Newsletter
Amendments to the National Security Act and the Act Governing Relations between the People of the Taiwan Area and the Mainland Area
Amendments to the National Security Act and the Act Governing Relations between the People of the Taiwan Area and the Mainland Area
To maintain the competitiveness of Taiwan's high-tech industries and national economic interests more comprehensively, and to prevent the outflow of Taiwan's core critical technologies, the Legislative Yuan passed the amendments to the National Security Act (the "NSA") and the Act Governing Relations between the People of the Taiwan Area and the Mainland Area (the "Cross-Strait Act") in its third reading on May 20, 2022 (collectively, the "Amendments"). The Amendments provides multiple layers of protection for national core critical technologies. The key points of the Amendments are summarized as follows:
I. Protection of National Core Critical Technologies
1. According to the Amendments, no one shall engage in any acts that infringe upon the trade secrets of any national core critical technology, either (a) for foreign countries, Mainland China, Hong Kong, Macao, or hostile foreign forces (collectively, "Offshore Entities"), for organizations, institutions or groups established by or substantially controlled by the Offshore Entities, or for any individual appointed by the foregoing, or (b) with the intent to use such national core critical technology in foreign countries, Mainland China, Hong Kong or Macao. To secure maximum protection, said acts include, but are not limited to, acquisition, use, disclosure, reproduction and concealment of any national core critical technology (Article 3 of the NSA, as amended). The "national core critical technologies" refer to technologies that meet specific requirements and the outflow of which to the Foreign Entities will significantly damage Taiwan's national security, competitiveness in industries or economic development. The scope of national core critical technology will be reviewed regularly by the designated authorities, announced by the Executive Yuan, and submitted to the Legislative Yuan for recordation. The definition of "trade secrets" is stipulated under Article 2 of the Trade Secrets Act (Article 3 of the NSA, as amended).
2. The Amendments stipulate that any infringement of trade secrets of any national core critical technology will incur criminal penalties, including imprisonment for up to 12 years and a fine of up to NT$100 million; if an offender has profited more than the maximum fine, the maximum fine can be increased to two to ten times the amount of his/her undue profit. An attempt to commit said infringement is also punishable. If a representative of a juristic person, a manager or representative of an unincorporated association, or an agent, employee or other practitioners/personnel of a juristic person, unincorporated association or individual commits such infringement while performing his/her job duties, the juristic person, unincorporated association or individual will also be subject to the aforesaid fine (Article 8 of the NSA, as amended).
3. The Amendments provide that an individual or member of a juristic person, organization or other institution who has engaged (or had engaged within the past three years) in any business related to any national core critical technology as commissioned, subsidized or funded (meeting certain threshold) by government agencies (authorities), must submit an application to and obtain approval from the reviews committee formed by the Ministry of the Interior, National Security Bureau, Ministry of Justice, Mainland Affairs Council and other relevant agencies, before traveling to Mainland China (Article 9 of the Cross-Strait Act, as amended).
II. Prevention of Investments by PRC Businesses through Indirect Shareholding Arrangement or Nominees that Circumvents PRC Investment Regulations
1. To prevent PRC investors' indirect investments in Taiwan through non-PRC intermediates, the Amendments stipulate that any non-PRC profit-seeking enterprise invested by a PRC profit-seeking enterprise shall not engage in any business activities in Taiwan unless otherwise approved by the competent authorities and having established a branch or a representative office in Taiwan. The Amendments also include revisions to the relevant provisions under the Company Act that apply mutatis mutandis to the Taiwan branches of PRC businesses (Article 40-1 of the Cross-Strait Act, as amended).
2. To prevent PRC investors' investments in Taiwan by using nominees, the Amendments prohibit individuals from offering the use of his/her name to, or allowing such use by, PRC individuals, juristic persons, organizations or other institutions, or a non-PRC company invested by the same, for the purpose of investing in Taiwan (Article 93-1 of the Cross-Strait Act, as amended).
3. The Amendments raised the penalties for conducting business activities in Taiwan without approval and for any individual's offering or allowing the use of his/her name by PRC investors in disguise. Such raised penalties include imprisonment for up to three years, detention and/or a fine of up to NT$15 million; an offender also bears any civil liability arising therefrom. If there are two or more offenders, they will be jointly and severally liable for any civil liability arising therefrom. The government authorities will suspend the use of an offender's company name. If the offender is a juristic person, association or other institution, the person in charge of its act will be punished, and the juristic person, association or other institution will be subject to the foregoing fine (Article 93-2 of the Cross-Strait Act, as amended).
III. Other Amendments
There are certain amendments to the NSA regarding the procurement of military projects and supplies, prohibiting the delivery or provision of products or services from Mainland China, Hong Kong, Macau or hostile foreign forces as well as counterfeit military weapons, ammunition and supplies. The relevant criminal penalties are also specified (Articles 10-1 and 10-2 of the NSA, as amended).
The Amendments have tightened the control over the outflow of national core critical technologies and relevant professionals, and imposed new restrictions on PRC investments in Taiwan. These essential changes are worth noting. If you have any questions about the Amendments or need any legal assistance, please feel free to contact us.