Technology M&A Comparative Guide

1. Legal and regulatory framework

1.1 Which legislative and regulatory provisions govern M&A activity in your jurisdiction?

The main statutes governing M&A activities in Taiwan include:

• the Enterprise Mergers and Acquisitions Act;
• the Company Act;
• the Statute for Investment by Foreign Nationals (governing foreign investment matters);
• the Securities and Exchange Act; and
• the Fair Trade Act (for certain M&A activities that triggers competition review).

In the case of acquisitions involving public companies, a set of tender offer rules – promulgated pursuant to the Securities and Exchange Act – regulates tender offers for the acquisition of shares in public companies. Other laws and regulations, such as the Labour Standards Act and the Civil Code, may also apply depending on the specific structure of the transaction.

1.2 What special regimes apply to technology M&A transactions in your jurisdiction?

M&A activities involving enterprises in the finance and telecommunications industries are subject to special regulations; a technology company will be subject to such regulations if it operates businesses in either of these industries.

In addition, personal data protection and national security regulations on national core technologies or strategic high-tech commodities should be taken into account when structuring a technology M&A transaction.

1.3 Which bodies are responsible for supervising M&A activity in your jurisdiction? What powers do they have and what kinds of transactions do these powers apply to?

The primary regulatory authority overseeing public M&A transactions is the Securities Futures Bureau of the Financial Supervisory Commission, which is the government authority responsible for the supervision of public companies. Other relevant regulatory authorities include:

• the Fair Trade Commission, which is responsible for competition clearance; and
• the Department of Investment Review, which is responsible for reviewing foreign and Chinese investments.

If the target operates in a regulated industry that requires a special licence – such as telecommunications or financial services – the competent authority responsible for issuing such special licence may also be required to review the transaction.

1.4 Does the government have the power to intervene in technology M&A transactions in your jurisdiction? If so, what is its general approach in doing so?

In general, the Taiwanese government welcomes M&A activities, provided that transactions:

• comply with relevant laws and regulations; and
• adequately protect shareholders' rights.

The government also maintains a positive stance towards M&A transactions initiated by foreign investors targeting Taiwanese companies, as long as such transactions do not adversely affect:

• national security;
• public order;
• good customs and practices; or
• public health.

However, in the case of investments from China, investors are subject to a more stringent regulatory framework and are reviewed more rigorously compared to other foreign investments.

2. Deal structure

2.1 How are technology M&A transactions typically structured in your jurisdiction?

In addition to share acquisition, under the M&A Act and the Company Act, transactions for acquiring a technology company may be structured as:

• a merger;
• a share exchange;
• a spinoff; or
• an asset sale.

While the determination of the deal structure is typically driven by tax considerations, other factors – including the approvals and consents required to complete the transactions, as well as the transfer of employees – must also be carefully considered when determining the appropriate deal structure.

Merger: A merger (with the consideration of cash, shares or their combination) is available for acquisition. A cross-border merger between a Taiwanese company and a foreign entity is feasible as long as the surviving entity takes the form of a company limited by shares. If the consideration for the cross-border merger is the newly issued shares or assets of a foreign entity, additional conditions must be met, such as the foreign entity:

• being a company with actual business operations for one year or more; or
• directly having at least two operating branches or subsidiaries.

Share exchange: A company may be acquired by another company or a newly incorporated company by a share exchange, whereby the acquirer issues new shares, cash or other assets, or a combination of these, to the shareholders of the target in exchange for their shares in the target. This will result in the acquirer holding 100% of the issued shares of the target and the shareholders will either be flipped to hold shares of the acquiring company or cashed out depending on the form of consideration paid.

Spinoff: A spinoff is a transaction whereby:

• a company transfers part of or an entire business unit, which can be operated independently, to a newly incorporated or an existing company; and
• the latter company issues new shares or pays cash or other assets to the former company or the shareholders of the former company.

If a listed company cannot meet certain financial criteria after the spinoff, its listing status will be terminated by the Taiwan Stock Exchange or Taipei Exchange.

Asset sale: Under the M&A Act, an asset sale is a transaction in which a company transfers all or a substantial part of its business or assets to another company. However, if only a small portion of a company's business or assets is transferred, the M&A Act does not apply.

2.2 What are the potential advantages and disadvantages of the available structures?

In general, in the case of a share acquisition, merger or share exchange, the acquirer will assume all rights and obligations of the target. Since the target will continue to exist as it is after closing of the proposed transaction (assuming that the target is the surviving entity), there are typically fewer hurdles related to special permits (eg, factory permits) held by the target. Conversely, in a spinoff or asset sale, the transfer of special permits from the target to the acquirer can be more challenging. Therefore, such transactions require careful planning to mitigate the risk of business interruption (eg, potential delays in transferring a factory permit).

A similar principle applies to retaining key employees. In a share acquisition or share exchange, there is no transfer of employees, as their employment relationships remain unchanged. However, in an asset transfer, employees must be transferred to the new entity, which requires clear and effective communication to ensure that employees agree to terminate their employment with the target and enter into new employment agreements with the acquirer.

On the other hand, in a share acquisition, share exchange or merger, the acquirer will acquire the entire company, including all its businesses and liabilities. If the acquirer does not wish to assume certain businesses or liabilities, an asset transfer or spinoff may be a more suitable approach.

In addition, different deal structures may trigger different regulatory approval requirements and have varying tax implications. Therefore, it is advisable to involve local legal counsel and tax advisers at an early stage to ensure that the acquisition's timeline and objectives can be achieved.

2.3 What formal and substantive requirements must be met to transfer legal title to assets and shares in a technology M&A transaction?

For share acquisitions, all foreign investments in Taiwan require prior approval from the Department of Investment Review (DIR). However, this approval is necessary only if the transaction results in a change of any direct shareholder of the Taiwanese entity. An exception applies to investments in companies listed on the Taiwan Stock Exchange or the Taipei Exchange by foreign investors. In these cases, prior DIR approval is not required unless a foreign investor acquires 10% or more of the share capital of a listed company in a single transaction.

In addition, when transferring shares in a private Taiwanese company limited by shares, the seller must:

• endorse the reverse side of the share certificate; and
• deliver the certificate to the buyer.

In contrast, asset transfers generally do not require DIR approval. The proper method for transferring asset title depends on the type of asset involved. For example, the transfer of real property (land and buildings) in Taiwan must be registered with the Land Office to be effective.

2.4 What specific considerations should be borne in mind in relation to cross-border technology M&A transactions?

When conducting cross-border technology M&A transactions involving Taiwan, several key legal and regulatory issues must be considered:

• In line with global regulatory trends, foreign investments are subject to stricter scrutiny than before. Foreign investors must be mindful of the negative list, which restricts or prohibits foreign investment in certain sectors (eg, defence, telecommunications, high-tech). In addition, some industries impose foreign ownership caps. It is essential to handle the DIR application with care.
• Import and export controls should be carefully considered, particularly with respect to strategic high-tech commodities.
• Conducting thorough due diligence on IP ownership – including patents, trademarks, copyrights and trade secrets – is essential.
• Compliance with the Personal Data Protection Act is required if personal data is involved, including adherence to restrictions on cross-border data transfers.
• Asset deals may require employee consent for the transfer of employment; share deals generally do not affect employment status. It is important to review non-compete and IP assignment clauses in employment contracts.

3. Due diligence

3.1 What due diligence should the acquirer conduct into the following aspects of a technology target?

(a) Intellectual property (registered and unregistered):

This may involve:

• verifying ownership and chain of title;
• assessing the scope, validity and enforceability of the IP rights;
• identifying third-party rights or encumbrances;
• investigating any IP-related litigation, administrative proceedings and disputes;
• reviewing IP protection measures; and
• confirming compliance with relevant laws.

(b) Software

This may include:

• verifying IP ownership and licence compliance, especially regarding third-party and open-source software, to avoid infringement and ensure compliance with copyleft obligations that may require source code disclosure;
• assessing software architecture and quality;
• reviewing all relevant contracts for assignment restrictions and ongoing obligations; and
• investigating software-related litigation and disputes.

(c) Cybersecurity

This may include:

• reviewing incident response plans, regulatory compliance and ongoing cybersecurity training programmes;
• examining recent security audit and penetration test results;
• looking into whether the target has established any internal policies and whether and how such internal policies have been implemented;
• assessing insurance coverage for cyber risks; and
• evaluating technical infrastructure and encryption standards.

(d) Data protection/privacy

This may include:

• identifying the types of data collected, processed and used by the target;
• reviewing the target's policies, procedures and practices for data collection, processing, use and transfer, and assessing their compliance with applicable laws; and
• looking into whether any data breaches have occurred and evaluating the target's response to such breaches.

(e) Financial

This may include identifying whether:

• the transaction will accelerate the repayment of the target's loans or have another negative impact thereon; and
• the target will be required to provide additional guarantors or collaterals.

(f) Employment

This may include identifying:

• key employees;
• whether the target has duly contributed to labour insurance, health insurance and labour pension schemes;
• whether the target has duly established internal policies required by law, such as:
• • work rules;
  • a sexual harassment prevention plan; and
  • occupational safety and health management plans;
• whether the target has any foreign employees;
• whether the target has any union or collective bargaining agreements; and
• whether the target has any labour disputes.

(g) Tax

This may include identifying:

• the taxes applicable under the contemplated transaction structure, such as:
• securities transaction tax; and
• capital gains tax;
• whether research and development expenditures are eligible for tax benefits;
• whether the target qualifies as an 'innovative startup';
• whether the acquirer is eligible to enjoy tax benefits for investing in the target; and
• whether the target has any unpaid taxes or related liabilities.

(h) Environmental, social and governance (ESG):

This may include:

• reviewing environmental compliance with laws and sustainability initiatives;
• assessing social responsibility such as labour practices and workplace safety;
• evaluating governance structures, including:
• • board independence;
  • internal controls;
  • anti-corruption; and
  • whistleblower policies;
• examining the quality of ESG reports, if available; and
• assessing reputational risks through media and public records searches.

(i) Litigation

A proper litigation search, as well as web searches on any existing, pending or potential disputes concerning the acquiring target, the relevant individuals and the key technology, will be conducted.

(j) Other

A significant portion of the technology industry in Taiwan focuses on manufacturing. Thus, it is common for technology companies to have factories. When conducting due diligence, the acquirer is advised to identify whether:

• the target has obtained the legal title to use its factories;
• there are any encumbrances on the factories;
• the use of the factories will be affected by the transaction; and
• the use of the factories is compliant with regulations on zoning and real property.

3.2 How is technology used to facilitate due diligence in a technology M&A transaction?

Tech M&A attorneys should be able to adopt technology to facilitate due diligence process, such as using generative AI in:

• translating or summarising due diligence documents;
• analysing contract clauses; and
• generating or editing the due diligence report.

However, such technology is not yet sufficiently mature to process documents in traditional Chinese; hence, at the moment, human efforts still account for a significant portion of the due diligence exercise.

In addition, virtual data rooms are widely adopted to securely store and share confidential documents among parties, legal counsel and other advisers. These platforms enable efficient document management, version control and access tracking.

3.3 What concerns, considerations and best practices should the acquirer bear in mind when conducting due diligence in a technology M&A transaction?

The core of a technology M&A transaction is the target technology to be acquired. The acquirer should understand the technology to be acquired, its application and business model as much as possible. From there, the acquirer will be able to identify which risk areas will be more relevant to the target technology and on which areas the due diligence exercise should focus.

Meanwhile, the acquirer is advised to ensure that all of its outside finance, tax and legal counsel:

• understand the business model of the target in order to provide appropriate analysis on the potential risks of the transaction; and
• are familiar with technology-related issues, existing requirements/barriers and solutions in their respective areas.

4. Stakebuilding

4.1 Can the acquirer build up a stake in a technology target before and/or during the deal process with a view to increasing its prospects of success? If so, what disclosure obligations apply in this regard?

The acquirer may build up a stake in a technology target before and/or during the deal process. However, if the acquirer acquires more than 5% of a public company's shares, it must publicly disclose certain information, which generally includes:

• the identity of the acquirer;
• the number and total percentage of shares acquired;
• the date and method of the share acquisition;
• the purpose of acquiring the shares;
• the acquirer's source of funding for the acquisition of shares;
• the acquirer's share transaction history for the past six months;
• the number of shares that the acquirer wishes to further acquire; and
• any plans to:
• • convene a shareholders' meeting;
  • obtain board seats;
  • dispose of the target's assets; or
  • make changes to the financial or business plan of the target.

4.2 What other legal and regulatory considerations should be borne in mind in relation to stake-building in a technology target?

The acquirer is advised to be aware of the threshold that will trigger a mandatory tender offer. If any person, either individually or jointly with other persons, intends to acquire 20% or more shares in a public company within a 50-day period, such acquisition should be conducted through a tender offer. A tender offer is subject to certain restrictions – for example, the acquirer is prohibited from:

• lowering the tender price;
• shortening the tender period; or
• reducing the number of shares that the acquirer proposed to acquire.

5. Representations and warranties

5.1 What representations and warranties are typically made in technology M&A transactions in your jurisdiction?

Representations and warranties provided by the seller in technology M&A transactions typically cover the following:

• Corporate authority and organisation: The seller or target, as applicable:
• • is duly organised and validly existing;
  • has the requisite power and authority to enter into the transaction; and
  • has obtained all necessary permits to operate its business.
• Title to shares/assets:
• • The seller has title to the shares or assets being sold;
  • The shares or assets are free from encumbrances; and
  • The transfer will not breach any agreements or laws.
• Compliance with laws: The target complies with applicable laws and regulations, including data protection and import and export control laws relevant to technology businesses.
• Financial statements: The financial statements are:
• • true, accurate and complete; and
  • prepared in accordance with applicable accounting standards.
• Material contracts:
• • All material contracts have been disclosed;
  • There are no breaches or defaults under any such contracts; and
  • The transaction will not cause a breach or default under any such contracts.
• IP rights: Due to the critical role of intellectual property in technology M&A transactions, to the extent possible, comprehensive warranties are usually included to address the ownership, validity and non-infringement of IP rights, along with assurances that there are no existing disputes or claims.
• Litigation: All ongoing or threatened litigation, investigations or claims have been disclosed.
• Employees and benefits: Representations and warranties are made regarding employment matters, including compliance with labour laws and employee benefit plans.
• Cybersecurity:
• • The target has established internal policies to protect its core technologies, such as access control and firewalls; and
  • No data leak or security breach has happened to the target.
• Product liability:
• • The target's product is safe and compliant with consumer protection and other applicable laws and regulations; and
  • There are no consumer complaints against the target for defective product.

5.2 Does the survival period of representations and warranties vary depending on the type of representation or warranty?

Yes, the survival period for representations and warranties varies depending on their type. Fundamental representations and warranties (eg, those relating to title and authority) typically survive for a longer period, sometimes indefinitely. Tax representations and warranties generally survive until the expiration of the applicable statute of limitations, which is usually five to seven years. Other representations and warranties (eg, those concerning compliance with laws or contracts) often have shorter survival periods, typically 12 to 24 months post-closing. The specific survival periods are negotiated between the seller and buyer and set out in the sale and purchase agreement, reflecting the allocation of risk and the importance of the relevant representations and warranties.

5.3 What are the typical consequences of breach of the representations and warranties in a technology M&A transaction?

Generally speaking, a breach of the representations and warranties may entitle the buyer to seek indemnification from the seller which, depending on the negotiations between the parties and the severity of the breach, may include:

• actual loss and damage;
• predetermined liquidated damages; or
• punitive damages.

The buyer may also have the right to request a price adjustment based on the mechanism for calculating the purchase price under the sale and purchase agreement. If the breach is material and discovered prior to the closing of the transaction, the buyer may also be entitled to terminate the agreement.

5.4 What are the prevailing trends with regard to the use of representation and warranty indemnity insurance in technology M&A transactions in your jurisdiction?

We have observed a gradual, albeit limited, increase in the adoption of representation and warranty indemnity insurance in technology M&A transactions in Taiwan, particularly where the buyers are international foreign investors, such as private equity funds from the United States or Europe. This may be an attractive option:

• when the parties wish to expedite the transaction process and reduce the time spent negotiating:
• • indemnity provisions;
  • escrow arrangements; and
  • holdback clauses; or
• when the seller seeks a clean exit, meaning no residual liability post-closing.

Representation and warranty insurance is regarded as a risk allocation tool that may be considered by the parties in such transactions.

However, as the insurer is required to review the results of the due diligence conducted by either the seller or the buyer, as applicable, and may also conduct its own due diligence, the time saved from negotiating the transaction agreement may instead be allocated to:

• clarifying issues identified during due diligence; and
• negotiating the scope of insurance coverage and exclusions.

Additionally, the parties must always factor in the insurance premiums when determining the overall transaction costs. Therefore, whether the adoption of representation and warranty insurance in technology sector transactions will continue to increase remains to be seen.

6. Deal process

6.1 What documents are typically executed in the initial preparatory stage of an M&A transaction?

In the early stage of an M&A transaction, it is common for the parties involved and their advisers to enter into non-disclosure/confidentiality agreements. These agreements are aimed at:

• protecting the proposed transactions from premature disclose; and
• preventing any improper leakage of the other sensitive or proprietary information concerning the proposed transaction.

This is particularly important in technology M&A transactions, where the parties' intellectual property and knowhow are at stake.

In addition, a term sheet or letter of intent is usually signed by the parties involved to delineate the fundamental terms and conditions of a transaction. This includes details such as:

• the timeline;
• the parties involved;
• the proposed terms and conditions of the transactions; and
• confidentiality and exclusivity.

It is also important to assess the impact of the approval requirements on the transaction (eg, timeline). This includes:

• seeking approval from the Department of Investment Review if a foreign or Chinese investor is involved; and
• obtaining clearance from the Fair Trade Commission.

6.2 Are pre-signing market checks required in your jurisdiction?

There are no legally required pre-signing market checks under Taiwan law and hence this largely depends on the commercial considerations of the parties. The most common pre-signing market checks relate to due diligence on the target, including:

• legal due diligence;
• financial due diligence;
• environment due diligence;
• employment due diligence;
• data privacy due diligence; and
• most importantly, IP rights due diligence.

6.3 Are pre-signing exclusivity agreements typically entered into in your jurisdiction?

Whether to sign a pre-signing exclusivity agreement is subject to the commercial decisions of the relevant parties. In Taiwan, pre-signing exclusivity arrangements are commonly seen in a letter of intent or memorandum of association concerning an M&A transaction.

6.4 Are break fees permitted in your jurisdiction? If so, under what conditions will they generally be payable? What restrictions or other considerations should be addressed in formulating break fees?

There is no express legal requirement as to how to formulate a break fee arrangement, so this is largely determined pursuant to the commercial negotiation of the parties. Payment of break fees is normally triggered by the refusal of continuance of the transaction or closing by one of the parties; but recently, failure to obtain the required approval within a specified period was found to be the triggering event of a break fee in a cross-border transaction.

When determining the amount of break fees, it is important to consider the reasonableness and enforceability of the amount, ensuring that it is proportionate to the potential loss and damage of the non-breaching party; otherwise, the Taiwan court or arbitration panel may reduce the amount in the event of litigation or arbitration. Therefore, careful consideration should be given to the amount and criteria for payment of break fees to ensure that they are fair and reasonable.

6.5 What valuation methods are typically used in technology M&A transactions in your jurisdiction?

In Taiwan, the main valuation methods for technology M&As include asset-based, market-based and income-based approaches:

• Asset-based methods involve determining the value of the target's tangible and intangible assets, such as the book value of assets or market value of assets.
• Market-based methods involve:
• • comparing the financial metrics of the target with similar publicly traded companies in the technology sector; or
  • analysing the valuation multiples of similar M&A deals.
• Income-based methods focus on evaluating the expected future operational benefits and cash flows of the target, before discounting these estimated values to arrive at the company's estimated value at the time of the transaction.

6.6 What confidentiality obligations apply throughout the various stages of a technology M&A transaction?

Overall, confidentiality is a crucial aspect throughout a technology M&A transaction. In the initial staged of a technology M&A transaction, a non-disclosure agreement is often signed to ensure the confidentiality of the deal and discussion details. During the due diligence process, business information of the target must be kept confidential by the parties and advisers involved.

Throughout the transaction, the parties involved should:

• protect the personal data of employees and customers in accordance with the Personal Data Protection Act; and
• ensure that their trade secrets continue to meet the criteria for protection under the Trade Secrets Act during the transaction, as information that is not properly protected will not be deemed to be a trade secret and will not be legally protected.

It is common to require internal personnel, including senior management and employees, to not disclose any transaction information to any third party. If a transaction falls through, the relevant documents should be returned or destroyed. Post-closing confidentiality obligations covering the method of press release and/or disclosure to third parties are imposed in certain cases.

7. Final transaction documents

7.1 What types of ancillary agreements are typically executed in a technology M&A transaction in your jurisdiction?

In a technology M&A transaction in Taiwan, several ancillary agreements are typically executed to address various aspects of the transaction. These may include the following:

• IP licensing agreements may:
• • transfer ownership of IP rights; and
  • specify the scope, duration and content of the licence.
• Transition services agreements are also common, providing for IT support, customer services and/or other necessary services during the transitional period.
• Employment agreements may be executed to address the transfer of key employees designated by the parties after closing of the transaction. This is particularly important in a technology M&A deal, as these key employees often possess valuable knowledge and expertise that the buyer wishes to retain for the operation of the acquired business.
• Escrow agreements are often executed to hold a portion of the transaction consideration for potential indemnification or other compensation related to the transaction.
• Lease agreements may be signed if the buyer wishes to continue using the relevant real property.

7.2 What pre and post-closing conditions are typically included in the transaction documents?

Pre-closing conditions are crucial for completion of a transaction. Meanwhile, post-closing covenants or obligations are often adopted in order to:

• ensure the smooth transition of the acquired business into the acquirer's operations; and
• address any ongoing obligations or commitments that arise as a result of the transaction.

Pre-closing conditions often involve:

• addressing issues discovered during due diligence, including:
• • rectifying any non-compliance; and
  • securing consent from third parties such as authorised contractors, suppliers and/or customers; and
• obtaining the requisite approvals from the authorities and internal approvals from the parties, such as board and/or shareholders' resolutions. In the case of a business combination through a merger or share swap, a resolution must be adopted by:
• • the majority of the shares present at a shareholders' meeting attended by shareholders representing at least two-thirds of the total outstanding shares; or
  • in the case of a public company, at least two-thirds of the shares present at a shareholders' meeting attended by shareholders representing the majority of the total outstanding shares.

Post-closing covenants or obligations often involve:

• requiring the seller to provide transitional services to help the buyer integrate the acquired intellectual property into its operations, transfer knowledge and provide technical support for a certain period post-closing;
• implementing an employee retention plan and requiring key employees to remain with the buyer for a certain period after the acquisition to ensure a smooth transition and continuity of operations; and
• performing the ancillary agreements described in question 7.1.

7.3 Are technology-related indemnities included in the transaction documents? If so, what do these typically address?

Technology-related indemnities are usually included in transaction documents and typically address:

• third-party claims for IP right infringements;
• breaches of representations and warranties or covenants;
• cybersecurity issues; and
• liabilities related to or arising from the use of the technology involved in the transaction.

These indemnities are important for protecting the parties to the transaction from potential legal and financial risks related to technology, such as:

• IP disputes;
• data breaches; and
• other technology-related liabilities.

By including these indemnities in the transaction documents, the parties can:

• allocate and mitigate the risks associated with technology; and
• ensure that they are protected in the event of any related claims or losses.

Technology-related indemnities play a crucial role in:

• safeguarding the interests of the parties to the transaction; and
• providing them with a level of assurance and protection in the rapidly evolving landscape of technology and digital innovations.

7.4 What limitations to liabilities under the transaction documents (including for representations, warranties and specific indemnities) typically apply?

The limitations to liabilities under the transaction documents typically include:

• limiting the duration of the validity of representations and warranties to a certain period after closing;
• setting a cap on the amount of indemnification;
• setting a basket threshold, which means that the indemnifying party is responsible for indemnification only if the losses exceed the threshold;
• stipulating de minimis clause, which means that the indemnifying party is not responsible for indemnifying for losses below a certain threshold;
• adding qualifiers such as 'materiality' or 'to the knowledge of the company';
• excluding items from the disclosure schedule; and
• reserving the discretion to offset indemnifications against the purchase price.

These limitations are designed to protect both parties and ensure that the indemnifying party is not exposed to unlimited liability for breaches of representations, warranties or specific indemnities.

7.5 Are earnouts or contingent consideration provisions typically included in the transaction documents? If so, what additional issues do they involve?

Yes, earnouts or contingent consideration provisions are often seen in technology M&A deals, especially if the transaction focuses on the acquisition of talent or innovative technologies. In local practice, a few issues need to be taken into consideration when structuring such arrangements – for example, whether:

• the arrangements would trigger any potential tax implication on either party; and
• the implementation of the proposed arrangement is subject to any prior regulatory approval, such as a foreign investment approval.

8. Employment issues

8.1 What limitations are applicable to non-compete agreements in your jurisdiction?

Employee non-compete arrangements are subject to the statutory conditions and requirements set forth under the Labour Standard Act, which include, among other things:

• a reasonable restrictive time period and geographical area;
• a clear definition of the non-compete activities;
• a reasonable consideration for the non-compete period; and
• a justification to impose such a restriction on the employee (eg, the employee has access to proprietary information of the company).

8.2 How is employee equity treated in technology M&A transactions in your jurisdiction?

This will depend on:

• the form of the employee equity; and
• the future plan of the acquirer.

At a minimum, the acquirer will need to ascertain:

• the type and quantity of the employee equity; and
• whether the employee would thus be entitled to exercise any preference right.

Depending on its commercial plan, the acquirer may require the seller to:

• clear all employee equity before closing; or
• redeem such equity within a certain period post-closing.

8.3 What other key concerns and considerations should be borne in mind by the parties to technology M&A transactions in your jurisdiction from an employment perspective?

Where a transaction is structured as a merger, spinoff or asset transfer:

• the acquirer must notify the employees to be retained at least 30 days prior to closing; and
• each employee who receives the retention notice must notify the acquirer of their decision to accept or reject the offer of retention within 10 days of receiving the notice.

An employee's failure to reply will be deemed as consent. The employees' seniority at the target must be recognised by the acquirer.

If the transaction is structured as a tender offer or share exchange, notice need not be provided to the employees, as there will be no change of employer.

On the other hand, the target may lay off those employees who reject the offer from an acquirer or are not retained by the acquirer by:

• paying them pension or severance pay; and
• serving them prior notice.

It should also be determined whether the transaction will give rise to any mass redundancy issue. In the event of mass redundancies, the employer must, at least 60 days prior to the occurrence of the redundancies:

• inform the officials and personnel of the competent authority and other relevant agencies of its redundancy plan by written notice; and
• announce it by publishing an announcement.

The employer and employees will start negotiating the terms of the redundancy within 10 days of submission of the redundancy plan.

9. Tax issues

9.1 What key concerns and considerations should be borne in mind by the parties to technology M&A transactions in your jurisdiction from a tax perspective?

Under the amended M&A Act, which came into effect on 15 December 2022, the amortisation period for intangible assets acquired through an M&A transaction (eg, IP rights and trade secret) is expanded to:

• the remaining period of the legal entitlement thereof; or
• 10 years.

In a share transfer, the seller is subject to securities transaction tax at 0.3% of the consideration, which should be withheld by the buyer and paid to the tax authorities on behalf of the sellers within two days when the buyer pays the consideration. Moreover, if the seller is a local profit-seeking entity or a foreign profit-seeking entity with a fixed place of business or business agent in Taiwan:

• the gains generated from the share transfer will be subject to alternative minimum tax at 12%; and
• one-half of the gains will be subject to alternative minimum tax if the seller had held the shares for at least three years.

The above rules also apply to mergers and share exchanges.

In an asset transfer, business tax at 5% applies. The seller is responsible for collecting this 5% value-added tax (VAT) from the buyer and remitting it to the Taiwan tax authorities. The 5% VAT paid by the buyer can be:

• credited as input VAT against future output VAT (the VAT collected from the sale of goods/services); or
• refunded to the buyer.

Therefore, this is primarily a cash-flow issue and does not create any additional tax burden on the buyer; but it is important to specify which party will bear the burden. Moreover, if a company assigns and transfers all or a significant part of its business or assets to another company and obtains at least 80% of the consideration in the form of shares with voting rights, which are distributed to the shareholders:

• the gains generated from the transfer will be exempt from income tax; and
• any losses therefrom will not be tax deductible.

10. ESG issues

10.1 What key concerns and considerations should be borne in mind by the parties to technology M&A transactions in your jurisdiction from an ESG perspective?

The transparency and accuracy of ESG information of the target, and whether it complies with relevant ESG standards, should be evaluated, and. Under the Financial Supervisory Commission's guidelines on ESG information disclosure for publicly traded companies, this information can be divided as follows:

• Corporate environment: Evaluating:
• • whether the technology involved in the transaction may cause potential pollution or consume energy; and
  • the target's compliance with environmental regulations and its emphasis on environmental issues.
• Social responsibility: Assessing the target's impact on society, including its relationships with:
• • employees (emphasis on labour relations and employee health and safety, diversity and inclusion);
  • customers; and
  • local communities (community engagement).
• Corporate governance: Examining board diversity, board attendance, investor communications, risk management policies and so on to assess the target's reputation and long-term sustainability.

11. Trends and predictions

11.1 How would you describe the current technology M&A landscape and prevailing trends in your jurisdiction? What significant deals took place in the last 12 months?

Taiwan is ranked as a leading country in several indexes and is deemed to have an attractive investment environment. Taiwan has a friendly working and living environment and offers attractive investment returns. Taiwan's semiconductor industry remains a global leader and is a key destination for foreign investment. With the semiconductor industry as the driving force, it is anticipated that investment activity and M&A transactions will increase in Taiwan.

Recent major technology mergers and acquisitions include the following:

• Delta Electronics announced the completion of its acquisition of HY&T Investments Holding BV and its subsidiary TB&C Group for €147 million in 2023, strengthening its business in the electric vehicle industry.
• WT Microelectronics Co, Ltd, a prominent integrated circuit (IC) channel giant, announced the completion of its acquisition of Canadian IC distributor Future Electronics for US$3.8 billion in 2024.
• AU Optronics, a leading display panel manufacturer, announced the completion of its acquisition of German automotive electronics company Behr-Hella Thermocontrol for €600 million in 2024.

These offshore acquisitions highlight the strategic moves made by major technology companies in Taiwan to better position themselves for industry transformation and capitalise on the growing opportunities in various markets.

11.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

The latest amendments to the M&A Act came into effect in December 2022. The amendments aim to improve the flexibility of M&A, while also protecting shareholders' rights.

For M&A deals in the technology industry, merger filings with the Fair Trade Commission (FTC) are usually required. The FTC proposed an amendment to the Fair Trade Act in 2023 which would remove the market share threshold for merger filing. Currently, the FTC uses a two-pronged test to determine whether a transaction is subject to merger filing – a merger filing with the FTC is necessary if the parties to the transaction meet either:

• the turnover threshold; or
• the market share threshold.

However, determining whether the market threshold is met can be challenging for an enterprise due to the complexity of market share calculation and market definition. Thus, to provide clear guidance on filing obligations, the FTC has proposed removing the market share filing threshold and relying only on the turnover filing threshold.

Nonetheless, the FTC may still require special turnover thresholds for certain industries. As the removal of the market share threshold will make it easier for parties involved in cross-border M&A deals to determine whether Taiwan merger filing is required, it is important to keep an eye on any future actions taken by the FTC in this regard.

12. Tips and traps

12.1 What are your top tips for smooth closing of technology M&A transactions and what potential sticking points would you highlight?

Smooth closing of technology M&A transactions requires careful attention to the following:

• Engage with regulatory authorities early in the process, especially in the technology sector or if the acquisition involves investment from a Chinese investor, as either factor may prolong the review process.
• Maintain communication channels between all parties involved in the transaction, including legal, financial and technical teams.
• Conduct due diligence promptly to:
• • identify any issues that need to be addressed by the target; and
  • develop strategies to mitigate any potential obstacles to closing of the transaction.
• Carefully plan the transfer of technology, including:
• • the preparation of a delivery list; and
  • the signing of relevant ancillary agreements.
• An employment retention plan should be thoroughly considered to ensure that key employees who are familiar with the acquired technology are transferred to the surviving company.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.