A Bridge over Troubled Waters: Taiwan's Legal Regime for Handling Investments from PRC Entities

COMMERCIAL ACTIVITIES

PRC citizens meeting certain statutory qualifications are permitted to visit Taiwan to engage in commercial activities, albeit with limited nature and scope. For example, only PRC citizens deemed responsible persons, managers, technicians or professionals are able to visit Taiwan for limited commercial activities that include business visits, meetings, lectures, workshops, training trade shows. Activities associated with payment of compensation or direct sales are strictly prohibited. Prior approval is required for such visits, and applications must be submitted by an inviting sponsor, which also needs to meet specific criteria concerning capital and business revenues.

Under current regulations, an inviting sponsor must have at least NT$5 million (US$148,487) in capital if it has been incorporated for less than one year. Alternatively, such a sponsor must have revenues for the previous fiscal year of not less than NT$10 million. The visa obtained pursuant to such approval usually allows for a single entry for a maximum stay of two months. The maximum number of people that an inviting sponsor may invite in a single year is 15 for local companies with revenues of not less than NT$30 million, and 30 for local companies and foreign branches and subsidiaries with revenues exceeding NT$30 million.

In order to encourage PRC companies to set up regional operation centers in Taiwan, the government promulgated regulations for commercial activities aimed at multinational companies and local companies with substantial assets. These regulations were further liberalized in 2003 to allow PRC employees of multinational companies, as well as local companies with substantial business revenues, to work in Taiwan for up to three years. Such employees may also be accompanied by their spouse and children under 18 years old to Taiwan.

Multinational companies must meet any of the following requirements in order for their PRC employees to work in Taiwan:

i. Have assets for the fiscal year prior to application of no less than US$200 million;

ii. Hold a Business Headquarter's Certificate of Scope of Operation issued by the Industrial Development Bureau of the Ministry of Economic Affairs;

iii. Have at least 100 employees within the PRC, in which no less than 50 employees must hold vocational school-level education or above;

iv. Have annual revenue within the PRC in excess of NT$100 million;

v. Have annual regional revenue in excess of NT$150 million.

Local companies must meet any of the following requirements in order to be able to accept PRC employees under the regulations:

i. Hold a Business Headquarter's Certificate of Scope of Operation issued by the Industrial Development Bureau of the Ministry of Economic Affairs;

ii. Have annual revenue within the PRC in excess of NT$100 million.

iii. Have annual regional revenue in excess of NT$150 million.

There is no maximum number of invitees under the above regulations.

TECHNOLOGY TRANSFER

The amended Cross-Strait Relations Act does permit the import of technology from PRC entities and the employment of PRC technicians in industries like agricultural and mining, industry and construction, subject to the prior approval of the competent authority and the satisfaction of certain prerequisites. Indeed, imported technology must not hinder Taiwan's national security or economic development. PRC technicians intending to work in Taiwan must, furthermore, be college graduates and have two years or more experience in technology development.

Finally, technology transfer must be compensated by cash and cannot be attributed as capital of any Taiwanese company.

REAL ESTATE

The acquisition, mortgage or other encumbrance or lease of property in Taiwan by PRC entities is governed primarily under Article 69 of the Cross Taiwan Strait Act. Pursuant to this regulation, individuals, organizations, and other institutions formed on mainland China, or the companies invested in by them, may not acquire, register encumbrances or transfer real property in Taiwan unless such has been approved by the relevant authorities in advance.

Guidelines concerning PRC entities and their commercial occupation of Taiwanese property were promulgated by the Ministry of the Interiors on August 8, 2002 as the Regulations on Approval for PRC Citizens to Acquire, Establish or Transfer the Property Rights of Real Estate (the 'Real Estate Regulations').

Restrictions

According to Article 2 of the Real Estate Regulations, the following land zonings cannot be approved under Article 69 of the Cross- Taiwan Strait Act:

i. Types of land listed in paragraph 1, Article 17 of the Land Act, which include parcels of land zoned as forest, fisheries, hunting grounds, salt fields, land with mineral deposits, water sources, land lying within fortified and military areas, and land adjacent to national frontiers;

ii. Land zoning covered under the National Security Act and related regulations;

iii. Land zoning covered under the Fortress and Strongholds Act;

iv. Land near harbours covered under relevant laws promulgated by the Ministry of National Defense and applicable authorities;

v. Land areas under the authority of the central government.

Criteria for Approval

According to Article 8.1 of the Real Estate Regulations, PRC entities that plan to invest in projects that will have a positive impact on the overall economy of Taiwan may apply for approval for property acquisitions encumbrances or transfers. Investment projects deemed to have a positive impact on the overall Taiwanese economy are defined as the following:

i. Development or operation of tourist hotels, sightseeing and amusement facilities and stadiums;

ii. Development or operation of residential housing and buildings;

iii. Development or operation of industrial factories;

iv. Development or operation of industrial and commercial parks;

v. Other development or operation projects permitted by the competent central authorities.

Besides Article 8.1 of the Real Estate Regulations, PRC entities may also acquire or transfer real properties, or register encumbrances for purposes of acquiring (i) dormitories for business personnel; (ii) factories, offices or workplaces for business operation; and (iii) other places required for the purposes of operating a business.

Market Potential

Investments in real property are considered more stable than those in most other assets, including the stock market. Thanks to the financial reforms over the last few years in Taiwan, most of the island's commercial banks have disposed of their bad assets and non-performing loans (NPLs).

Although China faces similar financial restructuring problems to Taiwan, the disposal and resolution of bad assets and NPLs is more predictable in Taiwan than on the mainland. This is largely due to the maturity of Taiwan's judicial system and its enforcement of collateral rights.

With the bulk of restructuring behind Taiwan, the economy is now moving up the value-chain towards more service-based industries. Yet, while jobs in manufacturing are falling quite sharply, employment in tourism is rising only relatively slowly. The Real Estate Regulations are aimed toward helping rectify this imbalance by encouraging PRC entities to invest in tourist hotels, sightseeing and amusement facilities. Indeed the mainland market is Taiwan's biggest source of tourists.

TRADEMARK PROTECTION

Registration and Relevant Information

Registration by PRC entities is advisable for the protection of trademarks that may be used in their services and products to be offered in Taiwan. Exceptions are made for famous marks, as described in the law. Any foreign national can apply for trademark registration in Taiwan, provided their country of residence has an agreement with Taiwan for mutual protection. Alternatively, the country of residence must accept trademark applications filed by Taiwanese nationals as foreign marks with protection in Taiwan as famous marks under the Trademark Law or Fair Trade Law, even if such marks are not registered in Taiwan. In addition, Taiwan's Trademark Law also permits the registration of collective marks and certification marks. As a member of World Trade Organization (WTO), PRC citizens are able to file trademark applications in Taiwan.

Registration of trademarks is based on a first-to-file principle and must be made to the Intellectual Property Office. If the application is approved and the registration fee is paid, the application will be approved and published in the Trade Mark Gazette. After publication, there is a three-month opposition period to the application. The term of protection is 10 years from the date of registration and may be renewed for additional 10-year terms.

Under Taiwan's Trademark Law, furthermore, a trademark denotes any word, drawing, symbol, colour, sound, three-dimensional shape, or combination thereof used in connection with goods or services which is distinctive enough for average consumers to distinguish the source of goods or services from those provided by others.

According to the Main Points for Determining a Famous Mark promulgated on August 10, 2000, a 'famous mark' refers to a registered or unregistered mark which is widely recognized by relevant businesses or consumers.

Hearing and Priority

The Guidelines on Management of Trade Mark Dispute Hearings ('the Guidelines') were adopted on February 15, 2005 for examiners to hear trademark opposition, invalidation and cancellation cases. The Guidelines give the Intellectual Property Office discretion in determining whether it is necessary to hold a hearing for a particular case. Hearings are conducted in Mandarin Chinese, with an interpreter at the party's own cost if any statements are to be made in a foreign language.

The Intellectual Property Office must, furthermore, accept any applications claiming priority if such an application has been made in other WTO countries or in those with reciprocal treaties with Taiwan. Such an application must also be filed within six months of the date of the foreign application. As it now stands, however, PRC applications are not eligible for priority claims.

Registering Marks, Assignment and Licensing

The use of a trademark entails placing a registered trademark on goods, services or related articles for marketing purposes, or on two-dimensional graphics, digital images or sounds, electronic media, or any other media, which enables customers to identify it as a trademark. However, if the trademark is not used for a consecutive period of three years in Taiwan without justifiable reasons, it may be revoked.

Trademarks may be licenced, assigned and pledged provided that they have been registered with the Intellectual Property Office. A licensee is required to indicate its trademark licence in a conspicuous way on its product, package, container, business item or documentation, or alternatively, display the licence in its business premises.

Trademark Infringement, Protection and Remedies

Taiwan's government has a trademark export monitoring system (TEMS) covering any local or foreign trademark owners who record their marks with the Board of Foreign Trade (BOFT). This is pursuant to the Operational Procedures for the Trademark Export Monitoring System (Operational Procedures) promulgated on December 1, 1995. When goods for export pass through customs, the TEMS enables the authorities to determine whether the mark is labeled on the inner/outer package or vessel of goods and whether it is identical or confusingly similar to any other registered local or foreign trademarks. If the customs authorities discover any trademark infringement, they will prohibit the export of the suspect goods unless the exporter can produce a licensing agreement, trademark certificate or other document proving the mark's legality.

In addition to the administrative remedies stated above, civil remedies are also available to trademark owners whose trademark has been infringed. The remedies include monetary damages, injunctions, destruction of infringing objects, and publication of all or a portion of the contents of the civil judgment in newspapers or magazines at the infringer's expense. The calculation of damages is usually based upon the actual damages and losses suffered. A trademark owner may apply in writing to the customs authorities to suspend the release of the infringing goods for import or export. Such an owner must state the facts of the infringement and post a security bond equal to that assessed by the customs authorities, the fully paid duty cost of imported goods, or the FOB (free on board) price of the exported goods.

CONCLUSION

Even today with the powers granted under the Cross-Strait Relations Act, the Taiwan government maintains a very conservative approach in handling cross-strait trade. This is especially so in regard to entry of PRC businesses into Taiwan. It is an unavoidable trend, however, that China will become Taiwan's largest business and investment source in the future. As such, the early planning by PRC entities in structuring their entrance into the Taiwanese market remains essential. Among all the planning work, the registration of trademarks is foremost.

Certainly, planning on behalf of PRC companies entering Taiwan has considerable potential upside with various investment opportunities in consumer goods, real estate and high-tech industry. Opportunities also abound in the tourism market, with the Taiwan government recently deciding to gradually increase its quota on tourists entering from China. Reflecting improving relations between China and Taiwan, furthermore, it is likely in the foreseeable future that these quota restrictions will be abolished, creating yet more investment opportunities.