Amid the ongoing U.S.-China standoff, the decoupling of U.S.-centric and non-U.S. supply chains has accelerated. Taiwanese companies, once adept at balancing between markets, are now compelled to localize manufacturing in response to client demands and the bifurcation of major markets. As a result, capital and technology are being reallocated across different regions. In particular, for Taiwanese companies reinforcing their presence in China through the non-U.S. supply chain, there is a risk of unintentionally violating the law by neglecting the permit requirements for “technology” exports — a lesser-known regulation compared to the more widely recognized investment permit regime governed by the Department of Investment Review of the Ministry of Economic Affairs (“DIR”). This article briefly outlines the key points of the DIR’s regulation on “technical cooperation with Mainland China” (“Technical Cooperation”) as revised at the end of 2020, to help identify potential legal pitfalls.

What is Technical Cooperation with Mainland China?

First, “Technical Cooperation with Mainland China” refers to the act of Taiwanese individuals, legal entities, organizations, or other institutions directly or indirectly “transferring” or “licensing” their “know-how,” “patent rights,” or “copyrights in computer software” to individuals, legal entities, organizations, or other institutions in Mainland China.

Second, regarding the scope of covered technology, apart from those listed in the “Negative List for Investment in Mainland China” — which are explicitly prohibited from investment or Technical Cooperation and will not be approved even if applied for — all general items must be approved in advance by the DIR, regardless of the amount involved in the transfer or licensing. “Know-how” refers to confidential methods, technologies, processes, and formulas related to R&D or innovative activities in specific industries, possessing trade secret characteristics, actual or potential economic value, and having been subject to reasonable confidentiality measures. In other words, the scope of control is extensive and includes even know-how or trade secrets that lack tangible forms of rights and are difficult to define concretely.

Furthermore, if the Technical Cooperation is conducted through an foreign company, but the technical originated from a Taiwanese entity or individual, and the foreign company is controlled by Taiwanese shareholders (e.g., holding more than 50% shares or board seats), any Taiwanese individual or entity serving as a director, supervisor, manager, or holding more than 10% shares in the foreign company must still apply for approval in advance.

Key Review Criteria

The DIR reviews the impact of the technical transfer or licensing, including effects on the core competitiveness of domestic companies, innovation and R&D planning, and potential infringement of third-party intellectual property rights. The review process also involves other relevant authorities such as the Industrial Development Bureau, Department of Industrial Technology, Mainland Affairs Council, and National Security Bureau. In exceptional cases — such as deals exceeding USD 50 million, involving critical IC industry technologies, or identified as unusual — the matter may be escalated to the monthly Investment Review Meeting for further evaluation.

Exceptions That Do Not Require Application

Not all Technical Cooperation requires an application. First, if a Taiwanese parent company has established a subsidiary in Mainland China and the technical-related matters were already reviewed during the investment approval process, a separate application for Technical Cooperation is not required. However, this does not apply where technical is transferred or licensed to the China subsidiary after the initial investment approval.

Second, the DIR outlines five specific scenarios that are considered part of normal business operations or intra-group arrangements, and do not involve substantial Technical outflow. These are exempt from the application requirement:

1. Taiwanese companies design or manufacture products based on specifications provided by Chinese entities, and the final products are delivered to the Chinese entities as part of regular commercial transactions and auxiliary services.
2. Taiwanese companies design products under development contracts signed with Chinese entities, along with related auxiliary actions (e.g., background IP licensing), provided the Chinese party does not substantially participate in product design or related R&D processes.
3. Taiwanese companies act as publishers for digital products such as music, film, books, or video games, and license such works for download on platforms operated by Chinese entities. Since this model does not involve actual transfer or licensing of copyrights, it is deemed a standard business model and exempt.
4. A Chinese subsidiary conducts R&D services commissioned by the Taiwanese parent company, with the parent licensing certain technologies for the purpose. The resulting IP belongs to the Taiwanese parent company from the outset.
5. A Chinese subsidiary provides after-sales services (e.g., repair) to Chinese clients on behalf of the Taiwanese parent company, and the parent licenses certain technologies to the subsidiary for this purpose.

Conclusion

Engaging in unapproved Technical Cooperation in general categories can result in administrative fines ranging from NT$50,000 to NT$25 million. For prohibited categories, violators may also face criminal liabilities — up to 2 years of imprisonment, detention, or fines up to NT$25 million. Taiwanese companies planning to export technology to Mainland China must carefully assess whether the planned cooperation aligns with the DIR’s requirements for technical transfers or licensing, in order to avoid legal risks.

(The article is originally in Chinese which can be found here.)