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Foreign Investment in the Philippines: Regulations and Opportunities

  • Navigating foreign ownership restrictions in the Philippines is essential for international investors, with regulations varying by sector, including specific limitations in industries such as public utilities and media. 
  • Recent legislative changes, like the CREATE Act and amendments to the Foreign Investment Act, aim to attract more foreign investment while maintaining certain protections for national interests. 
  • Investors must consult with legal experts, stay updated on regulatory changes, and consider joint ventures or partnerships to comply with the country’s foreign ownership laws and successfully venture into its dynamic business landscape.

Venturing into the dynamic business landscape of the Philippines requires a keen understanding of its foreign ownership restrictions.

These regulations set the stage for how international players like you can participate in various industries. 

This guide is crafted to help you navigate these legal intricacies, highlighting key sectors with specific ownership limits and offering insights on effectively aligning your business strategies within these frameworks. 

Join us as we unravel the complexities of foreign ownership in the Philippines, providing you with essential knowledge to make informed decisions for your business ventures.

Philippines’ Current Legal Framework

The development of foreign ownership laws in the Philippines has been closely tied to the country’s economic policy changes over time. 

These laws have evolved to strike a balance between national interests and the attraction of foreign investment. 

Under former President Duterte’s administration, the implementation of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act in 2021 provided significant fiscal stimulus through gradual corporate income tax reduction and income tax holidays, marking a historic move. 

The government kept the reforms coming by amending the Foreign Investment Act to let foreign investors buy domestic companies for the first time. They also changed the Retail Trade Liberalization Act to lower the minimum capital needed for foreign retail businesses to set up shop here in the Philippines.

In the current administration of President Ferdinand Marcos Jr, the Philippines has further advanced its economic landscape by allowing full foreign ownership of renewable energy projects. This signals the commitment of the Philippine government to attracting international investment in this vital sector.

Despite loosening foreign investment regulations, the Philippines still imposes certain limitations that may vary depending on the industry. 

Investors should assess rules specific to their sectors to gauge restrictions around ownership ratios, operational procedures, and eligibility.

Foreign Ownership Restrictions that You Need to Know

In the Philippines, foreign ownership is governed by specific restrictions and limitations outlined in the Constitution and various laws. 

While some sectors allow 100% foreign ownership, others have restrictions or prohibitions. 

These industries typically encompass export businesses, information technology services, manufacturing, and other sectors.

The following regulations aim to safeguard the interests of Filipino citizens and uphold economic stability.

Constitutional Limitations

The 1987 Philippine Constitution imposes various restrictions on foreign ownership in specific industries. 

For instance, the operation and management of public utilities is exclusively for Philippine nationals, with at least 60% equity ownership required by Filipino citizens. 

Similar limitations apply to sectors like mass media, mandating 100% Filipino ownership.

Anti-Dummy Law

The Anti-Dummy Law (Commonwealth Act No. 108) in the Philippines penalizes individuals and businesses for breaking foreign equity rules. 

This law stops foreigners from using arrangements to get around nationality restrictions. If caught, violators could face 5-15 years in jail or hefty fines. 

Both non-citizens and Filipino citizens involved in these arrangements are equally responsible.

It’s important to note that the Anti-Dummy Law adapts as government policies on foreign involvement in the Philippine market change.

Foreign Investment Act of 1991

The Foreign Investment Act (FIA) of 1991 provides guidelines for foreign investor participation in Philippine enterprises. 

This includes the 12th Regular Foreign Investment Negative List (RFINL), which specifies sectors where foreign ownership is restricted or prohibited. It comprises List A and List B. 

List A restricts foreign ownership due to the Philippines Constitution or specific laws.

Here’s the breakdown of percentage foreign investors can own in the RFINL List A:

40% Ownership30% Ownership25% Ownership0% Ownership
– Procurement of infrastructure projects
– Exploration, development, and utilization of natural resources
– Ownership of private lands
– Operation of public utilities
– Educational institutions, other than those established by religious groups and mission boards, for diplomatic personnel and their dependents, and other foreign temporary residents
– Culture, production, milling, processing , trading except retailing of rice and corn
– Contracts for the supply materials of, goods, and commodities to government-owned and -controlled corporations, company, agency or municipal corporation
– Operation of deep sea commercial fishing vessels
– Ownership of condominium units
– Private radio telecommunications network
Advertising– Private recruitment, whether for local or overseas employment
– Contracts for the construction of defense-related structures
– Mass media, except recording and internet business
– Practice of professions
– Retail trade enterprises with paid-up capital of less than Php 25,000,000
– Cooperatives
– Organization or operation of private detectives, watchmen, or security guards agencies
– Small-scale mining
– Utilization of marine resources
– Organization, operation and management of cockpits
– Manufacture, repair, stockpiling and/or distribution of nuclear weapons

While List B limits foreign investment for security, defense, health, morals, and to safeguard local small-and-medium enterprises (SMEs). 

40% Ownership
– Manufacture, repair, storage, and/or distribution of products and/or ingredients requiring Philippine National Police clearance
– Manufacture and distribution of dangerous drugs
– Sauna and steam bathhouses, massage clinics and other like activities regulated by law, except wellness centers
– All forms of gambling
– Micro and small domestic enterprises with paid-in equity capital of less than the equivalent of US$200,000
– Small local businesses in the Philippines qualify as high-tech if endorsed by the Department of Science and Technology (DOST) or recognized as startups by certain government agencies. These agencies include the Department of Trade and Industry, the Department of Information and Communications Technology, and the DOST. Additionally, businesses must have a majority of Filipino employees, with at least 15 direct Filipino employees, and paid-in equity capital of less than US$100,000.

Some examples of industries in the RFINL include mass media (excluding recording and internet businesses), professions, retail trade enterprises with paid-up capital of less than Php 25,000,000.00, cooperatives, and more.

It’s important to review this list to understand which industries face limitations on foreign investment.

Financial or Technical Assistance Agreement

Foreign investors or foreign-owned corporations can engage with the Philippine government to explore, develop, and utilize natural resources through Financial or Technical Assistance Agreements.

Upon the start of operations, a 60% minimum Filipino ownership percentage is typically required.

Tips on How to Navigate Foreign Ownership Restrictions

It’s crucial to grasp the restrictions on foreign ownership when structuring a corporation in the Philippines. Failure to comply with these limitations can lead to significant penalties and legal complications for the corporation. 

Here are some helpful tips for navigating foreign ownership in the Philippines:

  1. Identify Open Sectors: Determine industries or sectors where 100% foreign ownership is permissible, such as export-oriented enterprises, business process outsourcing (BPO), and others, and review sectors with restrictions on foreign ownership, such as media, natural resources, public utilities, and more.
  2. Consult Experts on Regulations: Consult legal experts or business advisors specializing in foreign investment to ensure adherence to Philippine laws.
  3. Structure with Compliance: Consider alternative business structures, such as joint ventures or partnerships with Filipino entities, to comply with ownership requirements in restricted sectors mentioned in the table above and familiarize yourself with the specific regulations and requirements for your chosen industry to ensure regulatory compliance.
  4. Register with Government Agencies: To set up your business in the Philippines, reach out to government agencies like the Securities and Exchange Commission (SEC) and the Department of Trade and Industry (DTI) for guidance on registration processes, permits, and required documents. Depending on your chosen business structure and industry, you may need to go through the SEC for incorporation if it’s a corporation, or register with the DTI for sole proprietorship or partnership. They’ll help you navigate the necessary steps to get your business up and running smoothly.
  5. Stay Updated on Changes: Stay informed about any changes in foreign ownership regulations as they may evolve over time.

Final Thoughts

It’s important for investors targeting the Philippines to understand the foreign ownership restrictions shaping the country’s business environment. The continuous evolution of these regulations, influenced by economic policies, underlines the delicate balance between national interests and attracting foreign investment. 

Recent changes, such as the CREATE Act and amendments to the Foreign Investment Act, reflect the Philippines’ responsiveness to global investment trends. 

But, constitutional constraints, the Anti-Dummy Law, and industry-specific restrictions continue to govern foreign involvement in sectors such as public utilities and media. 

Navigating these limitations necessitates careful attention to specific sectors, compliance with the Foreign Investment Act, and potentially engaging in Financial or Technical Assistance Agreements. 

Seeking guidance from legal professionals, reviewing the Regular Foreign Investment Negative List, and staying informed about policy updates is essential for ensuring compliance and successful business endeavors in the Philippines.

Discover how Manila Bookkeepers can assist you with your specific legal needs related to foreign ownership in the Philippines. Gain access to our extensive experience and tailored advice to support your investments. Visit our website www.ManilaBookkeepers.com for more information. 

Manila Bookkeepers

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