Benjamin Y. Li, Derrick Yang and Yu-ting Su (Lee & Li, Attorneys-at-Law) authored this publication

Under Taiwan law, inbound investments made by a "foreign investor" or a "PRC investor" are regulated by two different regimes, both of which are under the auspices of the Investment Commission (IC) of the Ministry of Economic Affairs (MOEA)

Recent updates

• There do not appear to be any major changes to the Taiwan FDI legal landscape in 2022
• There continues to be fraught geopolitical tensions between Taiwan and the PRC. Due to an escalated concern regarding national security and industrial espionage, the Taiwan government has, in recent years tightened the review of investment applications that involve PRC elements to deter any attempt to circumvent Taiwan's policies governing foreign and/or PRC investments. This trend has continued in 2022

Who files

There are generally two types of inbound investments—foreign investments and PRC investments.

A. Foreign investment

Foreign investments are governed by the Statute for Investment by Foreign Nationals. A foreign investor may generally invest in any Taiwanese company unless (1) such company engages in any business regarding which foreign investment is prohibited or restricted or (2) the investment poses a risk to national security, public order and/or good morals, or national health. The said restricted or prohibited businesses are enumerated in a "negative list" promulgated by the government which includes, inter alia, industries relating to chemical products for military use, firearms and weapons, transportation, postal service, electricity and gas supply, mass media and telecommunications.

A foreign investor seeking to invest in a Taiwan business has to apply for the approval of the IC by submitting the investor's identification documents/certificate of incorporation, business operation plan, funding plan, investor's shareholding structure, transaction agreement(s) (such as the merger, acquisition or joint venture agreement, as applicable), as well as a declaration certifying that the foreign investor is not a PRC investor.

B. PRC investment

In contrast, according to the Measures Governing Investment Permits to the People of the Mainland Area, a PRC investor means (1) an individual, juristic person, organization or any other institution of the People's Republic of China (PRC National); and (2) any company located in any third area (an area other than the PRC or Taiwan) (i) in which, in aggregate, more than 30 percent of its equity or capital is held by the PRC National(s) or (ii) which is controlled by the PRC National(s) (the Third-Area Company). Unlike foreign investors, PRC investors may only invest in industries listed in the "positive list" promulgated by the government. In practice, in the event that a PRC investor is involved, the investment application would face more stringent scrutiny and the IC's approval would take a longer time to obtain, as the IC will be more careful to ensure that the positive list is observed. Moreover, the IC has the sole discretion to reject or impose conditions on a transaction if the transaction (i) leads to monopoly, oligopoly or exclusivity, (ii) is politically, socially or culturally sensitive or poses a threat to national security, or (iii) has an adverse impact on Taiwan's domestic economic development or financial stability.

A PRC investor has to submit with his/her application to the IC supporting documents including the investor's identification documents/certificate of incorporation, business operation plan, funding plan, investor's shareholding structure and transaction agreement(s) (such as the merger, acquisition or joint venture agreement, as applicable). In addition, the IC will require a thorough disclosure of the PRC investor's shareholding structure up to the ultimate beneficial owner(s). An investment by a limb of a PRC partisan, military, administrative or political organization could be rejected by the IC unless national security concerns can be cleared.

Types of deals reviewed

The following types of investments will be subject to the IC's review:

• Foreign investments including: (1) acquiring stock or capital contribution of a Taiwanese company; (2) setting up a branch office, proprietary business or partnership in Taiwan; and (3) providing shareholder loans for a term of one year or longer to those invested Taiwanese companies referred to in (1) and (2)
• PRC investments including (1) acquiring stock or capital contribution of a Taiwanese company, proprietary business, partnership or limited partnership (subject to certain exceptions for acquiring shares in a TWSE or TPEX listed company); (2) setting up a branch office, proprietary business or partnership in Taiwan; (3) providing shareholder loans for a term of one year or longer to those invested Taiwanese companies referred to in (1) and (2); (4) having control over a Taiwanese proprietary business, partnership, limited partnership or a private company via contractual arrangement; and (5) acquiring the business or assets of a Taiwanese private company by a Third-Area Company (referring to a company incorporated outside the areas of PRC and Taiwan)

Scope of the review

When determining whether to approve an investment, the IC applies a totality test by taking into account the nature of the business, scale of investment, parties involved, potential impact on national security, public order, public health, technology advancement, local economics, rights of the local stakeholder and employees, and other relevant factors. If an investment involves any PRC investor or sensitive business (such as critical infrastructure, telecommunication business or other restricted business), the IC will tighten its scrutiny by requesting detailed information on the shareholding structure, explanation on the intended purpose(s) and seeking relevant governmental bodies' opinions.

The IC's investment approval is usually a condition precedent to closing a transaction. In some cases, the IC may also require undertakings per other competent authorities' requests or attach conditions to an approved investment.

Review process timeline

The review process conducted by the IC would usually take one to two months for foreign investments and two to four months for PRC investments, depending on the scale and complexity of the investment. The IC has the sole discretion to request further information from the investor, seek intra-governmental consultation, and/or conduct ad hoc reviews on a case-by-case basis, which may prolong the aforesaid timeline.

How foreign investors can protect themselves

While reviewing an application submitted by a foreign investor, the IC will conduct a thorough review of the shareholding structure of such foreign investor (including each layer of investment vehicle up to the ultimate beneficial owner) to ensure that the investor is not a de facto PRC investor. As foreign investors and PRC investors are subject to different regulatory regimes, the investor is advised to carefully examine its shareholding structure and the business it wishes to invest in with an experienced counsel to be able to fully assess the risks and structure the transaction appropriately.

_{White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.}

_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

_{© 2023 White & Case LLP}