Taiwan announces foreign institutional investors may use Taiwan-listed stocks as collateral for offshore investment activities

• To attract foreign investment in the Taiwan stock market, the Financial Supervisory Commission announced that foreign institutional investors (FINIs) may use Taiwan-listed stocks as collateral for offshore investment activities as of 28 August 2023; initially, this measure was scheduled to be implemented by the end of September 2023.
  
  
• FINIs may use Taiwan Stock Exchange-listed or over-the-counter stocks that are qualified for margin purchases or short sales as collateral for obtaining funds for their offshore investment activities without selling their Taiwan stock holdings.

Executive summary

To attract foreign investment in the Taiwan stock market, the Financial Supervisory Commission (FSC) announced that foreign institutional investors (FINIs) may use Taiwan-listed stocks as collateral for offshore investment activities starting from 28 August 2023.

Detailed discussion

Before implementation of this new measure, FINIs can only use domestic securities as collateral to acquire New Taiwan Dollar (NTD) funds from the below parties for specific purposes:

• Securities brokers and securities finance enterprises for purpose of investing in Taiwan Stock Exchange (TWSE)-listed or over-the-counter (OTC) securities
  
  
• Domestic banks for the purpose of investing in domestic securities

Under the new measure, FINIs may also use Taiwan-listed stocks as collateral for offshore investment activities from 28 August 2023.

For this new measure to apply, both foreign investors engaged in offshore investment activities must be qualified and registered FINIs in Taiwan. The offshore investment activities include offshore securities lending, derivatives trading, and foreign currency borrowing. Further, the funds obtained by the collateral provider must be used offshore in foreign currency and may not involve any onshore activity in Taiwan.

This new measure is pursuant to Item 3 of Article 21 of the "Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals" and "Operational Guidelines for Overseas Chinese and Foreign Nationals Using Domestic Securities as Collateral for Offshore investment Activities." From the implementation date, FINIs may use TWSE-listed or OTC stocks that are qualified for margin purchases or short sales as collateral to obtain funds for their offshore investment activities without selling their Taiwan stock holdings.

Implications

It is anticipated that the new measure will help FINIs increase the flexibility of foreign-capital utilization and willingness to hold stock investments in Taiwan, while also reducing the need for FINIs to sell domestic stock to obtain funds, contributing to the liquidity of the financial market and strengthening the stability of the securities trading market in Taiwan.

For additional information with respect to this Alert, please contact the following:

Ernst & Young (Taiwan), Taipei

• Heidi Liu
  
  
• Kelvin Tsao
  
  
• Jeff Chou
  
  
• Bonnie Hsu
  
  
• Jason Huang
  
  
• Kai Hsieh
  
  
• Seth You

Ernst & Young LLP (United States), Taiwan Tax Desk, New York

• Lester Li

Ernst & Young LLP (United States), Asia Pacific Business Group, New York

• Gagan Malik
  
  
• Dhara Sampat

Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago

• Pongpat Kitsanayothin

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.