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Alibaba's Taobao gets evicted from Taiwan over investment rule violation

Taiwanese authorities have ordered the e-commerce company to leave Taiwan within six months.

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Taobao's Taiwanese site. Screenshot by Liu Hongzuo/CNET

Update, Tuesday, May 26, 1:00 a.m. PT: Alibaba has responded with a statement.

Alibaba-owned online marketplace Taobao is no longer welcome in Taiwan.

Financial regulators in Taiwan have ordered Taobao to cease operations because it failed to apply for a required permit for a mainland Chinese company to do business in the region, according to a report from Reuters. Taiwan's Investment Commission gave Taobao's backer, Alibaba Group Holdings, the biggest e-commerce company in China, six months to cease operations or transfer its holdings, along with a surprisingly low NT$240,000 ($7,880) fine. Despite the violation, Taiwanese shoppers can continue to order goods from Taobao's site, but they will be doing so via the Chinese mainland web page.

"We are having positive ongoing discussions with the relevant Taiwanese authorities and we hope to find a suitable way forward in order to continue to serve the needs of Taiwan consumers and merchants," said a Taobao Marketplace spokesperson in a statement.

The verdict from Taiwanese authorities is a setback for Alibaba's efforts to grow its business outside of Mainland China. In the US, for instance, Alibaba has taken few tentative steps that includes opening the retail site 11 Main and investing $15 million in US interior-design firm 1stdibs last year. But the company's sheer size has made it a possible competitor to Amazon, and its potential expansion into the US market could intensify e-commerce competition, which is already a highly competitive and low-profit business.

This is not the first time Taiwan has come down against Alibaba. In March, Taiwan's Ministry of Economic Affairs claimed that the Chinese e-commerce giant was in violation of investment rules following its $25 billion initial public offering.

Alibaba had failed to produce business information at the request of Taiwanese authorities and as a result, had to withdraw its Taiwanese holdings within six months and had a NT$120,000 ($3,940) fine imposed. Mainland Chinese companies are subject to stricter regulations in Taiwanese territory compared to other foreign companies. Taobao, being Alibaba-owned, undergoes the same treatment.

"Mainland companies registered in foreign countries need to apply for mainland business permits in Taiwan," said Emile Chang, executive secretary of Taiwan's Investment Commission. "Neither Alibaba nor Taobao have done so."

In contrast with this move, China's State Council had previously announced tax reduction measures that will explicitly support all Taiwanese businesses, including those operating in the Mainland.

However, it is evident from Alibaba's operational struggles that China-Taiwan business relations will still be tricky in the near future.