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

In Taiwan, the Department of Investment Review (DIR, previously known as the Investment Commission) of the Ministry of Economic Affairs (MOEA) oversees two separate regulatory regimes for inbound investments from the People's Republic of China (PRC, excluding Macau and Hong Kong) and from the rest of the world.

Summary of major changes in 2023

• Following structural changes effective on September 26, 2023, the Investment Commission was renamed as the Department of the Investment Review (DIR). Despite the name change, the relevant FDI review process generally remains the same
• Ongoing geopolitical tensions between Taiwan and the PRC persist. In response to heightened concerns about national security and industrial espionage, the Taiwanese government has been cautiously reviewing investment applications involving PRC elements to prevent any attempts to bypass investment restrictions. This trend has continued in 2023

Who files?

All inbound investments are subject to the DIR's review under either the foreign investment or PRC investment track.

A foreign investor should file the investment application according to the Statute for Investment by Foreign Nationals, which allows foreign investors to invest in any Taiwanese company unless the company engages in prohibited or restricted business or the investment poses a risk to national security, public order, good morals or national health. The government has a "negative list" that specifies the restricted or prohibited industries, such as military-related chemical products, firearms, transportation and mass media.

A PRC investor should file the investment application according to the Measures Governing Investment Permits to the People of the Mainland Area. A PRC investor refers to an individual, juristic person, organization or any other institution of the PRC (PRC national); and any company located in any third area (other than the PRC or Taiwan) in which, in aggregate, more than 30 percent of its equity or capital is held by PRC nationals or which is controlled by PRC nationals (the third-area company). Unlike foreign investors, PRC investors can only invest in industries listed on the government's "positive list."

Types of deals reviewed

The DIR will review two types of investments.

The first is foreign investments, including: the acquisition of stock or capital contribution of a Taiwanese company; setting up a branch office, proprietary business or partnership in Taiwan; and providing shareholder loans for a term of one year or longer to those invested Taiwanese companies in the first two categories.

The DIR also reviews PRC investments including: 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); setting up a branch office, proprietary business or partnership in Taiwan; providing shareholder loans for a term of one year or longer to those invested Taiwanese companies referred to above; having control over a Taiwanese proprietary business, partnership, limited partnership or a private company via contractual arrangement; and acquiring the business or assets of a Taiwanese private company by a third-area company.

Scope of the review

When reviewing an investment application, the DIR 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 the investment involves a PRC investor or sensitive business (such as critical infrastructure, telecommunications or other restricted business), the DIR will increase its scrutiny by requesting detailed information on the ownership structure and the intended purpose, and seeking relevant government bodies' opinions. As such, it will generally take longer for the DIR to review PRC applications.

The DIR's approval is usually a condition precedent to the closing of a transaction. While the DIR has the sole discretion to reject or impose conditions on a transaction, it has approved most of the applications received and only rejected a limited number of cases because of national security concerns or adverse impacts on the local economy. In some cases, the DIR may also require undertakings from the investors per other competent authorities' requests or attach conditions to an approved investment.

Review process timeline

The DIR's review process usually takes 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 DIR has the sole discretion to request further information from the prospective applicants, consult intra-governmental bodies, and/or conduct ad hoc reviews on a case-by-case basis, which may prolong this timeline.

How foreign investors can protect themselves

While reviewing an application submitted by a foreign investor, the DIR will review the foreign investor's shareholding structure, 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 reviews, we strongly advise the investor to carefully examine its shareholding structure and the business it wishes to invest in with an experienced counsel to fully assess the risks and structure the transaction effectively.

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