Newsletter
Penalties for Illegal Investment in Taiwan by Mainland Person have been Increased
To prevent the outflow of core technologies and to strengthen the regulation of investments from Mainland China, the amendments to the Act Governing Relations between the People of Taiwan and Mainland China (the “Cross-Strait Act”) were promulgated on June 8, 2022. Among said amendments, relevant provisions governing penalties took effect on November 18, 2022. In response to such amendments, the Ministry of Economic Affairs (MOEA) and the Financial Supervisory Commission (FSC) amended the related punishment standards and regulations, which took effect on November 18, 2022. We summarize the key points thereof as follows.
I. Main amendments to the Cross-Strait Act and the punishment standards therein are as follows:
1. To prevent a profit-seeking enterprise of Mainland China (the “Mainland China Enterprise”) from investing in Taiwan through local partners in Taiwan or in the name of a profit-seeking enterprise in a third area and engaging in poaching high-tech talent and other improper behaviors in Taiwan:
i. The amendment to the Cross-Strait Act added that (1) unless permitted by the competent authorities and having established in Taiwan a branch or representative office, a profit-seeking enterprise in a third area invested by Mainland China Enterprise (the “Third Area Enterprise”) should not engage in any business activities in Taiwan and (2) relevant requirements under the Company Act apply mutatis mutandis to the Mainland China Enterprise and the Third Area Enterprise that has a Taiwan branch. (Article 40-1 of the Cross-Strait Act)
ii. The amendment to the Cross-Strait Act (1) increased the penalty for conducting business activities in Taiwan without permission and (2) added the punishment for anyone who allows the Mainland China Enterprise to use such person's name to operate in Taiwan. (Article 93-2 of the Cross-Strait Act)
2. To prevent investors of Mainland China (the “Mainland China Investors”) from investing in Taiwan without approval from the competent authorities by using other people’s names or impersonation, etc.:
i. The amendment to the Cross-Strait Act added that those who provide or allow their name to be used by Mainland China Investors, regardless of whether they are paid or unpaid, natural person or juridical person, will be subject to the same administrative punishment as investors who violates Paragraph 1, Article 73 of the Cross Strait Act. (Article 93-1 of the Cross-Strait Act)
ii. The MOEA and the FSA added that those who provide their names or allow Mainland China Investors to use their names to invest in Taiwan are subject to the punishments under Point 2 of the Standards of Administrative Fines for Mainland China Investor’s Illegal Investments in Taiwan announced by the MOEA and the FSC, respectively.
II. Main Amendments to the “Regulations Governing Profit-Seeking Enterprises of Mainland China Establishing a Branch or Representative Office in Taiwan” are as follows:
1. Name change of the Regulations: In response to the amendment to Article 40-1 of the Cross-Straits Act, the “Regulations Governing Profit-Seeking Enterprise of Mainland China Establishing a Branch or Representative Office in Taiwan” was renamed as the “Regulations Governing Profit-Seeking Enterprise of Mainland China or Profit-Seeking Enterprises that Mainland China Enterprises Invested in a Third Area” (the “Regulations”).
2. Expand the definition of a Third Area Enterprise: An entity meeting either of the following criteria should be deemed a Third Area Enterprise: (i) a Mainland China Enterprise directly or indirectly holds more than 30% of the shares or total capital contribution of the entity established in a third area; or (2) the entity established in a third area is controlled by a Mainland China Enterprise. (Article 3)
3. Financial statements should be audited and certified by a certified public accountant: If the operating revenue reaches a certain amount or less than a certain amount but reaches a certain scale, the financial statements of a Taiwan branch of a Mainland China Enterprise or the Third Area Enterprise should be audited and certified by a certified public accountant. (Article 5)
4. Shorten the reporting period: From “within 30 days from the date of occurrence of the incident” to “within 15 days from the day following the occurrence of the incident”. (Article 12)
5. To prevent any Mainland China Enterprise from using research as a pretext to poach talents and steal key technologies: The research activities of a representative office in Taiwan of a Mainland China Enterprise or a Third Area Enterprise are limited to "statistics, collation and analysis related to market research", and exclude any research and development activities. (Article 14)
6. If a Third Area Enterprise established a branch or representative office in Taiwan pursuant to the Company Act before the Regulations took effect, it would be subject to the Regulations after the amendments to the Regulations took effect on November 18, 2022. (Article 22)