC or Taiwan) (a) of which, in aggre - gate, more than 30% of its equity or capital is held by PRC National(s) or (b) which is controlled by PRC National(s). If an investment involves a PRC investor or sensitive business (such as critical infrastructure, telecommu - nications business or other restricted business), the DIR will request detailed information on the inves - tor’s shareholding structure and an explanation of the intended purpose, and seek relevant governmental bodies’ opinions. In terms of private equity invest - ments, the DIR will normally require the list of LPs (including their place of incorporation and source of funds). As the GP is responsible for making the invest - ment on behalf of the fund/limited partnership, the DIR will also request the GP to disclose (i) the nationality/ place of incorporation of each tier of investment vehi - cle, and (ii) the name and nationality of the respective
shareholders and directors in each tier of investment vehicle, up to the ultimate beneficial owner(s). DIR approval is usually a condition precedent to closing. To this end, the detailed disclosure on the structure of the private equity fund may result in a protracted process, which could undermine deal cer - tainty and the targeted timeline if not appropriately planned ahead. EU FSR Regime for Private Equity Fund Transactions in Taiwan The EU Foreign Subsidies Regulation (FSR) regime mainly regulates “M&A activities of EU enterprises” and “participation in EU government procurement procedures”, which may lead to distorted transac - tions in the EU market. Therefore, if a private equity fund transaction involves a Taiwanese target compa - ny operating in the EU and participating in the gov - ernment procurement project, the parties will need to carefully assess the implications of the EU FSR regime. Change in Law There have been no significant legislative movements in anti-bribery, sanctions and other related areas in the past year. In terms of ESG compliance, the Securities Futures Bureau issued the “Sustainable Development Action Plan for Listed Companies and OTC-listed Companies” in 2023. Under this plan, starting from 2025, all listed companies and OTC-listed compa - nies are required to prepare sustainability reports and enhance the disclosure of their sustainability endeav - ours.
4. Due Diligence 4.1 General Information
The level of legal due diligence will vary depending on whether a private equity transaction is a takeo - ver or minority stake investment, and is subject to factors such as the target’s operation, the investor’s risk appetite and so on. In most instances, legal due diligence will entail a thorough examination of cor - porate, permits and approvals, real estate, material contracts, financial and liabilities, intellectual property, employment/labour, litigation and insurance, with des -
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