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Updates on business news, court decisions, and regulatory developments

01 March, 2010

Taiwan-China Financial Market Liberalization Raises Data Protection Concerns

Taiwanese and Chinese regulatory authorities signed memoranda last November expanding mutual access to and the supervision of banking, insurance, and securities sectors. The memorandum became effective on January 16, 2010, and reflects planned financial market liberalizations between Taiwan and China. The memorandum—the latest in a series of unprecedented cross-strait deals brokered by Taiwan’s new administration paving the way for a binding Economic Cooperation Framework Agreement (ECFA) to lower long-standing barriers on a wide range of goods and services—should see a substantial increase in the collection and cross-border transfer of personal client data between the two countries.

Concerns have been raised over whether the personal data shared by Taiwanese banking, insurance, and securities firms with their Chinese counterparts will be adequately safeguarded from unauthorized disclosure and misuse. Part of this concern likely arises from the fact that trade and ECFA negotiations have been conducted behind closed doors and a substantive review of the financial and other sector-specific pacts therein by the public have not been possible to date. And part of the concern likely arises simply from the increased scrutiny afforded the issue of personal data protection over the last ten years. It will, however, be in the interests of both Taiwanese and Chinese companies to ensure that any personal data exchanged has been well protected.

Banking, insurance, and securities firms established in Taiwan fall under the Computer Processed Personal Data Protection Act - the fundamental legal framework for data protection in Taiwan. These firms must be licensed by Financial Supervisory Commission (FSC) to collect, process, and transfer personal data by computer. Approval must be obtained for the cross-border transmission of data - any cross-boarder transmission of the data through telecommunications systems (networks) including cable, terrestrial, optical or other electromagnetic communication networks. The application for the license must identify any cross-border transmission that will occur and who the direct recipient of that data will be. It must also set out a security and maintenance plan for the safety of personal data and provide a host of other required information. Firms currently licensed will, therefore, need to apply to amend their current registrations. And the FSC will have the opportunity to ensure adequate measures have been put in place to protect local consumers. The FSC may also restrict the cross-border transfer where major national interests are involved; where an international treaty or agreement specifies otherwise; where the nation receiving personal data lacks laws which fairly protect the rights and interests of the principal, thereby causing injury to the principal; or where international transmission and utilization of personal data are made through a circuitous means in order to evade the provisions of the Act. It would be very unlikely though to see the cross-border transmission to China be refused on these grounds at this stage.

Liability under the Act would fall on the entity governed by the Act and thus Taiwanese entities licensed under the Act will be liable for any unauthorized disclosure and misuse that occurs including that subsequent to a licensed cross-border transmission. Firms also face the prospect of potential criminal and civil liability under Taiwan’s Criminal Code and Civil Code.

The current Act, however, applies only to the collection, processing, and transfer personal data by computer and only to specified industries. A bill has been introduced whereby the Act would cover all data collection by any entity or individual. The amendments, however, have been stalled for several years at the Legislative Yuan. The main sticking point in the passage of the amendments has been just how severely violations of the Act should be punished and whether civil liability should be capped or not (it presently is).

The penalties under the current Act have been seen as inadequate, and likely are. The amendments seem unlikely to pass before the personal data of Taiwanese banking, insurance, and securities consumers starts flowing. Protection will, however, likely come from the fact that the liberalization of trade and closer political ties between Taiwan and China has come under increasing scrutiny from an ever-wary Taiwanese public. Parties on both sides of the Strait have a vested interest in ensuring that this next stage of closer commercial relations proceeds without giving the public cause to further question the proposed continued liberalization of trade and closer political ties.

A version of this article appears in the Computer Law and Security Review. For more information about this topic, please contact K. Mark Brown.

17 November, 2009

Implementing Regulations for ISP Safe Harbor Amendments Announced

The Taiwan Intellectual Property Office (TIPO) announced the Regulations Governing Implementation of Limitations on the Liability of Internet Service Providers on September 7, 2009. The regulations address amendments to the Copyright Act establishing safe harbor provisions for Internet Service Providers (ISPs) that came into force earlier in 2009. The regulations have been based on the outcome of discussions with interested parties during the drafting of the amendments to the Copyright Act and public hearings this past summer. Interested parties had until September 17 to submit comments on the regulations. Absent significant opposition, the TIPO anticipates that the regulations will come into force in November 2009.

Notifications and Counter-notifications
Article 3 of the Regulations sets out the requirements for notifications sent to ISPs by rights holders under the Copyright Act. Notification may be made in writing sent by mail or fax or via electronic signature document sent by e-mail. The rights holder or its authorized representative must sign or chop the notification. ISPs may provide alternate means of receiving notification from rights holders. The notification must include:

i. Identity of the rights holder’s name along with their address, phone number, fax number, or e-mail;
ii. Identity of the infringed copyright;
iii. Request to the ISP to remove or deny user access to the infringing content;
iv. Adequate information and access routing information on the infringing content;
v. A statement that the rights holder has a good faith belief that the content cited is unauthorized or violates the Copyright Act; and
vi. A statement that the rights holder will assume liability if third parties incur damages as a result of false notification.

If multiple infringements will be alleged then these may be cited in a single notification.

Article 4 requires that an ISP notify a rights holder of any required amendments to a notification within five working days of the day following receipt of the notification. And a rights holder then has five working days to submit an amended notification. A notification shall be void if the rights holder fails to comply within the five-day period. Notification that does not meet the requirements and that has not been amended within the prescribed time to comply with the requirements shall not constitute evidence that an ISP has knowledge or awareness of the alleged infringement. That is to say, improper notice shall be deemed no notice.

The Copyright Act provides users of information storage service providers with a mechanism to challenge an infringement notification. Users of other types of ISP do not enjoy this right. A user of an information storage service provider who believes he or she has been wrongly accused of infringement by a rights holder may submit counter-notification to the information storage service provider requesting restoration of the alleged infringing content. Article 5 of the regulations provides that a counter-notification must be signed or chopped by the user (or representative) and include:

i. Identity of the user and contact information;
ii. Request to restore deleted content or access to the same;
iii. Adequate information on the content;
iv. A statement that the user has a good faith belief that he or she has legal authorization to use the content in question and that the deletion or denial of access to content is result of a false claim by the rights holder;
v. Consent to the information storage service provider to forward the counter-notification to rights holder; and
vi. A statement that the user will assume liability if third parties incur damages as a result of false counter-notification.

A representative making counter-notification must at same time state that he/she is doing so on behalf of the user.

Article 6 requires that an ISP notify a user of any required amendments to the counter-notification within five working days of the day following receipt of the notification. And a user then has five working days to submit the amended counter-notification. A counter-notification shall be void if the rights holder fails to comply within the five-day period and an ISP will not be required to restore access to the content.

Three-Strikes Rule
The Copyright Act provides that an ISP must to avail itself of the safe harbor protections inform its users that their service shall be terminated in whole or in part in the event that a user has been involved with three incidents of infringement. The Copyright Act does not, however, expressly require that the ISP terminate service. And the regulations do not address the "three-strikes" provision of the amendments at all though its absence from the regulations had been expected as users of connection ISP had not been provided with a means within the Copyright Act to challenge a notification. The amendments to the Copyright Act and the regulations appear to have been carefully thought through to appease those parties lobbying for the inclusion of a "three-strikes" mechanism while ensuring that the ISP and individual users of connection services have a degree of protection.

Observations on the 'Safe Harbor' Regime
There has, first, been no actual obligation imposed by the Copyright Act or the regulations on an ISP to terminate service, throttle, or restrict a user’s connection after the occurrence of "three-strikes". And where, for example, a user of a connection ISP has not been provided with any means within the notification system to challenge a notification then making it in fact a contractual issue between the ISP and user limits the likelihood of the law being challenged.

A rights holder has no right to know what action an ISP has taken against a connection service user and additional laws and regulations prevent the disclosure of such information absent a court order. There would be little current incentive for an ISP frequently trying to upsell consumers to more expensive and faster connections to actually enforce the "three-strikes" rule as a notification only contains an allegation of infringement–and given some of the cases reported in other jurisdictions and the use of automated notification systems that troll for infringement based on key words rather than actual content, an ISP would be correct to be wary. An ISP could face liability but this would require that a rights holder litigate first against a connection user. Which would in turn require sufficient evidence to support a court order to disclose the identity of the user.

The amendments also impose civil liability on any party who files a false notification of infringement. The regulations further require that a notification include both a statement by the rights holder that it has a good faith belief that the content cited is unauthorized or violates the Copyright Act and that the rights holder will assume liability if third parties incur damages as a result of fraudulent notification. Where, for example, a user of a connection ISP has received a false notification then the only redress to avoid "the strike" would be to bring legal action against the rights holder, and that user would have statements by the rights holder contained in the notification on which to base the action. The prospect of civil liability should serve to somewhat check the over-enthusiastic use of automated infringement notification systems sometimes seen in other jurisdictions as a rights holder should have sufficient and actual evidence of infringement at the time that the notification had been issued.

A version of this article appears in the Computer Law and Security Review. For more information about this topic, please contact K. Mark Brown.

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30 October, 2009

CLA Tackles Abusive Penalty Clauses in Labor Contracts

The Taiwanese media reported earlier this month that the Council of Labor Affairs (CLA) was drafting amendments to the Labor Standards Act to prevent abuse of penalty clauses in labor contracts. The CLA says it has received many complaints of attempts to enforce unfair, abusive penalty clauses to which employees have agreed in order to find employment during the current economic downturn.

It should be noted that penalty clauses for breach of contract can and are enforced under Taiwanese law. Labor contracts are no exception. The CLA distinguishes between penalty clauses and what it terms "punitive penalty clauses", which are essentially liquidated damages. Punitive penalty clauses are most common in the aviation industry and are widely used in employment contracts with pilots. An example of a punitive penalty would be if an employer and employee agreed to fixed damages for early resignation at 30 months salary.

According to the CLA, penalty clauses first became common in Taiwan's technology industry. Typically, the employee agrees that if he or she resigns before having completed two to three years of employment, he or she will pay the employer a penalty equivalent to two or three months of salary. The penalty clause for early resignation is often accompanied by a non-compete clause where the employee agrees to pay the employer a penalty if he or she accepts employment with a competitor after resignation from the original employer within a certain period of time. The employee usually agrees to wait for six months or up to two years before accepting employment at a competitor.

During the recent recession, both ordinary penalty clauses and punitive penalty clauses have spread to other industries. The CLA is now proposing to prohibit all punitive penalty clauses. Nonetheless, the CLA argues that ordinary penalty clauses should still be enforceable on the public policy grounds that if an employer intensively trains an employee such that the employee's job skills are improved during the course of employment, the employee should repay the employer through service or in money. To protect employees, the CLA wants to create an exception to the enforceability of ordinary penalty clauses where acts of the employer caused the employee to terminate the employment relation. Under this exception, even an ordinary penalty clause will be void if the employer has violated the terms of the employment contract, labor laws, or failed to pay wages and the employee terminates the employment.

The CLA will now need to draft its proposed legislation and hold public hearings before submitting its draft to the Executive Yuan for approval, after which the Legislature will take up the bill.

For legal guidance on employment law in Taiwan, please contact Christine Chen.

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13 August, 2009

ISP 'Safe Harbor' Loopholes Panned

Criticism has been leveled at the “Internet Service Provider Liability Limitation” amendments to Taiwan’s Copyright Act that came into effect in May 2009. The amendments resemble the ISP liability limitation regime set out in the 1998 US Digital Millennium Copyright Act (DMCA) Title II and provide for a notice-takedown-counter notice mechanism as well as a controversial “three strikes” rule whereby alleged offenders face termination of services in whole or in part.

The amendments have been justified as necessary to reduce online copyright infringement in Taiwan while setting limitations on the liability of an ISP for acts of infringement committed by users. To avail themselves of the “safe harbor” protections from civil and criminal liability, ISPs must remove or disable allegedly infringing material upon notification from a rights holder. ISPs, however, need not make a substantive determination as to whether the activity cited in a notification constitutes infringement.

Although the amendments to the Act include mechanisms to discourage the sending of false notifications, concerns remain that an ISP may be compelled to remove material or terminate user access on the basis of an allegation of infringement. Individual users of connection services do not even have the option of providing a counter-notification in the event that the ISP warns the user that a notice has been received. Receipt of three notices should lead to the termination of a user’s access to the internet by the ISP in whole or in part. An individual user’s only real recourse would be to take legal action against party issuing the notice(s).

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30 July, 2009

Anti-Spam Bill Rebuffed

Taiwan’s Legislative Yuan recently rejected a long-awaited anti-spam bill that had been drafted by the National Communications Commission (NCC) and approved by the Executive Yuan. The bill, entitled Regulations Governing Electronic Commercial Mail, called for restrictions on senders of commercial e-mail, requirements on ISPs to initiate measures to prevent unsolicited commercial e-mail, and civil remedies for victims of spam. The bill allowed recipients of spam to file civil suits against senders. Damages of between NT$500 and NT$2,000 (US$15 – US$62) could be sought per spam e-mail. The bill also prohibited the use of alphabetical spam and required senders of commercial e-mail to provide recipients cost-free opt-in and opt-out mechanisms.

Critics of the bill raised concerns that advertisers and ISPs would be unfairly targeted in civil actions rather than the original authors of the spam. The NCC, the competent authority under the regulations, contends, however, that advertisers and ISPs have a degree of responsibility in preventing spam and therefore should potentially bear some liability.

Concerns had also been raised that the courts could be flooded with civil claims by individuals seeking monetary damages. It had been suggested, in response to this concern, that the regulations should include administrative remedies that empowered and obligated the NCC to investigate complaints. The NCC, however, opposes extending the scope of its powers and responsibilities to this degree citing the need to protect personal information and the successes in curbing spam of the civil remedy approach under the US CAN-Spam Act.

It has been estimated that Taiwan residents received over 110 billion spam emails in 2008, or 29 spam emails per person daily on average.

The Legislative Yuan has requested that the NCC address the concerns that it has raised and submit a revised version of the bill in the future.

A version of this article appears in the Computer Law and Security Review. For more information about this topic, please contact K. Mark Brown.

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09 June, 2009

Taiwan Enacts ISP 'Safe Harbor' Amendments to Copyright Act

Taiwan has enacted long-debated copyright legislation establishing safe harbor provisions that Internet Service Providers (ISPs) may avail themselves of for copyright infringement by users. The “Internet Service Provider Liability Limitation” amendments to the Copyright Act, promulgated in May 2009, have been based largely upon the ISP liability limitation regime set out in the 1998 U.S. Digital Millennium Copyright Act (DMCA) Title II.

According to the International Intellectual Property Alliance, losses to the copyright industry from online piracy in Taiwan exceed US$230 million annually.1 Copyright industry groups have lobbied the government vigorously in recent years seeking greater ISP accountability for online infringement and effective, non-judicial means to combat infringement of copyrighted works online. The amendments reflect an attempt to reconcile the assumed losses by copyright holders from online infringement with the need to limit liability exposure for ISPs while protecting the rights of digital users.

Four types of ISPs have been identified and the scope of their services defined:

a. Connection service providers: those who provide services, by wire or wireless means, of transmitting, routing, or receiving, information through a system or network controlled or operated by the service provider, or of the intermediate and transient storage of information in the course of such transmitting, routing or receiving;

b. Caching service providers: those who, after information has been transmitted at the request of a user, provide services of intermediate and temporary storage of the information through a system or network controlled or operated by the service provider, for the purposes of providing accelerated access to the information by users who subsequently request transmission of the information;

c. Information storage service providers: those who provide information storage services at the request of a user through a system or network controlled or operated by the service provider; and

d. Search service providers: those who provide users with services, including an index, reference, or hyperlink, to search or hyperlink to online information.2

All ISPs must comply with the following general requirements to be eligible for the safe harbor from the infringement of copyright by their users:

a. adopt copyright protection measures and inform users of such measures;

b. adopt and inform users of a “three-strikes” policy whereby the services of repeatoffenders would be terminated in whole or in part;

c. make public the information about contact windows for receiving notices provided under this regime; and

d. implement technical measures to identify or protect copyrighted works that are provided by rights holders and have been approved by the competent authority. ISPs are not required to monitor content.

Additional requirements to qualify for safe harbor have been imposed on ISPs by type according to the nature of services provided:

a. Connection service providers: transmission of information must be initiated by or at the request of a user and carried out through and automated process without selection or modification of the transmitted material by the connection service provider.

b. Caching service providers: cached information must not be modified, and caching service providers must adhere to rules regarding the “refreshing” of cached information through an automated technical process. Caching service providers must also remove or disable access to allegedly infringing content in an expeditious manner upon notification by the rights holder of alleged infringement.

c. Information storage service providers: must have no knowledge of, nor directly receive financial benefit from, infringing activity by a user and should respond expeditiously to remove or disable access to allegedly infringing content upon notification by a copyright holder.

d. Search service providers: must have no knowledge of nor directly receive financial benefit from infringing activity by a user and should respond expeditiously to remove or disable access to allegedly infringing content upon notification by a copyright holder.

A notice/take down mechanism has been established for caching, information storage, and search service providers. Receipt of proper notification requires that the ISP remove or disable access to the allegedly infringing material in order to obtain “safe harbor” protection. A rights holder may provide notification of infringement to a connection service provider. The connection service provider may communicate that notification to the user to demonstrate its compliance with the aforementioned general requirements. ISPs need not make a substantive determination as to whether the activity cited in a notification from a rights holder constitutes infringement. The ISP must simply be satisfied upon a formal examination of the content of the notification of its validity and sufficiency. It should also be noted that failure by caching, information storage, and search service providers to remove allegedly infringing content upon notification does not necessarily make the ISP liable for infringement. A rights holder would still need to establish the general elements for tort liability - willful misconduct or negligence on the part of the ISP - and to do so to the satisfaction of a court.

The amendments provide users of information storage service providers with a mechanism to challenge the infringement notification. The safe harbor provisions require that information storage service providers inform an allegedly infringing user of its take down measures pursuant to a rights holder’s notice of alleged infringement. A user who believes he or she has been wrongly accused of infringement by a rights holder may submit counter-notification to the information storage service provider requesting restoration of the alleged infringing content. Upon receipt of a counter-notification, the information storage service provider must forward the notice to the copyright holder.

An information storage service provider will not be obligated to restore a user’s content if the copyright holder submits proof to the provider within ten days of receiving the counter-notification that civil or criminal action has been initiated. If the copyright holder fails to provide such proof then the information storage service provider must restore the content within 14 business days of forwarding the counter-notification to the rights holder.

ISPs must inform users that their service shall be terminated in whole or in part in the event that a user receives three notifications of infringement from copyright holders in order to qualify for safe harbor. A degree of protection, however, has also been set out to prevent the abuse of the notification system. The amendments impose civil liability on any party who intentionally or negligently files a false notification of infringement or a false counter-notification. This would check the over enthusiastic use of automated infringement notification systems sometimes seen in other jurisdictions. A rights holder should have sufficient and actual evidence of infringement at the time that the notification had been issued. It should also be noted that parties could also avail themselves of other protections and rights set out in the Criminal Code, Civil Code, other Acts in the event of actions taken as a result of false notifications. The amendments, however, afford ISPs protection.

ISP complying with requirements under the amendments to qualify for safe harbor or who act in good faith upon becoming aware of suspected infringement will not be liable to users for any actions taken.

The Taiwan Intellectual Property Office plans to hold further public hearings later in the year on the proposed regulations accompanying the amendments.

1IIPA 2009 Special 301 Report on Copyright Protection and Enforcement
2Taiwan Intellectual Property Office translation of draft partial amendments to the Copyright Act


For more information about this topic, please contact K. Mark Brown or Erik Chen.

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08 May, 2009

FCMs Permitted to List on Taiwan Stock Exchange

The Financial Supervisory Commission has released new regulations that will permit Taiwanese Futures Commission Merchants (FCMs) to list on the Taiwan Stock Exchange.

The regulations released yesterday require that an FCM have been listed on Taiwan's OTC market for at least one year and have a net value of NT$2 billion (c. US$60 million).

Other requirements include minimum capital adequacy requirement (a ratio to customer bonds) and the absence of disciplinary action by the regulator or major, uncorrected violations of the FCM's internal controls.

For more information on listing requirements in Taiwan, please contact Shan Lee at +8860-2-2311-2345 ext. 333.

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28 April, 2009

New Financial Reporting Requirements for Taiwan Insurers

The Financial Supervisory Commission has released amendments to two parallel sets of directives regulating financial reporting requirements for life insurers and asset insurers. A publicly report insurer may now rely on the professional judgment of its accountant to determine whether companies in which the insurer has invested must also be audited by the insurer's accountant.

Previously, a relatively rigid set of criteria such as capitalization or revenue of the invested company triggered the auditing requirement. Winkler Partners believes that this new requirement may actually cause greater caution and concomitant scrutiny of financial records by Taiwanese CPAs because the emphasis on professional judgment opens up an increased risk of malpractice or administrative liability for accountants.

In addition, insurers are now required to report precise figures for compensation of all directors, supervisors, and CEOs (general manager in Taiwan nomenclature) under certain circumstances. These circumstances include a capital adequacy rate of less than 200%, after-tax losses for two consecutive years, or failure to increase capital after being ordered to do so by the Commission. The insurer must also report exact compensation of individual director, supervisor, or CEO if the individual pledges more than 50% of the shares she holds or does not hold a minimum number of shares over a three-month period. These new requirements take effect retrospectively as of 1 January 2008.

Previously, all insurers were required to disclose compensation ranges for directors, supervisors, and CEOs by class rather than individual. If the circumstances listed in the preceding paragraph do not apply to an insurer, the insurer may continue to report compensation ranges, rather than exact figures. The new requirements are part of a general trend by the Commission to regulate the activities and qualifications of the directors, supervisors, and officers of financial institutions and listed companies.

The new amendments are to the Directions Governing the Preparation of Financial and Business Reports by Non-life Insurance Industry and the Directions Governing the Preparation of Financial and Business Reports by Life Insurance Industry.

For more information on the new directives or the Winkler Partners insurance practice, please contact Chen Hui-ling.

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17 April, 2009

Local Governments to Administer Company Registration

The United Daily News reports that Taiwan's Ministry of Economic Affairs will propose amendments to the Company Act that will shift responsibility for forming and regulating companies to local governments.

Currently, companies capitalized with NT$500 million or more (c. US$15.5 million) must register with the Department of Commerce under the Ministry. Companies capitalized with less than NT$500 million also register with the Department of Commerce unless they are domiciled in Taipei or Kaohsiung City.

The proposed amendments will transfer administration of the company registration system to city and county governments, which will be able to collect a fee equivalent to 0.025% of the registering company's capital.

The Department of Commerce meanwhile will gradually become an agency that drafts legislation and provides guidance to businesses as its regulatory functions are transferred to local governments.

The report quoted the acting director of the Department as saying that these changes will require major structural changes to the Company Act. The Department plans to hold public hearings on its proposed amendments at the end of April and to send its draft amendments to the Executive Yuan for review within three months. If approved by the Executuve Yuan, the proposed amendments will need to be accepted by the Legislative Yuan before they become law.


For more information on business setups and corporate governance, please contact Shan Lee.


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14 April, 2009

Minimum Capital Requirement for Companies Abolished

Chinese-language media sources reported today that the Legislative Yuan has abolished minimum capital requirements for companies established under Taiwan's Company Act. Previously, limited companies and companies limited by shares established under the Act were required to be funded with NT$250,000 and NT$500,000 respectively at start up.

It is important to note that companies wishing to obtain work authorization for foreign nationals must in general have start up capital of at least NT$5 million (c. US$150K). If the company has been in existence for more than one year, it is required to have average annual revenue of NT$10 million (c. US$300K) to employ foreign professionals. Average annual exports of US$1 million or commisions of US$400,000 can also qualify.

In practice, a company may employ one foreign technical or professional specialist for each NT$5 million in capitalization or NT$10 million in sales in the previous year. This is not black letter law, and there is some administrative flexibility on the threshold amounts.

Foreign-invested companies that have received approval from the Investment Commission or have been recognized by the Ministry in the case of branch companies are treated somewhat differently. These companies can currently obtain work permits for the registered manger(s) of the company without any minimum capitalization requirement in the first year of the company's operation. In addition, work permits are sometimes issued for as many as three years to such managers.

Upon renewal however, these foreign-invested companies will be subject to a minimum average annual revenue requirement of NT$5 million or five times the company's capital to obtain subsequent work permits. Work permit renewals can also be obtained if the foreign-invested company has exports and imports of at least US$500,000 or commission income of at least US$200,000. Winkler Partners expects these regulations to be updated soon in view of the removal of minimum capitalization requirements.

The distinction between minimum capitalization requirements for company establishment and the rules for work authorization often causes some confusion among prospective foreign investors. It may help to note that the establishment of companies is regulated by the Ministry of Economic Affairs under the Company Act whereas work authorization requirements are administered by the Council of Labor Affairs under the Employment Services Act. While the Ministry of Economic Affairs is generally concerned with the promotion of business and trade in Taiwan, the Council of Labor Affairs works to protect labor rights and job security.

A feature article in today's Taipei Times also provided some interesting personal perspectives and advice on starting a business in Taiwan from foreign entrepreneurs.

For more information on starting a new business in Taiwan, please contact Shan Lee. Shan is a contributor to the World Bank's Doing Business 2008, which provides a great deal of useful information on the practicalities of doing business in Taiwan.


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09 April, 2009

Rules on Business Delegations from China Relaxed

Taiwan’s Ministry of Economic Affairs has recently amended regulations governing visits by Chinese business professionals. The changes will allow larger business delegations from China and permit Taiwanese-invested companies to sponsor business associates for visits. The Economic Ministry’s Investment Commission, which is responsible for administering visits by Chinese business professionals, has characterized these changes as part of the “normalization of trade” with China.

Article 5 of the “Principles for Review of Applications by Trade Professionals of the Mainland China Region for Entry into Taiwan for Trade Related Activities” was amended so that Chinese business delegations of up to 200 members may visit the island each year, up from the previous 30. Business delegations of more than 200 may apply to come to Taiwan for certain specific activities, such as taking part in international trade conferences in Taiwan.

Article 4 of the “Principles for Determining Whether Numbers of Person Invited Annually Exceed the Limit Set by Article 6, paragraph 1 of the Regulations Governing Approval for Entry into Taiwan by People of the Mainland China Region for Commercial Activities” was amended to allow a larger scope of employees associated with China-based subsidiaries of Taiwan companies. In addition to the employees of these subsidiaries, associated suppliers, distributors and authorized outlet owners may now also visit Taiwan. All applications from Chinese business delegations to visit Taiwan, however, must still be approved by the Ministry of Economic Affairs.

For legal guidance on employment law in Taiwan, please contact Christine Chen.

For help obtaining work permits and resident status for foreigners and PRC nationals, please contact Lloyd Roberts.

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18 March, 2009

New Academic and Business Travel Card Launched

Taiwan's National Immigration Agency has launched a new “Academic and Business Travel Card” that offers high-ranking foreign executives and professors multiple entry-and-exit rights for stays up to 30 days, in addition to fast-track immigration and customs privileges at the island's international gateways. The card is valid for three years.

Foreigners who qualify for the card include current or former professors or academic researchers, business executives associated with companies that have invested (or have the potential to invest) a minimum of USD 100 million in Taiwan, and noted athletes, coaches, and entertainers. Specialists in a government list of sought-after talent sectors, including high technology, transportation, telecommunications, and deep-water construction, are also eligible to apply for the card.

Academic and Business Travel Card holders are allowed to participate in academic and business activities such as consulting and giving speeches. The card, however, is not a work permit, and holders must apply for an alien resident certificate and work permit in order to take employment in Taiwan. The card may be applied for in Taiwan at the National Immigration Agency or one of its branches, or at any of Taiwan's embassies or trade offices around the globe.

For legal guidance on employment law in Taiwan, please contact Christine Chen.

For help obtaining work permits and resident status for foreigners and PRC nationals, please contact Lloyd Roberts.

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21 January, 2009

Amendment Would Allow Foreign Investors to Obtain Residency for their Parents

Foreign investors holding residence permits may soon be able to apply to have their elderly parents or adult children obtain residency in Taiwan. The Legislative Yuan has recently passed the first reading of an amendment to Article 23 of the Immigration Act, in line with recent moves by the government to encourage foreign professionals to invest in Taiwan. The Council of Economic Planning and Development announced earlier last year a series of tax incentives for foreign professionals.

Under the amendment, foreign investors or foreign professionals possessing certain government-designated technical skills who hold Alien Resident Certificates (ARCs) or Alien Permanent Resident Certificates (APRCs) would be able to apply for permanent residency for their parents over 65 years of age, or adult, unmarried children. Under the Regulations Governing Visiting, Residence and Permanent Residence of Aliens, a foreign investor may obtain residency by investing at least NTD 30,000,000 (approx. USD 895,000) in Taiwan.

Other foreign white-collar professionals with ARCs or APRCs whose expertise fall outside of the foreign investor or specialized technical skills requirement would, upon application and review, be allowed to apply for residency for disabled adult children only. Elderly parents or adult children who obtain residency in Taiwan would be eligible to join Taiwan's nationalized health care system.

For legal guidance on employment law in Taiwan, please contact Christine Chen.

For help obtaining work permits and resident status for foreigners and PRC nationals, please contact Lloyd Roberts.

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14 November, 2008

FBI Criminal Record Checks Now Required for U.S. Citizens Applying for Permanent Residency

U.S. citizens applying for Alien Permanent Residence Certificates (APRCs) will now need to apply for a criminal history background check from the Federal Bureau of Investigation (FBI) following changes to the Immigration Act on August 1. Although official news of the policy change was never widely announced, Americans may no longer use police records from their home states.

In order to obtain a criminal record check by the FBI, a fingerprint form must be downloaded from the FBI's web site, printed and taken to the National Immigration Agency in Taiwan for fingerprinting by the applicant. After the fingerprint form is sent to the FBI and the applicant receives their completed background check, the background check then needs to be legalized, translated and notarized, in accordance with the National Immigration Agency's APRC application rules.

For help obtaining work permits and resident status for foreigners and PRC nationals, please contact Lloyd Roberts.

For legal guidance on employment law in Taiwan, please contact Christine Chen.

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15 October, 2008

Legislation to Remove Minimum Company Capitalization

The Department of Commerce under the Ministry of Economic Affairs plans to introduce a bill to eliminate the minimum capital requirements for limited companies and companies limited by shares. As of 24 April 2008, the minimum capital for a limited company was NT$250,000 while a company limited by shares required NT$500,000 in start up funds. The proposed bill, if adopted by the Ministry after consultations with experts, would amend Articles 100 and 151 of Taiwan's Company Act to eliminate these minimum investments entirely. Approval by the Legislative Yuan would still be required for the proposed changes to take effect.

The new proposals are a response to Taiwan's poor showing in the World Bank's Doing Business 2009 report released on 10 September. In the report, Taiwan fell three places from 58 in the 2008 report to 61 in the 2009 report, in part due to a low score on the Report's Factor 119 Business Startup.

The quick response shows the sensitivity of Taiwan's economic authorities to such reports and suggests that one way for international business to effect change in Taiwan's business environment would be to work actively with organizations like the World Bank to ensure that these organizations have accurate information on issues of concern.

It should be noted that the Council of Labor Affairs currently will grant work authorization for foreign employees to new companies without reviewing the company's capitalization in the first year. Thereafter, the company will need NT$5 million in annual sales or sales equivalent to five times the company's capitalization to receive work authorization for foreign employees. Additional documentation may be required for companies with relatively low capitalization.



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25 September, 2008

Tax Incentives for Foreign Professionals Clarified

In January of this year, the CEPD announced tax incentives for foreign professionals in Taiwan. On 3 September, the Ministry of Finance clarified the definitions of three of the tax incentives: travel expenses for home leave, rent, and scholarships.

Travel expenses for home leave

The Ministry has ruled that only travel expenses for employee home leave can be expensed by the employer where the home leave is stipulated in their employment agreement. Travel expenses for family members are specifically excluded.

Rent

Either the employee or the employer can declare rental expenses.

Scholarships

Scholarships do not include tuition. The employer must award scholarships on the basis of academic and ethical merit.

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22 August, 2008

Seven-Year Requirement for Permanent Residency Lowered to Five Years

Beginning this month, foreigners wishing to apply for Alien Permanent Residence Certificates (APRCs) will need to prove they have had at least five years of continuous legal residence in Taiwan, rather than the previously required seven years. The amendment to the Immigration Act shortening the legal and continuous residency requirement to five years was announced on December 26, 2007, and came into force on August 1 this year. APRC applicants must still be physically present in Taiwan at least 183 days per year for the five years, with no interruptions in their alien resident certificate status.

For help obtaining work permits and resident status for foreigners and PRC nationals, please contact Lloyd Roberts.

For legal guidance on employment law in Taiwan, please contact Christine Chen.

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30 July, 2008

IP Office Overhauls Draft ISP Liability Bill

The Taiwan Intellectual Property Office (TIPO) announced in July 2008 substantial revisions to draft Copyright Act amendments issued in January of this year concerning the liability of internet service providers for copyright infringement by network users.

In the revised draft, the TIPO has not included previously proposed amendments to Article 88 and Article 90.5 of the act that expressly establish liability for parties (read “ISPs”) found to aid or abet copyright infringement or parties who were aware, or ought to have been aware, that a user has exploited their services to infringe the copyright of another. The TIPO has thereby indicated that existing provisions of the act and the Civil Code sufficiently establish liability with respect to ISPs.

With ISP liability generally established in this way, the revised draft amendments focus instead on workable notice/take down and safe harbor mechanisms for the four types of operators that would be subject to the ISP amendments: connection services, caching services, information storage services, and search tool services. Common requirements for obtaining safe harbor immunity from liability that are shared by all four types of ISP include:

Immunity from third-party claims would also be afforded ISPs that have removed or disabled access to infringing content in response to a notice from a copyright owner.

The revised draft differs from the earlier version as well by establishing different safe harbor mechanisms for each of the four types of ISPs based on their unique characteristics. Of note, the revised draft stipulates that information storage service providers should immediately inform rights holders upon receipt of a counter notice to restore content removed. The information storage service provider is not obligated to restore content, however, if the rights holder provides proof within ten days of receiving the counter-notice that it has filed civil litigation for the alleged infringement. If proof has not been provided, the information storage service provider must restore content no later than fourteen days after informing the rights holder. This protocol does not apply to connection, caching and search tool service providers.

For more information about this topic, please contact K. Mark Brown or Erik Chen.

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25 January, 2008

2007 Enforcement Statistics Released

The Taiwan Intellectual Property Office released its 2007 statistics this month for IPR Police intellectual property enforcement:

Overall Infringement Cases Identified:    2,280
Trademark Infringement:                   1,193
Copyright Infringement:                  1,087
Online Infringement:                   1,791
Brick and Mortar:                          172
Night Markets:                              155
Marketing:                                8
Manufacturing:                              6
Others:                                148


The figures reflect the overall trend that we have seen in the market for the last few years – the sale of infringing products has moved into the online market place while the manufacturing of such products has moved offshore to "friendlier" jurisdictions.

For more information about this topic, please contact Christine Chen at 886-2311-2345 ext. 307.

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Taiwan Intellectual Property Office to Release Draft Amendments to Copyright Act

The Taiwan Intellectual Property Office is expected to release draft amendments to the Copyright Act shortly. The draft bill, titled “Internet Service Provider Liability Limitation Bill”, aims to clarify the liability of Internet service providers for intellectual property infringement occurring on their platforms. Public hearings are being planned for the end of February or early March.

For more information about this topic, please contact K. Mark Brown at 886-2311-2345 ext. 318.

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11 January, 2008

New Tax Preferences for Foreign Professionals in Taiwan


Please see this update for clarifications by the Ministry of Finance regarding travel expenses for contractually stipulated home leave, rent, and scholarships [24 September 2008].

On January 8th, Taiwan's Council for Economic Planning and Development announced new tax preferences for foreign professionals in Taiwan. Employers of eligible foreign professionals will be able to declare non-salary payments and reimbursements to foreign professionals as operating expenses. Examples of expenses include certain travel expenses and scholarships for children of employees. From the perspective of the employee, the preferential incentive is that these payments and reimbursements will no longer be treated as income for tax purposes.


As a courtesy to the international community in Taiwan, the Winkler Partners Translation Department has translated the official announcement as published in the Executive Yuan Gazette.

Ministry of Finance Order
Ref. Tai-Cai-Shuei-Zih No. 09600511820
8 January 2008

The Scope of Application of Tax Preferences for Foreign Professionals is adopted and is effective from 1 January 2008.

  1. The Scope of Application of Tax Preferences for Foreign Professionals is adopted to accelerate and promote the internationalization of Taiwan's economy and to encourage foreign professionals to come to Taiwan to work.

  2. The term "foreign professionals" in this Scope of Application includes those already working in Taiwan. However, dual nationals concurrently holding ROC nationality and another nationality shall be excluded from the scope of application because of concerns about determination of identity.

  3. The term "tax preferences" in this Scope of Application means expenses paid by an agency, organization, school, or enterprise in the recruitment of foreign professionals by stipulation of the employment contract. Round-trip travel expenses for a foreign professional and his or her dependents, travel expenses for contractually stipulated home leave per certain period of work, moving expenses, utility fees, cleaning fees, telephone fees, rental costs, cost of repair and maintenance of rented premises, and scholarships for children may be recognized as expenses and will not be considered taxable income of the foreign professional.

  4. The persons covered by the Scope of Application will be determined under Article 46, paragraph 1, subparagraphs 1 and 2 of the Employment Services Act and relevant regulations, and will be limited to foreign professionals engaged in the following lines of work:

    1. civil engineering or architecture/construction technology;
    2. transportation;
    3. tax and financial services;
    4. real estate brokerage;
    5. immigration services;
    6. lawyers;
    7. engineers/technicians;
    8. medicine and health care;
    9. environmental protection;
    10. cultural, sports, and leisure services;
    11. academic research;
    12. veterinarians;
    13. manufacturing;
    14. distribution services;
    15. executives of enterprises invested in or set up by overseas Chinese or foreign nationals with the authorization of the Taiwan government
    16. management, design, planning, or consulting relating to professional, scientific, or technical services;
    17. cooks in the food and beverage industry;
    18. other jobs designated by the Council of Labor Affairs, Executive Yuan in consultation with the central-government competent authority for the industry concerned.

  5. A foreign professional enjoying tax preferences as determined under Article 46, paragraph 1, subparagraphs 1 and 2 of the Employment Services Act must reside in Taiwan for at least 183 days in aggregate in the tax year and be paid a monthly taxable salary of NT$100,000 or more. However, if an agency, organization, school, or enterprise has special needs in the recruitment of foreign professionals and these special needs have been reviewed and recognized by the Ministry of Finance on a special-case basis, it may be exempted from the requirement of paying monthly taxable salary of NT$100,000 or more.

  6. Reviews to determine eligibility of foreign professionals for tax preferences shall be done by the local offices of the National Tax Administration, Ministry of Finance. When an agency, organization, school, or enterprise has special needs in the recruitment of foreign professionals, the Ministry of Finance shall first submit the matter to the competent authority for the industry concerned and ask it to provide a review opinion. The Ministry of Finance also may convene an ad-hoc review conference to make the determination.

Ministry of Finance Order
Ref. Tai-Cai-Shuei-Zih No. 09600511821
8 January 2008

Beginning from 1 January 2008, an agency, organization, school, or enterprise (hereinafter, "employer") hiring a foreign professional who meets the requirements of the Scope of Application of Tax Preferences for Foreign Professionals shall do as follows:

  1. The employer shall apply for permission from the Council of Labor Affairs, Executive Yuan under Articles 46 and 48 of the Employment Services Act, and obtain a foreign national work permit issued by the Council of Labor Affairs.

  2. The employer shall keep accounts of, and obtain and keep vouchers for, payments that it makes under stipulations of the employment contract for round-trip travel expenses for the foreign professional and his or her dependents, travel expenses for contractually stipulated home leave per certain period of work, moving expenses, utility fees, cleaning fees, telephone fees, rental costs, cost of repair and maintenance of rented premises, and scholarships for children.

  3. If the employer is one that is required to file a business income tax return, the various expenses specified above may be recognized as operating expenses, and are exempted from being considered taxable income of the foreign national. When preparing the business income tax return for the fiscal year, the employer shall fill out the "Itemized List of Expense Payments Meeting the Scope of Application of Tax Preferences for Foreign Professionals" on the tax return form and file it with the return, and shall present relevant certifying documents for review and verification during auditing by the assessment authority.

  4. If the employer is not required by regulations to file a business income tax return, the various expenses specified above that the employer has paid for a given tax year are exempted from being considered taxable income of the foreign national. The employer shall, by the end of January of the following year, fill out an "Itemized List of Expense Payments Meeting the Scope of Application of Tax Preferences of Foreign Professionals" and file it with the competent assessment authority for recordation.

  5. The "Itemized List of Expense Payments Meeting the Scope of Application of Tax Preferences of Foreign Professionals" is attached in three-part form.

For more information about this translation please contact Paul Cox at +886-2311-2345 ext. 545.

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28 December, 2007

Taiwan to Increase Fund Investment Cap for Derivatives to 40%

The Financial Supervisory Commission has announced that it intends to amend Taiwan's Regulations Governing Offshore Funds ("Offshore Regulations") so that the Commission will have the power to set limits on how much an offshore fund registered in Taiwan can invest in derivative products. Previously the investment cap for these products was 15% of the fund's net asset value subject to certain other technical restrictions and restrictions on derivative products based on Chinese or Taiwanese financial instruments. Please see Article 23 of the current Offshore Fund Regulations for further details. The translation is by Winkler Partners.

In the announcement, the Commission notes that its policy objectives include giving the Commission greater flexibility to change the cap in the future and to harmonize the caps for offshore funds and domestic ones.

In its notes to the proposed revision to Article 23, the Commission note that its short term goal is to raise the cap of derivative product investments to 40%. The long term goal is to update Taiwan's fund regulatory regime to comply with European Union's UCITS Ⅲ requirements.

The statutory period of public comment on this amendment expires on 2 January 2008. Please contact Shan Lee at +886-2-2311-2345 ext. 33 for further details.

Winkler Partners has translated and maintained official translations of Taiwan's financial services laws and regulations since 2002. Please contact Paul Cox at +886-2311-2344 ext. 545 for further information.


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18 December, 2007

Taiwan to Establish More Specialized Courts

Taiwan's new Chief Justice Lai In-Jaw announced yesterday (Dec. 17) at a year-end press conference that the Judicial Yuan has drafted legislation that will authorize the Yuan to create new specialized courts with limited jurisdiction to hear cases involving finance, construction, and medical disputes. The Intellectual Property Court, Taiwan's first specialized court, is scheduled to begin hearing cases in July.

The Expert Trial Participation Act bill will now be sent to the Legislative Yuan. It is the second major piece of legislation intended to reform the structure of Taiwan's court system along with the the Organic Act of the Judicial Yuan. But since the current legislative session ends this Friday ( Dec. 21), it is unlikely that either bill will pass until the new Legislature convenes after elections in January.

17 December, 2007

Taiwan to Draft Sentencing Guidelines

The Chinese-language Liberty Times reported today that Taiwan's Judicial Yuan is drafting sentencing guidelines for judges that would recommend quantified ranges for existing statutory criminal penalties. According to the report, guidelines for larceny, telephone fraud, and copyright violations will become effective in July for an evaluation period.

Former Minister of Justice Chen Ding-nan and the Judicial Reform Foundation expressed concerns of excessive leniency in sentencing to the Judicial Yuan some three years ago.

For example, larceny in Taiwan is subject to a maximum statutory sentence of five years. However, in practice, 86 percent of convicted offenders receive sentences of less than one year.

Another example is the serious problem of telephone fraud that has plagued Taiwan in recent years. Sophisticated criminal organizations take advantage of lax privacy laws to obtain personal information about consumers from banks, online shopping platforms, or telecoms and then use that information to convince consumers to remit funds using account-to-account ATM transfers.

The maximum statutory sentence is again five years, but in practice over half of all convicted offenders receive sentence of less than six months. Since criminal sentences of less than six months can be (and usually are) converted to a fine, all but the most indigent offenders sentenced to less than six months do not serve time in prison.

Light sentences for intellectual property crimes that are then converted to fines have also been a major complaint of international rights holders for many years. In its 2007 White Paper on intellectual property issues, for example, the American Chamber of Commerce in Taipei, for example, stated that

The judiciary has not taken advantage of the range of sentencing opportunities made available by the body of Taiwan intellectual property law. Instead, the courts continue to render enforcement of IP laws ineffective by letting off most convicted IP offenders with light, suspended sentences, and low fines that do little to discourage counterfeiting.

The same paper also noted that light sentencing and low fines have been a perennial issue for the Chamber for the last 10 years. In 2006, Judicial Yuan statistics show that 46 percent of those convicted of criminal copyright infringement were either fined or had their sentences of less than six months converted to fines.

In response to these concerns, the Judicial Yuan is drafting a set of Reference Sentencing Guidelines for judges that are inspired by the US's Federal Sentencing Guidelines. It should be noted, however, that Taiwan's Guidelines are not compulsory because they are administrative guidelines promulgated by the Judicial Yuan rather than statutory requirements enacted by the Legislature.

While some judges believe that sentencing guidelines violate judicial independence guaranteed by Article 80 of the ROC Constitution, others believe that Judicial Yuan Interpretation 530 allows the Yuan to issue binding sentencing guidelines without a statutory basis.

The inclusion of sentencing guidelines for violations of the Copyright Act is of special interest to foreign right holders because they are scheduled to come into effect in July when Taiwan's new Intellectual Property Court begins hearing cases.

In a broader perspective, the explicit references to the US sentencing laws by proponents of sentencing guidelines as well as citations of United States v. Booker suggest the growing importance of the US legal system for Taiwan in areas other than commercial law. While economic ties between the US and Taiwan have created a much-criticized hybrid by injecting concepts from the Anglo-American legal tradition into Taiwan's continental legal system modeled closely on German and Japanese law, the proposed guidelines show that legal practices from the US are beginning to seep into areas such as criminal law that have remained closer to their origins in German law.







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19 November, 2007

TIPO Invalidates Trademark Registration of Confucius

A recent wire service news story incorrectly reported that the Taiwan Intellectual Property Office (TIPO) "...has decided to revoke a patent registration request...[for]... the use of the name of the ancient Chinese thinker Confucius." What the TIPO has in fact done is invalidate a trademark registration of the name Confucius by the Office of the Chinese Language Council International, a corporate entity directly administered by China's Ministry of Education.

According to the TIPO, the Chinese Language Council applied to register "Confucius" as a trademark for educational services provided by the Council's international chain of Chinese language teaching centers known as Confucian Institutes. The TIPO published the trademark registration but after publication, the TIPO's internal quality control working group questioned the appropriateness of the registration. An internal review process determined that the name "Confucius" lacked distinctiveness as a marker identifying the origin of educational services and products and TIPO invalidated the registration. The Chinese Language Council is now being asked to submit comments on the invalidation.

If the invalidation is sustained, the Chinese Language Council can appeal to the Ministry of Economic Affairs. Should the Ministry deny the appeal, the Chinese Language Council can seek relief by filing an action in Taiwan's administrative courts. It should be noted that Chinese applicants have standing in Taiwan to file for trademark registrations under the TIPO's Operational Points Regarding Application for Patent and Trademark Registrations in Taiwan by Mainland Chinese People and that since 1994, more than 3,000 trademarks have been successfully registered by Chinese applicants.

Despite this invalidation, the TIPO reaffirmed the general principle that historical names such as "Lincoln" and "Franklin" may be registered for products such as cars and mutual funds. It intends to ask for expert opinion on international practice and will use this advice when it amends its Main Points for Examination of Distinctiveness of Trademarks next year.

For further information or to comment in the proposed amendments, please contact Peter Dernbach at +886-2-2311-2345 ext. 222.




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08 November, 2007

Landmark Prosecution for Textbook Copyright Infringement

The Chinese-language United Daily News reported today (8 Nov.) that Taichung prosecutors have indicted a college student for violating Taiwan's Copyright Act by having a print and copy shop make four copies of extensive extracts from a textbook on marketing management. The prosecutors are asking the court to sentence the student to 20 days of detention.

While that sentence is largely symbolic since most sentences of less than six months can be converted to a fine, the prosecution itself is significant because prosecutors have traditionally enforced the copyright against the print shops that accept orders to copy textbooks rather than the students who commission the copying.

The copying of textbooks at print and copy shops located near universities has been a longstanding issue for foreign rights holders. In the past, prosecutors have cited the fair use provisions of Taiwan's copyright law and high textbook prices as reasons not to prosecute students who have textbooks copied. The Taichung indictment is the first of its kind and while prosecutors claimed that evidence connecting the copied textbooks to the accused student compelled them to indict, this milestone indictment suggests increased willingness to enforce Taiwan's copyright law against end users.

For more information in IP enforcement in Taiwan, please contact Christine Chen at +886-2-2311-2345 ext. #307.


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02 November, 2007

EY Approves Draft Amendments to Securities and Exchange Act

The Executive Yuan has approved amendments to Articles 21-1, 36, and 157 of the Securities and Exchange Act and will now send the proposed amendments to the Legislature.

Article 21-1 currently authorizes the Financial Supervisory Commission to enter into agreements with its counterparts in other jurisdictions relating to information exchange, technical cooperation, and law enforcement investigations. Under this Article, the Commission may also request corporations, organizations, and private individuals to provide it with the information it needs to carry out these agreements. The proposed amendment to Article 21-1 makes compliance with the requests compulsory.

Article 36 sets out reporting requirements for listed companies. Currently, listed companies are required to issue audited and certified financial reports within one month of the end of the first and third quarters. In addition, they are required to issue an audited and certified financial report which has also been approved by its board of directors within four months of the close of the fiscal year. In practice, this arrangement creates a six month gap with no financial reporting between the end of October when the Q3 financial report is released and the end of April when the year end financial report approved by the board of directors is issued. The proposed amendment would require year-end financial reports to be issued by the end of March, thereby reducing the six month reporting gap to five months.

Article 36 is also amended to create a mechanism by which listed companies can apply to the Commission to delay issuing their financial reports. Approval may be granted in cases where a listed company has been placed in regulatory receivership or the certifying accountant has been disbarred. These measures are believed to be responses to the collapse of the Rebar Group in early 2007 during which the Chinese Bank, which was controlled by the Group, was placed in in regulatory receivership and accountants who had certified financial reports for Group companies were disbarred. Several Group companies have also been fined for failing to comply with Article 36 reporting requirements.

Article 157 will be amended to impose an 18 hour lockup period after material information is publicly announced during which company insiders cannot trade company shares. The current lockup period is 12 hours. Company insiders are defined as directors, supervisors, corporate officers, holders of more than 10 percent of the company's share and key employees.

While this change is intended to strengthen anti-insider trading regulations after several highly publicized indictments for insider trading by insiders at a major financial group and a high tech company in 2007, the proposed amendments to Article 157 also introduce a new defense against insider trading charges. If a corporate insider can show that she has been making scheduled trades for the same amount for a period of six months before the public announcement of material information, or that identical trades have been made by a set formula during that same period, the trades may not be deemed insider trading.

It should be noted that despite its well-deserved reputation for partisan deadlock, the Legislative Yuan has amended the Securities and Exchange Act in each of the past three years, most extensively in 2005.

For further information on these amendments to the Securities Trading Act, please contact Shan Lee at +886-2-2311-2345 ext. 303.

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01 November, 2007

Draft Finance Company Act Sent to Legislature

Taiwan's Executive Yuan approved its long-awaited draft of the Finance Company Act on Oct. 31st. Drafts of the Act have been circulating between various agencies for more than ten years as the government has tried to find the right formula to meet its two major policy objectives for the legislation: providing new non-bank sources of financing for Taiwan's many and effectively regulating underground loan businesses by allowing at least some to legalize.

According to coverage in the Chinese-language China Times, the Act permits finance companies to make loans, guarantee contractual performance, and discount bills. While maximum annual interest rates for consumers are capped at the 20 percent, corporate interest rates can be as high as 30 percent.

New finance companies will require a permit from the Financial Supervisory Commission to register as a finance company. The Commission will then issue a business license to the duly registered finance company. The draft Act gives the Commission the power to set capital requirements for finance companies, and officials suggested that minimum capitalization could be set at around NT$5 billion (c. US$150 million), noting that in 2006 Taiwan had 48 firms of this scale legally engaged in financing transactions or leasing.

The Act provides that companies currently approved to operate financed leasing, installment purchasing, and accounts receivable financing for ordinary businesses or financial institutions are eligible to become general purpose finance companies.

One of the major purposes of the Finance Companies Act is to regulate Taiwan's underground loan businesses that often employ collection agencies with organized crime backgrounds. Larger illegal loan operations will now have the opportunity to become legal, but the draft Act imposes administrative fines of NT$500,000 (c. US$15,000) to NT$2,500,000 (c. US$75,000) on finance companies that collect debts using force, threats, or invasions of privacy or outsource collections to any third party that engages in these practices.

The draft Act also provides that finance contracts must be written and are void if they set an interest rate above statutory maximums. In addition, finance companies must provide a copy of the written agreement to the guarantor of any finance contract upon request and also must accept early repayment of principal. Without permission from the regulator, finance companies cannot outsource collections or assign debt to third parties.

Finance companies will be required to use the word 'finance' in the names of their firms, and their sales people will need to register with the Finance Company Industry Association.

In related coverage, the paper also interviewed Chailease Finance Co. Ltd.'s Chen Feng-long (陳鳳龍), who said that his firm believed that demand for non-bank financing was worth between NT$300 (US$9.2 billion) and NT$500 billion (US$15.4 billion). Chailease is Taiwan's largest leasing firm. Chen said that if the Legislature passed the draft Act, his firm will apply to become a finance company.

Chen explained that the 24 members of the Finance Company Industry Association are currently allowed to engage only in asset-based financing for corporate customers. Under the draft Act, they would be able to do direct financing as well as lend to consumers. Another important change is that currently a leasing company's total lending capacity to corporate customers is capped at 40% of its net assets. The draft Act does away with that cap.

The draft Act must now be passed by the Legislature to become law. It is expected that although legislators representing various interest groups affected by the draft Act will introduce amendments and possibly alternative versions, there is reason for optimism that it could be passed by the end of the year due to strong industry support.

For more information on the draft or the legislative process, please contact Steve Hanley at +886-2-2311-2345 ext. 620.


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31 October, 2007

Central Bank Issues Procedures for Letters of Credit Funded from China

The Taiwan Central Bank's Department of Foreign Exchange has issued detailed rules for Taiwanese banks to accept remittances from China and issue Letters of Credit to ship goods from third countries to China. The rules were sent to designated Foreign Exchange Banks in an Interpretive Letter dated 22 October 2007. For more information, please contact Shan Lee.

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24 September, 2007

Intellectual Property Court Delayed until 1 July 2008

The Chinese-language media reported last week that Taiwan's long awaited Intellectual Property Court will not begin hearing cases until July 1, 2008. The new court was originally expected to begin hearing cases in August 2007, but that date was pushed back until January 2008 last month.

According to these reports, Kao Hsiu-chen (高秀真), director of the Judicial Yuan's Department of Administrative Litigation and Discipline, has announced that the Intellectual Property Court's Preparatory Office is now up and running but will need 10 more months to be certified and complete renovations.

The Intellectual Property Court will sit in Banciao, Taipei County's administrative seat, where it will hear civil, criminal, and administrative disputes over intellectual property. For civil disputes, the court will serve as both the trial court and the appellate court. The Supreme Court will be the court of last resort for civil IP matters.

Criminal IP complaints, however, will continue to be heard in ordinary District Courts while the new IP Court will be the intermediate appellate court. The court of last resort in criminal IP cases will be the Supreme Court.

Administrative IP cases will be heard by the IP Court in the first instance with the Supreme Administrative Court directly hearing appeals as the court of last resort.

Kao noted the importance of intellectual property to Taiwan by observing that Taiwanese inventors ranked fourth for the number of patents filed with the U.S. Patent and Trademark Office in 2005. Taiwan also files significant numbers of patent applications in the EU, Japan, and South Korea.


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04 September, 2007

Top 1000 Taiwanese Corporations in China

An very useful directory of Taiwanese corporations in China has been published by the Taiwan-based China Credit Information Service since 2004 under the title Top 1000 Taiwanese Corporations in China. The 2006 edition was released in July 2007.

The directory, which is essentially a database published in book form, gives basic company details including company names and addresses in English and simplified Chinese as well as basic financial details sash as sales, assets, and capitalization. Unfortunately, there is no discussion of the sources for this financial information, nor is any of this information available on China Credits website. A CD-ROM version of the database comes with the book.

Despite these caveats, this is an essential reference work on Taiwanese investment in China. Taiwanese businesses are estimated to have invested more than US$100 billion in China, yet these major players are little understood by their North American and European counterparts despite their pervasive presence.

According to the publication page, Top 1000 Taiwanese Corporations in China is available for US$50 and inquiries may be to service@ccis.com.tw. This publication is not listed in the books section of China Credit's website. Its ISBN number is 978-957-8398-99-3.

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17 August, 2007

Xbox Game Pirates Fined NT$8.88 Million

In another case demonstrating the increased willingness of Taiwanese courts to award relatively heavy damages in IP piracy cases, the Miaoli District Court has fined the operators of a business selling pirated Xbox games online NT$8.88 million (US$277,000). Xbox maker Microsoft had sued the defendants for copyright and trademark infringement after police seized more than 2,000 optical disks with pirated games. Microsoft had claimed damages of NT$302 million (US$9.4 million).

In June of this year, the Taoyuan District Court convicted an online dealer in unauthorized software and awarded NT$740 million (US$22.7 million) in damages to 10 international rights holders.

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08 August, 2007

Intellectual Property Court Delayed

Although an official announcement has not yet been made, Winkler Partners has confirmed with the Judicial Yuan that Taiwan's long-awaited Intellectual Property Court will not begin hearing cases until January next year at the earliest. The Court had been scheduled to begin operations this month.

The Yuan attributes the delay in the opening to the Legislature's delay in passing in the 2008 general budget.

The new court,which will be seated in the New Banciao Station Tower in Banciao City Taipei County, will have 10 judges and an initial docket of some 1,700 cases, according to Chinese-language media reports. The judges will be assisted by technical personnel drawn at in part from the Taiwan Intellectual Property Office's corps of patent examiners.

The court is expected to have a major impact on IP enforcement in Taiwan, and many rights holders have been holding back complaints so that they can be heard by the new court.

For more information about Taiwan's Intellectual Property Court, please contact Peter J. Dernbach at +886-2-2311-2345 ext. 638.


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02 August, 2007

Draft Financial Services Act Released by FSC

The Financial Supervisory Commission has released its long-awaited draft of Taiwan's Financial Services Act (Chinese only). The draft law is intended to create a unified legal framework for the provision of financial services in Taiwan including banking, securities, futures, and insurance. This unified legal framework is the legislative counterpart to the Commission's unified supervision of the entire financial industry since 1 July 2004. The draft is accompanied by an extensive commentary. The draft bill has been approved by the Executive Yuan and sent to the Legislature.

For further information about the draft Financial Services Act, please contact Chih-Shan Lee at +886-2-2311-2345 ext. 333..

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25 July, 2007

Resident Visa Alert-UK TRO

Applicants for resident visas in the UK should note that unlike most other de facto Taiwanese embassies overseas, the Taipei Representative Office in the UK requires a UK criminal background check and a health certificate for resident visa applications in addition to the usual documentary requirements. This includes resident visa applications for white collar workers who are applying on the basis of a work permit. We recommend always calling ahead to your local Taiwanese embassy to check on special requirements they may have.

Taiwan Business Topics, a publication of the American Chamber of Commerce, recently reported that that Chung Hwa Travel Service, Taiwan's consular office in Hong Kong, has been requiring all visa applicants to supply proof of residence in their home country in the form of a driver's license, recent utility bill, or bank statement since 2005.

For more information on immigration and labor issues in Taiwan, please contact Lloyd Roberts at +886-2-2311-2345 ext. 522

Disclaimer: The foregoing information is time sensitive and subject to change at any time.


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12 July, 2007

P2P Amendments to the Copyright Act Become Law

The Legislative Yuan passed proposed amendments to Taiwan's Copyright Act in June broadening the scope of the definition of copyright infringement to include the provision of software or services for profit that enable the unauthorized public transmission or reproduction of copyrighted works via the internet. The key element of the offense is the inducement of the public to infringe and not any actual infringement by the public.

The amendments, which came into force on 14 July 2007, will, however, have little serious effect on the local market and seem to have passed more to placate concerns raised in the USTR’s annual Special 301 report. The two major illicit file sharing services that spurred the amendments, Kuro and EZPeer, both settled cases with the IFPI in 2005 and now operate legitimately. And it appears that the sites that sprung up to replace them to cater to the local market’s taste for pirated content have set up offshore.

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16 January, 2007

The Securities and Futures Bureau has published translations of amendments to the following regulations on its online collection of laws and regulations in English translation:

Winkler Partners has translated these laws and regulations for the Bureau since 2001.

For more legal background on Taiwan's financial services markets, please contact Shan Lee at ext. 333. For more information on the Winkler Partners financial services translations, please contact Paul Cox at ext. 545.

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