New regulations governing investment in Taiwan by mainland enterprises

Depending on the specifics of an investment project, overseas investments by mainland enterprises mainly involve approval by the NDRC and/or the Ministry of Commerce. The NDRC is mainly responsible for approving overseas investment projects by mainland investment entities (meaning various types of legal persons in the PRC) relating to energy development and those that use large amounts of foreign exchange. However, all Taiwan investment projects, regardless of the size of the investment, whether they are projects for energy development or whether they involve the use of large amounts of foreign exchange, are subject to approval by the NDRC or review by the NDRC and approval by the State Council. Furthermore, before giving its approval, the NDRC is required to seek the opinion of the TAO and other relevant departments.

The principal legal basis governing the foregoing is the Tentative Administrative Measures for the Check and Approval of Overseas Investment Projects (2004; the Project Approval Measures). The Ministry of Commerce is mainly responsible for approving the establishment of enterprises overseas by mainland enterprises or the securing by mainland enterprises of ownership or control of, or the right to operate overseas enterprises. The relevant basis is the Measures for the Administration of Overseas Investments (2009; the Measures).

With respect to direct investments in Taiwan by PRC investment entities, in addition to the Project Approval Measures and the Measures, and before the New Measures were issued, the NDRC together with the TAO issued the Circular on Provisions Relevant to the Administration of the Taiwan Investment Projects of Mainland Enterprises in 2008. Furthermore, the Ministry of Commerce issued the Circular on Matters Relevant to Investment in Taiwan and the Establishment of Non-enterprise Legal Persons in Taiwan by Mainland Enterprises in 2009 (collectively, the Two Circulars). These Two Circulars contain specific provisions issued by the NDRC and the Ministry of Commerce, respectively, addressing the issue of how to apply the Project Approval Measures and the Measures to direct investments in Taiwan.

The New Measures, jointly formulated by three government authorities, the NDRC, the TAO and the Ministry of Commerce, addressing issues of the Two Circulars arising from the coordination and harmonisation of the operations of the relevant departments in the course of reviews of Taiwan investments, effectively sets forth provision in respect of such issues. They reasonably synthesise the existing Two Circulars and rationalise coordination among the relevant departments, while at the same time emphasising the government support that the NDRC, the TAO and the Ministry of Commerce can offer to mainland enterprises that invest in Taiwan.

Conditions for mainland entities that invest in Taiwan

Pursuant to the New Measures, a mainland investment entity that wishes to invest in Taiwan is required to satisfy the following conditions: (1) being an enterprise with legal personality lawfully registered and operating in mainland China; (2) having the industry background, funds, technology and management capabilities for the project in which it is applying to invest; and (3) being conducive to the peaceful development of the relationship between the two sides of the Taiwan Strait and not jeopardising the safety or unity of the state.

Review of investments to be made in Taiwan by mainland enterprises

The New Measures specify that investment projects that satisfy the NDRC's Project Approval Measures are to be handled in accordance with the Project Approval Measures. In accordance with the Ministry of Commerce's Measures, the investment in and establishment of enterprise and non-enterprise legal persons in Taiwan by mainland enterprises is subject to the approval of the Ministry of Commerce. It should be noted that since the Project Approval Measures specify that all Taiwan investment projects – regardless of the size of the investment – require NDRC approval, Taiwan investment projects that require Ministry of Commerce approval, in theory and in practice, fall under the jurisdiction of the NDRC's Project Approval Measures and would first require approval of the NDRC before submission to the Ministry of Commerce for approval.

On this basis, the New Measures clarify the application procedure for approvals by the NDRC and the Ministry of Commerce and rationalise the coordination of relationships among each of the relevant departments. With respect to NDRC approval, the New Measures expressly provide that local enterprises are required to submit their applications to the local provincial-level reform and development commission, which will forward it to the NDRC for approval after its preliminary review. Enterprises under the central government, on the other hand, submit their applications directly to the NDRC for approval. When conducting its review, the NDRC is required to seek the opinion of the TAO. Copies of the NDRC's approval documents are sent to relevant departments such as the Ministry of Commerce and TAO. When the Ministry of Commerce is reviewing a Taiwan investment project that has already been approved by the NDRC, it is not required to seek the opinion of the TAO anew.

With respect to the Ministry of Commerce approval procedure, the New Measures expressly specify that when a local mainland enterprise wishes to invest in and establish an enterprise or non-enterprise legal person in Taiwan, the competent commerce department at the provincial level of the place where the enterprise is located forwards the application to the Ministry of Commerce after its preliminary review. An enterprise under the central government, on the other hand, submits its application directly to the Ministry of Commerce. After receipt of the application, the Ministry of Commerce seeks the opinion of the TAO. After securing the consent of the TAO, the Ministry of Commerce gives its approval and issues a Certificate for Overseas Investment of an Enterprise or Certificate for an Overseas Organisation of an Enterprise.

The mainland enterprise then carries out the relevant procedures – such as those for the approval of personnel that are to go to Taiwan and foreign exchange registration – on the strength of the investment project and/or enterprise (or organisation) establishment approval document issued by the relevant department and the Certificate for Overseas Investment of an Enterprise or Certificate for an Overseas Organisation of an Enterprise. Once the enterprise or non-enterprise legal person invested in and established in Taiwan carries out registration procedures in Taiwan, the mainland enterprise is required to submit the relevant registration document to the NDRC, the Ministry of Commerce and the TAO for the record within 15 working days.

Policy incentives

With respect to policy incentives, the New Measures specify that if a mainland enterprise secures relevant certification such as a service provider, it is eligible for the treatment offered under the relevant agreement signed between the two sides of the Taiwan Strait. At present, the principal basis for policy support and incentives for cross-strait economic cooperation are Ecfa and relevant annexes. Pursuant to Ecfa, within six months of the implementation of the agreement, the two sides of the Taiwan Strait will launch negotiations on trade in goods, trade in services and other forms of economic cooperation, accelerate liberalisation and eliminate restrictive measures.

Through its annexes, Ecfa also specifies an 'early harvest list' in respect of trade in goods and trade in services. Implementation of these early harvest items will begin within six months after entry into effect of Ecfa. Annex 4 of Ecfa specifies the competent department and the liberalisation measures for early harvest in respect of trade in services. Taiwan has undertaken to liberalise services relating to research and development, conferences, exhibitions, special product designs, movie screenings, brokerages, sports and other leisure activities, air transport computerised positioning systems as well as banking and other financial services (excluding securities, futures and insurance). Once the relevant investing enterprises have secured a Service Provider Certificate in accordance with Annex 5 to Ecfa, they will be eligible to enjoy development undertakings in the above-mentioned relevant sectors.

Government support

The New Measures also emphasises the role of the NDRC, the Ministry of Commerce and the TAO in strengthening the guidance of and services to investment in Taiwan by mainland enterprises. The three departments will provide effective guidance to enterprises through the outbound investment cooperation consulting service system, investment guidelines and other such means. Additionally, the three departments will strengthen the training of mainland enterprises that invest in Taiwan – in particular training on policy, personnel and the investment environment – so as to enhance the focus and practicability of enterprises' investments in Taiwan.

The clarification and further detailing of the foregoing aspects that the New Measures provide will have an important impact on cross-strait economic cooperation and exchanges. With the progressive refinement and implementation of the framework agreement, an increasing number of mainland enterprises will carry out approval procedures and secure more government support based on the New Measures when investing in Taiwan.

Relevant Taiwan regulations

In addition to the New Measures issued by the mainland side, the Taiwan side has also been issuing and revising relevant regulations since 2003 with increasingly closer cross-strait trade links. These include the issuance of provisions on: the scope of industries in Taiwan in which mainland enterprises are permitted to invest; specific operations involved in the establishment of subsidiaries, branches and offices in Taiwan by mainland enterprises; and, on the examination procedures therefor. The organisation in charge of the relevant examinations is the Investment Commission under the Ministry of Economic Affairs of Taiwan (the Investment Commission).

Investments in Taiwan by mainland investment entities are subject to review by the Investment Commission, with the focus of such reviews being the business projects that mainland enterprises wish to operate in Taiwan. If a business project falls within the scope of industries that the Ministry of Economic Affairs has opened to investment by mainland enterprises, the Investment Commission will grant permission. Once a mainland enterprise has secured the permission, it is required to carry out company establishment registration with the Commerce Department of the Ministry of Economic Affairs or the local competent commercial affairs authority on the strength of the letter of permission. Taiwan administers the industries in which mainland enterprises are permitted to invest in by the so-called 'positive listing' method. That is to say that mainland enterprises are not permitted to invest in any industries other than those published by the Ministry of Economic Affairs in the List of Projects by Industry in Which Persons from Mainland China May Invest. However, with the entry into effect of Ecfa, as well as closer cross-strait exchanges, expansion of the scope of the list at the appropriate time is imminent.

Yujing Shu

Yujing Shu is experienced in corporate, M&A, international business, foreign investment, intellectual property rights, and real estate and finance law. Her practice during the last 18 years has covered pharmaceutical, finance, IT, education, graphic design, aerospace, non-profit, and real estate. Prior to receiving her Juris Doctor in the US, Shu practiced general commercial law in the PRC, where she has been admitted to the bar since 1988. She has related study and practice experience in the UK, the US and Hong Kong.

Shu was involved in a number of high-profile transactions, including advising multinational corporations on OEM, intellectual property and related licensing matters regarding the distribution of products into the Chinese market. She also represented and advised one of the largest private foundations and universities on a representative office and campus establishment and registration in China.

Shu is fluent in both Mandarin and English and has attained bar memberships in both Washington and the PRC.

James J.Y. Chen

James Chen is a partner at K&L Gates. Chen represents issuers and borrowers in a variety of corporate finance transactions. His experience includes public offerings and private placements of equity, debt, convertible and other securities, export credit facilities, bank loans, securitisation of accounts receivable, trade financing and derivative transactions. Chen also has experience in representing clients in their international financing transactions and cross-border mergers and acquisitions.

Chen also has vast experience in the PRC, having represented issuers and underwriters in several IPO and B share listings. He acted for foreign investors in the negotiation and documentation of more than 30 joint ventures and foreign wholly owned projects, including the US$4 billion expansion projects for a paper manufacturer in the PRC.

Prior to joining K&L Gates, Chen spent: two years as an in-house legal adviser to a government agency in charge of Taiwan's international military procurements; three years as a chief legal officer with a major Asian conglomerate in Singapore; and more than eight years in private practice with an international firm in New York, Hong Kong and Singapore.

Chen is fluent in both English and Mandarin. He has attained bar membership in both New York and Taiwan.

Miao (Iris) He

Iris He is a corporate associate in the firm's Beijing office. She has experience in a variety of cross-border and investment transactions. Her main areas of practice include mergers and acquisitions, foreign direct investment, and regulatory compliance of foreign investment enterprises in China. She spent one year in the firm's Seattle office where she gained extensive experience in IP licensing and anti-competition law compliance. Her clients cover a wide range of industries, including manufacturing, software, telecommunications, education, commercial franchise and new energy, among others.

He was involved in a number of high-profile transactions, including advising a US investor on its financing of a leading publicly traded company offering broadband and cable TV services through VIE structure in PRC.

Prior to joining K&L Gates, He practiced as an assistant attorney with Microsoft Corporation in China. He is also a member of the New York State Bar Association and is fluent in both English and Chinese. She has also presented on a topic on Chinese New Antimonopoly Law at the University of Washington Law School in 2009.