QFII ABOLISHED

11/01/2003

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In our September edition we reported on the ex-tensive relaxations in restrictions on foreign in-stitutional investors' investments in Taiwanese securities markets that were decreed by the Se-curities and Futures Commission in July 2003. In a further move intended to speed up financial reform, expand Taiwan's securities markets, and accelerate their internationalization, the Execu-tive Yuan revised the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals to streamline the proce-dures for foreign investors to invest in securities. The Qualified Foreign Institutional Investor (QFII) system was abolished with effect from the beginning of October (instead of the end of Oc-tober as originally planned), replaced by a sys-tem of single registration with permanent valid-ity has been adopted. The main points of the amendments to the regulations are outlined be-low:

The amended regulations divide overseas Chinese and foreign investors into four cate-gories according to whether they are located inside or outside ROC territory, and whether they are individuals or corporate entities. The four categories, to which different rules apply, are: domestic individual investors, offshore individual investors, domestic institutional investors, and offshore institutional investors.

A foreign institutional investor (FII) is defined as an entity incorporated and registered out-side the ROC in accordance with a foreign law or the ROC branch office of a foreign corpo-ration. According to an SFC announcement dated 13 January 1997, overseas Chinese and foreign individuals means persons aged 20 or above with a nationality other than People's Republic of China and possessing the relevant identity documents.

All foreign investors may qualify to invest in securities in Taiwan by registering with the Taiwan Stock Exchange (TSE) in accordance with TSE regulations. The registration pro-cedure is changed from the previous substan-tive examination of eligibility to formal-ity-based registration. A single registration is valid for an unlimited period, and has retro-spective effect. In addition to registration, an offshore FII must obtain an approval from the Central Bank of China, but this requirement does not apply if the FII already holds an in-vestment sub-account and is making a post-hoc registration. An offshore FII may open multiple accounts with the same securi-ties firm using a single ID number.

The TSE may cancel the registration of an overseas Chinese or foreign investor if (a) the investor is found to have made untrue state-ments; (b) the information given in the regis-tration application was incomplete and the investor fails to supply the required additional details within the period notified by the TSE; or (c) the investor commits a serious violation of the regulations or other securities-related laws and regulations.

For as long as gains from securities transac-tions remain exempt from income tax (as they have been since 1 January 1990), if the local agent or representative of an overseas Chinese or foreign investor submits documents show-ing that the investor's income from securities investments is tax-exempt, that it has already been subject to withholding tax at source, or it has been duly paid tax, then the investor may directly remit funds overseas in accordance with foreign exchange regulations, without proving that the tax collection authorities have approved the appointment of a prox to file and pay taxes on its behalf.

An offshore overseas Chinese or foreign in-vestor may use the shares held by it as the underlying securities to sponsor the issue of overseas depositary receipts or the reissue of overseas depositary receipts within the limit of cancellation of previously issued GDSs as a result of withdrawal of GDSs. In either case, the transaction will be treated as an outward remittance of investment principal.