PHILIPPINES Law and Practice Contributed by: Francis L. Fragante and Jennifer Marie G. Castro, Cruz Marcelo & Tenefrancia
Domestic market enterprises can be 100% foreign owned if the following conditions are met: • they do not engage in any activity listed on the Negative List; • the foreign investor’s home country allows Philip - pine nationals to do business there, as required by law; and • they have a minimum paid-in equity capital of at least USD200,000 (unless a lower paid-in capital of USD100,000 is acceptable, as discussed below). If a domestic market enterprise does not meet the minimum paid-in capital requirement, foreign owner - ship is limited to 40%. Foreign investments in export enterprises are permitted up to 100% equity participa - tion, provided the enterprise does not engage in any activity listed on the Negative List. 2. Recent Developments and Market Trends 2.1 Current Economic, Political and Business Climate In recent years, the Philippines has liberalised nation - ality restrictions, allowing up to 100% foreign equity in most domestic enterprises, except where restricted by the 1987 Constitution or the Foreign Investment Negative List. Amendment to the FIA Under Republic Act No 11647, which amended the FIA, the list of enterprises reserved to Philippine nationals was amended. Except as otherwise pro - vided under Republic Act No 8762, otherwise known as the Retail Trade Liberalization Act of 2000 (RTLA), and other relevant laws, micro and small domestic market enterprises with paid-in equity capital less than the equivalent of USD200,000 are reserved to Philippine nationals. However, Republic Act No 11647 provides that in the following instances, a minimum paid-in capital of USD100,000 shall be allowed to non-Philippine nationals: • they involve advanced technology as determined by the Department of Science and Technology;
• they are endorsed as start-ups or start-up enablers by the lead host agencies pursuant to Republic Act No 11337, otherwise known as the Innovative Startup Act; or • a majority of their direct employees are Filipinos, but in no case shall the number of Filipino employ - ees be less than 15. Registered foreign enterprises employing foreign nationals and enjoying fiscal incentives shall imple - ment an understudy or skills development programme to ensure the transfer of technology or skills to Filipi - nos. Amendment to the RTLA Republic Act No 11595 amended the RTLA by low - ering the required paid-up capital for foreign retail businesses. Previously, there was a high minimum paid-up capital requirement of USD2.5 million for for - eign retailers and restrictive prequalification require - ments. Under Republic Act No 11595, the minimum paid-up capital for foreign retailers was reduced from USD2.5 million to PHP25 million or approximately USD425,000. For foreign retailers engaged in retail trade through more than one physical store, the mini - mum investment per store must be at least PHP10 million. Republic Act No 11595 also removed the pre-qualifi - cation requirement for the Board of Investments (BOI). However, foreign retailers are required to maintain the required minimum paid up capital. Amendment to the Public Service Act Republic Act No 11659 amended Commonwealth Act No 146 and permits 100% foreign ownership of public services in the Philippines that are not categorised as public utilities. Under Section 4 of Republic Act No 11659, “public utility” refers to a public service that operates, man - ages or controls for public use any of the following: • distribution of electricity; • transmission of electricity; • petroleum and petroleum products pipeline trans - mission systems;
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