With no official financing or major cast from the island, Ang Lee's spy thriller, which was filmed in mainland China and Malaysia, didn't meet the Academy review committee's criteria as a Taiwan movie.
The film was submitted by the Film Department of Taiwan's Government Information Office (GIO) after a local jury selected it over other films submitted to the local distributors' association for consideration.
The GIO was allowed to submit Chen Huai-en's road movie Island Etude in its place. The surprise success, distributed by Warner Bros, scored $275,000 in Taipei earlier this year. Lust, Caution has crossed $3m in the capital and $6.4m nationwide.
In Hong Kong, Lust, Caution has grossed $3.9m in 19 days. An edited version has been scheduled for release in mainland China on Nov 1.
Last month, the GIO awarded Ang Lee a bounty of $600,000 after winning the Golden Lion in Venice. On receiving the reward, Lee announced that he would redistribute the money to support local filmmakers.
Lust, Caution is still eligible to compete in other categories of the Academy Awards.