I.Definition of PRC Company

According to Paragraph 1, Article 73 of the Act Governing Relations between the People of the Taiwan Area and the Mainland Area (the "Act"), "unless otherwise approved by the competent authorities, any individual, juridical person, organization, or other institution of the Mainland Area, or any company located in any third area and invested in by Mainland persons, may not engage in any investment activity in Taiwan". To this end, the Ministry of Economic Affairs has established the Guidelines Governing the Approval of Investment by PRC Persons in Taiwan (the "Investment Approval Guidelines") to set forth the approval procedures and requirements for Mainland persons' investments in Taiwan. Pursuant to Article 3 of the Investment Approval Guidelines, Mainland investors can be categorized into the following two types:

1.Individuals ("Mainland Individuals") and juristic person, organization or other institutions ("Mainland Companies") of the Mainland Area.

2.Companies that a Mainland Individual or a Mainland Company invest in any third area ("PRC Companies")

A PRC Company shall mean a third-area company, invested by a Mainland Individual or a Mainland Company, that either (1) directly or indirectly holds over 30% shares or capital contributions in such third-area company; or (2) has the ability to control such third-area company (Mainland Individuals, Mainland Companies and PRC Companies are hereinafter collectively referred to as "PRC Investors").

II.Restrictions on PRC Investors' Acquisition of Real Estate Rights in Taiwan.

Paragraph 1, Article 69 of the Act reads: "Any individual, juristic person, organization, or other institution of the Mainland Area or, any company located in any third area and invested in by Mainland persons, may not acquire, create or transfer any right over any real property in Taiwan without approval of the competent authorities. The types of land as listed in various sub-paragraphs of Paragraph 1, Article 17 of the Land Act cannot be acquired, encumbered or leased". To this end, the Ministry of the Interior has established the Guidelines Governing the Approval of the Acquisition, Creation or Transfer of Real Estate Rights by PRC Investors in Taiwan (the "Real Estate Approval Guidelines"), which set up restrictions on PRC Investors' acquisition of real estate properties in Taiwan, such as restrictions regarding the types of land, qualifications of PRC Investors, intended use of the land, transfer of the land, and the cap of the total acquisition amount.

III.Summary of the major amendments to the Real Estate Approval Guidelines

As real estate prices in metropolitan areas in Taiwan have continued to surge starting from 2009 and with more and more PRC Investors acquiring real estates in Taiwan, the Ministry of the Interior amended the Real Estate Approval Guidelines on June 9, 2017 again (the " Amendments") in order to curb real estate speculation by PRC Investors and to stabilize local real estate market. The Amendments are summarized as follows:

1.Restrictions on Types of Land:

Before the Amendments, the Real Estate Approval Guidelines stipulated that PRC Investors' application for acquisition, creation, or transfer of the following types of land in Taiwan shall not be approved: (1) The types of land specified in various sub-paragraphs of Paragraph 1, Article 17 of the Land Act (forest lands, fisheries, hunting grounds, salt fields, lands with mineral deposit, sources of water, lands laying within fortified and military areas and lands adjacent to the national frontiers); (2)the areas of land demarcated pursuant to the National Security Act and the Enforcement Rules of the National Security Act; (3) the area of lands demarcated pursuant to the Vital Area Regulations; (4) lands in every port area, the areas of land demarcated jointly be port authorities, the Ministry of National Defense, and local governments; and (5) other areas of land demarcated by central competent authorities.

As Paragraph 1, Article 14 of the Land Act specified various types of lands that shall not be privately owned by anyone, such restrictions apply to PRC Investors' acquisition of land in Taiwan as well. The Amendments included such types of lands into the list of real estates that may not be acquired by PRC Investors. In addition, when a PRC Investor "transfers" real estates to a non-PRC person, the preceding paragraph shall not apply. Accordingly, the Amendments deleted the language related to the "transfer" of real estates.

2.Cause for Denying Approval:

Before the Amendments, PRC Investors' applications to acquire, create or transfer real estate rights "may" be denied for the following causes; however, in an effort to fully achieve the purposes of the Real Estate Approval Guidelines, the Amendments stipulate that such applications "shall" be denied for the following causes: (1) The country's major infrastructures might be affected; (2) land monopolization or speculation is suspected; (3) the comprehensive development of the national territory might be affected; (4) central competent authorities believe that national security or social security might be compromised.

Among the causes listed above, regarding the cause of "suspected land monopolization or speculation", the case stated in the Ministry of the Interior's Interpretation Letter No. Tai-Nei-Di-Zi-0990215799 dated October 29, 2010 is an example where a PRC Investor's application to acquire real estate in Taiwan was denied because the same applicant had previously acquired a piece of real estate in Taiwan, so its second application was therefore denied for concerns of "land monopolization or speculation".

3.Application Documents for PRC Investors' Acquisition, Creation or Transfer of Real Estate Rights:

In the Amendments, "PRC Permanent Resident Registration Card" and a copy of the "Acquisition, Creation or Transfer Agreement" have been included as the required application documents for PRC Investors' acquisition, creation or transfer of real estate rights for the following reasons:

(1)PRC Permanent Resident Registration Card: Pursuant to the proviso in Paragraph 1, Article 4 of the Real Estate Approval Guidelines, Mainland Individuals who work for or are members of the Communist Party of China, the PRC military, administration or other political institutions or organizations may not acquire or create real estate rights in Taiwan. As such, the Amendments include that PRC Permanent Resident Registration Card as one of the required application documents to allow competent authorities to verify if the applicant's identity is in violation of the foregoing rule.

(2)A copy of the Acquisition, Creation or Transfer Agreement: The inclusion of this document allows competent authorities to verify if a PRC Investor does have legitimate causes to apply for the acquisition, creation or transfer of real estate rights, and if the content of the application corresponds with the facts.

4.Restrictions on the Intended Use and Number of Unit(s):

Before the Amendments, the Real Estate Approval Guidelines stipulated that Mainland Individuals may only acquire the title of real estate in Taiwan for "residential purpose"; Mainland Individuals were not expressly prohibited from acquiring more than one unit of building. However, in an effort to curb land monopolization or speculation that could possibly be caused by Mainland Individuals' multiple purchases of real estate in Taiwan, the Ministry of the Interior has prohibited Mainland Individuals from purchasing a second unit of building in Taiwan via its Interpretation Letter (i.e., the aforementioned Letter No. Tai-Nei-Di-Zi-0990215799 dated October 29, 2010).

Since the practice described above involves people's rights and obligations, the Amendments expressly specified that Mainland Individuals may only acquire one unit of building (i.e. the real estate bearing one building number and the land where such building is located) that has been registered and only for the residential purpose. The acquired real estate may not be leased or used for non-residential purposes. Moreover, in order to prevent Mainland Individuals from manipulating the real estate market through acquiring the right of superficies of real estate, the Amendments also expressly stipulate that the foregoing restriction also applies to Mainland Individuals' acquisition of the right of superficies.

5.Allowing PRC financial institutions in Taiwan to Acquire Real Estate Rights in Taiwan for the Purpose of Operating its Credit Business:

PRC financial institutions have the need to acquire, create or transfer real estate rights because in the normal course of operating their credit business, PRC financial institutions will have to create mortgage over real estate, and subsequently assume and acquire the title of the collateral, and dispose of and transfer the collateral if the debtor defaults. Therefore, the Amendments allow PRC financial institutions in Taiwan to apply for the acquisition, creation or transfer of real estate rights for the purpose of running their credit business. However, as the legislative intent of the Amendment is to "cautiously and gradually" allowing PRC Investors to acquire real estates in Taiwan, the approvals of the foregoing acquisition, creation and transfer of real estate rights shall be limited to real estates that have already been duly registered with land offices.

6.Term of the Approval:

In order to prevent inefficiencies in the management of real estate registration that could likely be caused by the applicants' tardiness in submitting their approval documents to the real estate registration authorities after the approval of the acquisition, creation and transfer of real estate rights, the Amendments expressly stipulate that the approval shall be valid for one year.

7.No approval from the Ministry of the Interior is required when PRC Investors' auctioned real estates are being transferred to a Taiwanese bid winner.

According to the Real Estate Approval Guidelines, PRC Investors' acquisition, creation and transfer of real estate rights in Taiwan are subject to the Ministry of the Interior's prior approval. However, the Compulsory Enforcement Act expressly specified that during an auction process carried out by a court, an administrative enforcement agency or an impartial third party authorized and certified under the Financial Institutions Merger Act, a debtor's real estate shall be publicly auctioned and the transfer of real estate shall be enforced to protect the creditor's rights. If a Taiwanese person is the successful bidder in such auction, the requirement of PRC Investors (no matter whether such PRC Investors are owners or other real estate right holders) having to obtain transfer approval will compromise the interests and rights of the Taiwanese bidder/creditor. Therefore, the Amendments stipulate that no approval from the Ministry of the Interior is required under the foregoing circumstances; the transfer of real estate can be registered upon the real estate registration authority's verification.

IV.Summary

The table below shows the approved numbers of PRC Investors' real estate investments in Taiwan from 2002 to the second quarter of 2017 based on the information provided by the Department of Land Administration under the Ministry of the Interior on its official website (regarding PRC Investors' acquisition of real estate in Taiwan). It is worth noting that while the number of approved applications each year has yet to exceed 100 since the Real Estate Approval Guidelines were enacted on August 8, 2002, the second quarter of this year (2017) shows a surge in the number of the approved applications (according to the aforementioned website, 64 out of the 73 applications approved in 2017 were approved in the second quarter)

Year Number of Approval from the Ministry of the Interior
2002-2011 50
2012 34
2012 52
2014 45
2015 86
2016 75
Q1 & Q2 of 2017 73
Total 415

Furthermore, with respect to the PRC Investors' applications for real estate investments in Taiwan, PRC Investors have to first obtain approvals from the municipality/county government where the real estate is located; such municipality/county government will then submit the applications to the Ministry of the Interior for approval. As the Real Estate Approval Guidelines do not specify a timeframe for the Ministry of the Interior to decide on an application, and given the sensitive nature of PRC Investors' acquisition and transfer of real estates in Taiwan, PRC Investors' applications will usually take longer, probably one or a few additional months, to process than those of Taiwanese individuals and companies. Other than the scenario described in Section 7 above, the Amendments do not reduce the time required for PRC Investors to obtain approvals for their acquisition or transfer of real estates in Taiwan.