Partial Amendments to the Act Governing the Relations Between the People of the Taiwan Area and the Mainland Area via Presidential Directive

June 2022

Teresa Huang and Sally Yang

The Executive Yuan adopted a resolution during the Executive Yuan Council meeting on February 17, 2022 to adopt the draft Partial Amendments to the Act Governing the Relations between the People of the Taiwan Area and the People of the Mainland Area (hereinafter, the “Act”) and submit it to the Legislative Yuan for deliberation.  The Legislative Yuan has passed the amendments by three readings on May 20, 2022 and the President has passed the amendment via a directive on June 8, 2022.The amendments are highlighted below:

I. A review mechanism is established for business personnel involved in core key technologies of the state who are seeking to travel to the Mainland area.

1. To protect industrial technology, this Act additionally stipulates that individuals or members of juristic persons, groups, or other institutions commissioned, subsidized, or funded by government agencies or institutions up to a certain threshold to engage in business involving core key technologies of the state shall be reviewed and approved by the examination committee (formed by the Ministry of the Interior in conjunction with related agencies) before traveling to Mainland area, and this also applies to those to whom such commissioning, subsidy, or funding has been terminated or who have left their employment for less than three years. Violating of this requirement shall be subject to a fine of NT$2 million to NT$10 million.

2. As for the content of “a certain threshold” for the commissioning, subsidy, or funding, the National Science and Technology Council is authorized to prescribe the sub-law in consultation with the relevant authorities.

(Articles 9, Paragraph 4, Subparagraph 6 and Article 91, Paragraphs 3 of the Act)

 II. It is specifically stipulated that Mainland Chinese investors illegally investing in Taiwan through a third area will be penalized.

1. Although the current law already regulates companies invested by Mainland Chinese investors in third areas,[1] nevertheless this Act further stipulates, to address the continued concern raised by all walks of life about “their investing in Taiwan in a roundabout manner,” that profit-seeking enterprises in the Mainland area or the profit-seeking enterprises they invest in “third areas” shall not engage in business activities in Taiwan without approval and establishment of a branch or office in Taiwan.

2. The Ministry of Economic Affairs is authorized to prepare and submit to the Executive Yuan for approval the regulations regarding the recognition, criteria, and scope of business of profit-making enterprises in the Mainland area and the profit-seeking enterprises they invest in third areas.

(Article 40-1 of the Act).

III. The penalty for the behavior of “providing or allowing the name of the actor to be used by others” is expanded.

1. Since there are, in practice, many cases in which Mainland Chinese investors covered up or concealed their identities or funding sources in the name of others, it is additionally stipulated, in order to strengthen the administration, that persons who provide or allow their names to be used for investment by Mainland Chinese investors may be subject to a fine of NT$120,000 to NT$25 million.

2. Referring to the explanation in the Executive Yuan draft version, examples concerning the provision of “names” include impersonation, using the name of another person, concealment, entrusted shareholding agreement, etc., with or without compensation or in the name of a natural person or a juristic person, etc., are all prohibited.

(Article 93-1 of the Act).

IV. The criminal liability is aggravated with an increased cap on the fine.

For those who engage in unauthorized business activities in Taiwan, and those who provide or allow their names to be used by unauthorized Mainland Chinese investors for business activities, the criminal liability provided for in the Act is increased from the previous penalty of up to one-year imprisonment, detention, or, in lieu thereof or in addition thereto, a fine of up to $150,000, to a penalty of imprisonment of up to three years, detention, or, in lieu thereof or in addition thereto, a fine of up to $15 million.  (Article 93-2 of the Act).

Summary

Since these amendments will further clarify that the enterprises in “third areas” that are invested by Mainland Chinese investors and the provision of “an actor’s name for investment use (also known as a “dummy”)” will be included in the scope of regulation with greatly enhanced penalties for violations, foreign enterprises are advised to carefully review their shareholding and investment structure when investing in Taiwan to assess whether they may be suspected of being Mainland Chinese investors, and whether the timing, sector, and business scope of their investment in Taiwan will be even affected.


[1] For detailed introduction, please refer to the Firm’s Newsletter:Application issues and matters to note after the launch of the new scheme for the determination of mainland area investors (Taiwan).