- Mainland Investment in Taiwan: Who is the first to Take advantage of Economic Deregulation?
- October 19, 2010 | Author: Charles (Qianli) Law
- Law Firm: King & Wood - Beijing Office
Since the beginning of Ma's leadership in Taiwan in May 2008, cross-strait relations have grown considerably closer. For example, the First Cheng-Chiang Summit in June 2008 expanded direct passenger flights and facilitated mainland residents' travels to Taiwan. The Second Cheng-Chiang Summit in November 2008 explored issues relating to air transportation, shipping links, direct mail services, and food safety. In addition to establishing a consensus on jointly promoting PRC investment in Taiwan, the Third Cheng-Chiang Summit in April 2009 gave way to three agreements: Agreement on Joint Cross-Strait Crime-fighting and Mutual Judicial Assistance, Cross-Strait Financial Cooperation Agreement, andSupplementary Agreement on Cross-Strait Air Transport. As a result, Taiwan began amending and implementing laws and regulations concerning mainland investment in Taiwan.
On April 29, 2009, given the consensus on jointly promoting mainland investment in Taiwan, Taiwanese authorities promulgated the Regulations Governing Securities and Futures Transactions in Taiwan for People from the Mainland Area ("Securities and Futures Regulations").
Then, on May 26, 2009, to set concrete operational guidelines for mainland investors, the Regulations on Permit for Investment in Taiwan by People from the Mainland Area ("Investment Permit Regulations") and Regulations on Permit for Establishing Branch or Representative's Office in Taiwan by Profit-Seeking Mainland Enterprises ("Branch and Rep Office Establishment Permit Regulations") were announced. The provisions in the aforementioned regulations can be summarized as follows:
- Advance permit required: mainland individuals, organizations, other institutions, or third-area companies invested in by the aforementioned entities (collectively "Mainland Investor") must obtain a permit from Taiwan's Ministry of Economic Affairs in advance before establishing a branch, representative's office, sole proprietorship, or partnership in Taiwan.
- Portfolio investment classified as direct investment when shareholding exceeds a certain threshold: if a Mainland Investor purchases or accumulates 10% of shares or more of a listed company, the investment shall be classified as a direct investment and shall be approved pursuant to the Investment Permit Regulations.
- A separate investment permit is required should the Mainland Investor provides loans for one year or longer to the company it holds shares in as described in the preceding paragraphs.
- Classification of mainland-funded company: to prevent Mainland Investors from circumventing the Investment Permit Regulations and other applicable laws under the guise of a third-area company, companies in which Mainland Investors have a controlling interest in or those with more than 30% of total shares issued by or those received capital contribution from Mainland Investors shall be classified as mainland-funded companies and subject to the Investment Permit Regulations.
- The industries in which Mainland Investors are permitted to invest are provided by the Ministry of Economic Affairs in a positive list, "Industry List for Mainland Investors(1)", which was prepared under the principle of "restrictions first and expansions later" and may be expanded progressively based on results.
In terms of financial investments, according to "Securities and Futures Regulations(2)," Mainland Individuals cannot yet invest in securities or futures in Taiwan. Permissible investors are: (1) institutional investors qualified by mainland securities authority (e.g. qualified domestic institutional investors or "QDII"), (2) mainland employees at listed companies or companies whose shares are traded over the counter which have been given company stock, (3) Mainland Investors of foreign companies which are listed in Taiwan or whose shares are traded over the counter in Taiwan, (4) other parties permitted by the authorities in Taiwan.
In terms of banking activities, following the Memorandum of Understanding ("MOU") (3)dated November 16, 2009, Taiwan announced the amendments to regulations governing banking, securities and futures, and insurance transactions on March 16, 2010. The said regulations provide detailed guidelines on establishing operations and representative offices, cross holding of shares, and other business activities among banks on both sides of the Strait.
On June 29, 2010, the signing of the Economic Cooperation Framework Agreement ("ECFA") and the Cross-Strait Agreement on Intellectual Property Rights Protection and Cooperation signified another milestone for cross-strait economic cooperation. A culmination of past agreements, ECFA serves as a foundation for advancing future agreements on cross-strait activities such as the free trade of goods and services, investment protection, and dispute resolutions.
In terms of real estate, a hotly watched investment topic, with the exception of members of or employees at political parties or political, military, and administrative institutions and groups, Mainland Individuals now may acquire, set, and transfer property rights of real estates in Taiwan(4), provided that they pass the procedural review of local government and the approval of the Ministry of the Interior(5). Meanwhile, it shall be noted that, within the first three years of registering for the acquisition of residential real estate, Mainland Individuals are not permitted to transfer property rights or apply for advance registration for transfer of land rights(6). In addition, Mainland Individuals who own real estates in Taiwan may make unlimited number of visits to Taiwan so long as the total length of stay does not exceed four months each year(7).
Mainland juristic persons, organizations, other institutions, or mainland-funded companies may acquire, set, or transfer property rights of real estates for the following purposes: (1) to provide accommodation for business employees of the company, (2) to provide facility for industrial or commercial operations, and (3) to provide facility for operations or other activities necessary for the business. The aforementioned rights to acquire, set, or transfer real estates shall be reviewed by the local government and approved by the Ministry of the Interior(8).
In terms of real estate financing, Mainland Individuals with residency in Taiwan or mainland-funded companies with registrations in Taiwan may apply for loans from banks in Taiwan(9). Those without Taiwanese residency or registrations shall follow the Regulations for Banks and Credit Unions in the Taiwan Area Governing Real Estate Financing for Mainland Individuals without Residency in Taiwan, if applying for financing in Taiwan. Compared to Taiwanese applicants, banks and credit unions in Taiwan shall not give Mainland Individuals without Taiwanese residency or mainland-funded companies without registrations in Taiwan better financing terms even at times when the interest rate is the same, using the loans for the same purpose, and offering the same quality of collateral. The upper limit of the real estate loan shall be 50% of the assessed value of the collateral(10).
In order to regulate the entry into Taiwan for mainland professionals in Taiwan as managers, directors, or supervisors, the Regulations on Permit for Mainland Professionals' Entry into Taiwan to Perform Professional Activities in Taiwan shall be followed when preparing for entry permits. If the professional is deemed "by relevant authority as someone whose presence in Taiwan is frequently needed," he or she may be issued a multi-entry permit effective for one year to three years(11). The spouse or children of the aforementioned professional, upon approval, may be issued a one-year multi-entry permit(12).
For the past two years, cross-strait economic cooperation has outpaced developments in the last two decades. However, complete economic deregulation is unlikely in the short term, and authorities have yet to begin talks on certain unresolved issues. As such, when making or preparing to make investments in Taiwan, it helps for Mainland Investors to be forward-looking so that they can seize opportunities as they first become available, but patience is still a much needed virtue.
(1) Taiwan's Ministry of Economic Affairs' Order Jing-Shen-Zi No. 09904602980, dated May 20, 2010.
(2) Article 3 of the Regulations Governing Securities and Futures Transactions in Taiwan for People of Mainland Area.
(3) The "MOU" refers to collectively the Memorandum of Understanding (MOU) on Cross-Strait Securities and Futures Supervision Cooperation, the Memorandum of Understanding (MOU) on Cross-Strait Insurance Operations Supervision Cooperation, and the Memorandum of Understanding (MOU) on Cross-Strait Banking Supervision Cooperation.
(4) Paragraph 1, Article 4 of the Regulations on Permit for Mainland Individuals to Acquire, Set or Transfer Property Rights of Real Estates.
(5) Paragraph 3, Article 7 of the Regulations on Permit for Mainland Individuals to Acquire, Set or Transfer Property Rights of Real Estates.
(6) Article 6-1 of the Regulations on Permit for Mainland Individuals to Acquire, Set or Transfer Property Rights of Real Estates.
(7) Paragraph 3, Article 12 of the Regulations Governing Employment of Mainland Professionals in Taiwan.
(8) Paragraph 1 & 2, Article 7 of the Regulations on Permit for Mainland Individuals to Acquire, Set or Transfer Property Rights of Real Estates.
(9) Paragraph 2, Article 5-1 of the Regulations Governing Approvals of Banks to Engage in Financial Activities Between the Taiwan Area and the Mainland Area.
(10) Article 7 of the Regulations for Banks and Credit Unions in the Taiwan Area Governing Real Estate Financing for Mainland Individuals without Residency in Taiwan.
(11) Paragraph 2, Article 12 of the Regulations Governing Employment of Mainland Professionals in Taiwan.
(12) Article 16 of the Regulations Governing Employment of Mainland Professionals in Taiwan.