Regulatory Framework for Non-PRC Foreign Direct Investment in Taiwan
By Alicia Hsu, Esq,
alicia.hsu@dentons.com.tw
1. Regulatory Philosophy: "Liberalization as the Rule"
Taiwan welcomes foreign non-PRC investors and adopts a Negative List approach for non-PRC investors. This means all sectors are fully open to foreign investors of various kinds unless they are explicitly classified as "Prohibited" or "Restricted" industries. Consequently, many foreign non-PRC investment funds are highly active in Taiwan's investment market. They may independently identify investment targets or co-invest with Taiwan’s National Development Fund (NDF), Taiwanese technology corporate venture capital (CVC) firms, or local venture capital firms. In some cases, they also form strategic investment alliances with one another. Investment targets may include startups, publicly listed companies, distressed companies, real estate, or infrastructure projects.
To clarify, Taiwan applies the strictest scrutiny to investors with links to the PRC. Under the “Substantive Control” principle, if any foreign entity in the shareholding chain is directly or indirectly owned more than 30% by PRC interests, or is otherwise substantively controlled by PRC interests, the foreign investor will be deemed a PRC investor for purposes of foreign investment review. In such cases, an entirely separate and significantly more restrictive regulatory regime will apply. The discussion below focuses solely on the foreign direct investment regime applicable to non-PRC investors.
Photo by Vishnu Mohanan on Unsplash Photo by Igor Omilaev on Unsplash
Cover Photo by Vishnu Mohanan on Unsplash
2. Prohibited & Restricted Industries
For foreign non-PRC investors, the industries on the Negative List can be further classified into the following two categories:
• Prohibited industries: This category refers to industries where foreign investment is completely banned. These industries typically involve national security, or public interest, including without limitation defense and military-related industries, broadcasting and Terrestrial television broadcasting.
• Restricted Industries: This category refers to industries where foreign investment is permitted but subject to restrictions such as equity shareholding limits or other specific conditions. Agriculture, forestry, fishing, animal husbandry, public utilities, transportation, and cable television services belong to this category.
Industries that are neither prohibited nor restricted may be freely invested in by foreign non-PRC investors, subject to the prior approval requirements as described below.
3. Review Mechanism & Timelines
Taiwan operates a mandatory prior-approval regime for foreign direct investment. No business or investment activities can be legally closed, regardless of investment amount, before obtaining a formal permit from the Ministry of Economic Affairs Department of Investment Review (“MOEADIR”).
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A local agent is mandatory: a local legal counsel or CPA that represents a foreign investor as an agent is required in order to submit investment applications with the MOEADIR.
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Application Documents: These include background information on the foreign investor and its shareholding structure, the investment plan, details of the target company, the proposed investment amount, the types of investment involved and so on.
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Standard Review Timeline: For typical cross-border tech investments, the formal review process generally takes 1 to 2 months, provided all application documents are complete and properly submitted. For large-scale transactions or complex M&A/spin-off structures, the timeline may extend to 3 to 4 months.
Prior approval for investing in a Taiwan company listed in Taiwan is generally not required, unless:
• The 10% Threshold is Triggered: A foreign investor intends to acquire a 10% or greater equity stake in the target company.
• Management Participation Occurs: A foreign investor is elected or appointed as a director or supervisor of the target company.
When investing in listed Taiwan entities, primary attention must be dedicated to ensuring strict compliance with Taiwan securities law regime, including regulations enforced by the Financial Supervisory Commission (FSC).
4. Special Considerations for Review by the Taiwan Regulators
Taiwan’s regulatory focus is not on the investor identity itself, but rather on national security and beneficial ownership transparency.
Pursuant to Article 7 of the Statute for Investment by Foreign Nationals (hereafter, the "SIFN"), foreign investors are prohibited from investing in the following industries: (i) those that may negatively affect national security, public order, good morals, or national health; and (ii) those that are prohibited by law.
Overall, the MOEADIR, together with other competent authorities, will consider the following factors when conducting a review:
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Whether the foreign investment involves prohibited industries or restricted industries;
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Whether the investment involves investors from the PRC; and
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National security or public good considerations.
When conducting a review, the MOEADIR will typically perform a substantive control & ultimate beneficiary check and review. Regulatory authorities will look through intermediate corporate layers to trace the ultimate beneficial owners (UBOs), source of funds, and the composition of the Board of Directors of the investment target. This look-through approach is implemented also to verify whether the foreign investor is indeed a genuine foreign non- PRC capital entity or a disguised PRC investor.
(This article is intended solely for general informational and descriptive purposes. It does not constitute a formal academic publication nor legal advice for any specific case. Readers who require legal advice for specific matters should seek independent counsel from a qualified attorney.)