Taiwan's Financial Supervisory Commission (FSC) has revised the "Regulations Governing Securities Investment by Overseas Chinese and Foreign Nationals" at the end of April, allowing listed companies to distribute USD-denominated cash dividends to foreign shareholders. Market participants refer to this as the "TSMC Clause," with system implementation expected to be completed by the third quarter and officially launched during the 2027 dividend season.
Contents of the TSMC Clause: FSC's April Regulatory Revision, Official Implementation in 2027
According to the FSC announcement, the legal basis for the "TSMC Clause" is the amended "Regulations Governing Securities Investment by Overseas Chinese and Foreign Nationals" at the end of April this year. The revision permits listed companies to pay USD-denominated cash dividends to foreign shareholders. System setup is expected to be completed by the third quarter, with formal rollout in the 2027 dividend season.
United Microelectronics Corporation (2303) and other major electronics firms that frequently handle USD payments have expressed positive outlooks: USD inflows and outflows, cash management, and hedging costs can be reduced. Domestic shareholders are unaffected, continuing to receive dividends in New Taiwan Dollars; this measure applies only to foreign shareholders, with retail investors remaining unaware.
Principle of Reducing Double Currency Exchange: Yang Jinlong Explains Structural Issues in Foreign Investment Dividend FX Frictions
According to Central Bank Governor Yang Jinlong’s explanation in the Legislative Yuan, the current system’s problem lies in: when a listed company pays dividends in New Taiwan Dollars, it must first sell USD income to convert to NTD; if foreign shareholders decide to remit the dividends abroad, they must buy USD again—creating "double currency exchange," which leaves buying and selling pressure in the FX market each time, amplifying exchange rate volatility, especially during concentrated dividend payout periods.
If dividends are paid directly in USD, theoretically, the "sell first, buy later" step can be skipped, reducing FX market friction. The timing and parties involved shift from the open market to between the company and foreign investors, making the process cleaner and more efficient.
Three Major Limitations of the TSMC Clause: Eligible Parties, Beneficiary Scale, and Uncertainty of Foreign Capital Outflows
Based on Yang Jinlong’s statements and analysis, three main limitations exist:
Limited Scope of Application: Only applicable to foreign shareholders; domestic shareholders continue to receive dividends in NTD. The real beneficiaries are concentrated among a few large-cap stocks with high foreign ownership (e.g., TSMC with 72% foreign ownership). Most listed companies’ dividend structures do not require change.
Concentrated Beneficiary Scale: Most listed companies do not meet the conditions or necessity to adopt this approach; the overall FX market pressure reduction effect is limited.
Uncertain Foreign Outflow Behavior: Foreign investors may not immediately remit dividends after receiving them; they might reallocate funds back into the stock market based on investment strategies. This behavior is unrelated to the currency in which dividends are paid.
Yang Jinlong describes the central bank’s intervention principle as the "Willow Tree Theory": allowing moderate exchange rate fluctuations, intervening when necessary, but the USD dividend payout can at most trim seasonal volatility. The real long-term drivers of the NTD’s depreciation—such as US-Taiwan interest rate differentials, global capital flows, and Taiwan’s FX demand—are beyond the scope of current tools.
Frequently Asked Questions
When will the TSMC Clause officially take effect, and which companies are covered?
According to the FSC announcement, the system setup is expected to be completed by the third quarter, with formal implementation in the 2027 dividend season. It applies to listed companies intending to pay USD-denominated cash dividends to foreign shareholders, mainly benefiting high foreign ownership stocks such as TSMC and United Microelectronics. Domestic shareholders are unaffected.
Can this measure "rescue" the NTD or significantly stabilize the exchange rate?
Central Bank Governor Yang Jinlong stated that this measure "should help stabilize the exchange rate," specifically to reduce FX volatility during dividend payout seasons. It is not intended to reverse the long-term trend of the NTD exchange rate. Yang describes the central bank’s stance as the "Willow Tree Theory": allowing moderate fluctuations, with USD dividends at most reducing seasonal FX pressure. The main long-term factors influencing the NTD’s trend—such as US-Taiwan interest rate differentials and global capital flows—are outside the scope of this measure.
Why is the measure named after TSMC, and what is its foreign ownership percentage?
Reports indicate TSMC’s foreign ownership is approximately 72%. Its single dividend payout in 2026 could reach hundreds of billions of NTD, making it one of the stocks with the largest foreign FX outflow pressure in Taiwan’s market; foreign investors hold nearly 50% of TSMC’s market value. Due to TSMC’s scale and high foreign ownership, it best fits the beneficiary criteria of this measure. The market thus refers to this regulatory change as the "TSMC Clause."
