Protecting indirect Taiwanese investors

On February 20 2013, the Ministry of Commerce of the People's Republic of China (MOFCOM) and the Taiwan Affairs Office of the State Council (TAO) jointly published the Tentative Measures for the Recognition of Onward Investments by Taiwanese Investors Through a Third Place (台湾投资者经第三地转投资认定暂行办法) (Circular 12). Circular 12, which came into immediate effect on announcement, provides supplementary rules to the Cross-strait Bilateral Investment Protection and Promotion Agreement (海峡两岸投资保护和促进协议) (IPPA) signed between mainland China and Taiwan on August 9 2012. The agreement aims to solve the identity recognition issue that has long been faced by Taiwanese investors making their investments in China indirectly through countries and areas other than Taiwan.

Indirect investment

Initially, when the Taiwan government first lifted the ban on Taiwanese investments in mainland China, such permitted investments were required to be made indirectly, i.e., through a country or jurisdiction other than Taiwan. Although this indirect investment requirement was later removed in 2002, most of the Taiwanese investments in mainland China since then have nonetheless continued to be made indirectly. A combination of factors such as tax planning, flexibility on usage of funds, and the existence of investment protection treaties between mainland China and other countries, contributed to the continued use of the indirect investment route.