Taiwan Requires Examination Before Transfers of
Investments Concerning Key Tech Exported to China

The Ministry of Economic Affairs (MOEA) amended the provisions of the Regulations Governing the Approval of Investment or Technical Cooperation in Mainland China (hereinafter the “Regulations”); the amendments took effect on April 21, 2022.[1]

The Regulations, promulgated in 1993, have been revised several times in accordance with the increasingly frequent commercial activities between Taiwan and China. The last revision, effective on December 30, 2020, had broadened restrictions—from the direct transfer or authorization of professional skills or IP rights to the indirect transfer or authorization of the same.[2] In view of the current political relationship, the Taiwan government has considered it necessary to further restrict cross-strait investments or technical cooperation.

According to Article 7(1) of the Regulations prior to the amendment, for any investment or technical cooperation in China undertaken by Taiwanese citizens, juridical persons, associations and other organizations, permission should be requested from the Taiwanese Investment Commission of the MOEA beforehand. However, one may only need to declare such an investment or technical cooperation beforehand if the outbound capital accumulated is below a certain threshold. Furthermore, according to Article 10(1) of the Regulations prior to the amendment, for any subsequent transfer of Taiwanese investments and technical cooperation for which permission has already been requested or a declaration has been made, the Taiwanese transferor could make a post-transfer declaration to the Investment Commission within two months following the transfer. The definition of technical cooperation, as stipulated in Article 5 of the Regulations prior to the amendment, includes both direct and indirect transfers as well as the licensing of professional skills or IP rights.

In the April 2022 revision, the MOEA introduced a new Article 5(2) in the Regulations to broaden the definition of “technical cooperation.” Under this broader definition, the transfer and licensing of computer program copyrights are subject to restriction. The transfer of investments to individuals or entities in China will also be considered an act of technical cooperation; such transfers were previously only required to be examined by a special key technology team organized by the controlling authorities and then approved by the Investment Commission. In other words, Taiwanese investors seeking to transfer their shares of investments to China must apply to the Investment Commission for permission in advance (rather than just making a post-transfer declaration, as was stipulated previously); this applies especially to the semiconductor and display industries. The purpose of this is to avoid the situation of the transfer of a shareholder’s right resulting in the use of the key technology by China; this is no different from the transfer or licensing of professional skills or IP rights.

Since the late 1980s, Taiwanese companies have invested in and have opened many factories in China. In response to growing tension between Taiwan and China, the Investment Commission of the MOEA decided to further limit the potential risk of leaking of key technology in order to maintain Taiwan’s competitive advantage in the high-tech industry. In addition to the Regulations, the Taiwan Legislative Yuan also passed an amendment to the National Security Act on May 20, 2022, in which penalties were introduced for “Offenses of Economic Espionage” and “Offenses of Extraterritorial Use of Trade Secrets of National Core Technologies”. Cross-strait investors should pay close attention to the new rules and the potential risks regarding regulated transfers.

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