30th Mar 2015

Business meeting

Foreign investments are encouraged by the Philippine government to fuel economic growth.  Based on data culled from the National Statistical Coordination Board (“NSCB”), the total approved foreign investments in the Philippines for the year 2014 amounted to P186.9 Billion Pesos (or roughly US$4 Billion Dollars). According to the NSCB, in 2014, Japan is the largest foreign investor in the Philippines while the Netherlands and the U.S.A placed second and third respectively. Furthermore, more than half of foreign investments in the year 2014 were intended for the manufacturing industry in the Philippines.

However, despite the contribution of foreign investments to the Philippine economy, the same is regulated and not absolute.  There are certain professions and industries that disallow foreign equity or limit foreign participation.  These restrictions are found in the Philippine Constitution and various laws.  Such limitations are encapsulated in Foreign Negative Lists.  The most recent Foreign Negative List was enacted in 2012 through Executive Order No. 98 (“EO 98”) which promulgated the Ninth Regular Foreign Investment Negative List.

Based on EO 98, the limitation on foreign equity are as follows:

I.  NO FOREIGN EQUITY

1. Mass Media except recording (Art. XVI, Sec.11 of the Constitution; Presidential Memorandum dated 04 May 1994)

2. Practice of all professions (Art. XII, Sec.14 of the Constitution, Sec. 1 of R.A. 5181)

a) Engineering

i. Aeronautical engineering (P.D. 1570)
ii. Agricultural engineering (R.A. 8559)
iii. Chemical engineering (R.A. 9297)
iv. Civil engineering (R.A. 1582)
v. Electrical engineering (R.A. 7920)
vi. Electronics and Communication engineering (R.A. 9292)
vii. Geodetic engineering (R.A. 8560)
viii. Mechanical engineering (R.A. 8495)
ix. Metallurgical engineering (P.D. 1536)
x. Mining engineering (R.A. 4274)
xi. Naval Architecture and Marine engineering (R.A. 4565)
xii. Sanitary engineering (R.A. 1364)

b) Medicine and Allied Professions

i. Medicine (R.A. 2382 as amended by R.A. 4224)
ii. Medical Technology (R.A. 5527 as amended by R.A. 6318, P.D. 6138, P.D. 498 and P.D. 1534)
iii. Dentistry (R.A. 9484)
iv. Midwifery (R.A. 7392)
v. Nursing (R.A. 9173)
vi. Nutrition and Dietetics (P.D. 1286)
vii. Optometry (R.A. 8050)
viii. Pharmacy (R.A. 5921)
ix. Physical and Occupational Therapy (R.A. 5680)
x. Radiologic and X-ray Technology (R.A. 7431)
xi. Veterinary Medicine (R.A. 9268)

c) Accountancy (R.A. 9298)
d) Architecture (R.A. 9266)
e) Criminology (R.A. 6506)
f) Chemistry (R.A. 754)
g) Customs Brokerage (R.A. 9280)
h) Environmental Planning (P.D. 1308)
i) Forestry (R.A. 6239)
j) Geology (R.A. 4209)
k) Interior Design (R.A. 8534)
l) Landscape Architecture (R.A. 9053)
m) Law (Art. VIII, Sec. 5 of the Constitution; Rule 138, Sec. 2 of the Rules of Court of the Philippines)
n) Librarianship (R.A. 9246)
o) Marine Deck Officers (R.A. 8544)
p) Marine Engine Officers (R.A. 8544)
q) Master Plumbing (R.A. 1378)
r) Sugar Technology (R.A. 5197)
s) Social Work (R.A. 4373)
t) Teaching (R.A. 7836)
u) Agriculture (R.A. 8435)
v) Fisheries (R.A. 8550)
w) Guidance counseling (R.A. 9258)
x) Real estate service (R.A. 9646)
y) Respiratory therapy (R.A. 10024)
z) Psychology (R.A. 10029)

3. Retail trade enterprises with paid-up capital of less than US$2,500,000 (Sec. 5 of R.A. 8762) [Full foreign participation is allowed for retail trade enterprises: (a) with paid-up capital of US$2,500,000 or more provided that investments for establishing a store is not less than US$830,000; or (b) specializing in high end or luxury products, provided that the paid-up capital per store is not less than US$250,000 (Sec. 5 of R.A. 8762)]

4. Cooperatives (Ch. III, Art. 26 of R.A. 6938)
5. Private Security Agencies (Sec. 4 of R.A. 5487)
6. Small-scale Mining (Sec. 3 of R.A. 7076)
7. Utilization of Marine Resources in archipelagic waters, territorial sea, and exclusive economic zone as well as small scale utilization of natural resources in rivers, lakes, bays, and lagoons (Art. XII, Sec. 2 of the Constitution)
8. Ownership, operation and management of cockpits (Sec. 5 of P.D. 449)
9. Manufacture, repair, stockpiling and/or distribution of nuclear weapons (Art. II, Sec. 8 of the Constitution) [Domestic investments are also prohibited (Art. II, Sec. 8 of the Constitution; Conventions/Treaties to which the Philippines is a signatory)]
10. Manufacture, repair, stockpiling and/or distribution of biological, chemical and radiological weapons and anti-personnel mines (Various treaties to which the Philippines is a signatory and conventions supported by the Philippines)
11. Manufacture of firecrackers and other pyrotechnic devices (Sec. 5 of R.A. 7183)

II.        UP TO TWENTY PERCENT (20%) FOREIGN EQUITY ALLOWED

12. Private radio communications network (R.A. 3846)

III.       UP TO TWENTY-FIVE PERCENT (25%) FOREIGN EQUITY ALLOWED

13. Private recruitment, whether for local or overseas employment (Art. 27 of P.D. 442)

14. Contracts for the construction and repair of locally-funded public works (Sec. 1 of CA 541, LOI 630) except:

a) Infrastructure/development projects covered in R.A. 7718; and
b) Projects which are foreign funded or assisted and required to undergo international competitive bidding (Sec. 2a of R.A. 7718)

15. Contracts for the construction of defense related structures (Sec. 1 of CA 541)

 IV.       UP TO THIRTY PERCENT (30%) FOREIGN EQUITY ALLOWED

16. Advertising (Art. XVI, Sec. 11 of the Constitution)

V.        UP TO FORTY PERCENT (40%) FOREIGN EQUITY ALLOWED

17. Exploration, development and utilization of natural resources (Art. XII, Sec. 2 of the Constitution) [Full foreign participation is allowed through financial or technical assistance agreement with the President (Art. XII, Sec. 2 of the Constitution)]

18. Ownership of private lands (Art. XII, Sec. 7 of the Constitution; Ch. 5, Sec. 22 of CA 141; Sec. 4 of RA 9182)
19. Operation and management of public utilities (Art. XII, Sec. 11 of the Constitution; Sec. 16 of CA 146)
20. Ownership/establishment and administration of educational institutions (Art. XIV, Sec. 4 of the Constitution)
21. Culture, production, milling, processing, trading excepting retailing, of rice and corn and acquiring, by barter, purchase or otherwise, rice and corn and the by-products thereof (Sec. 5 of P.D. 194) [Full foreign participation is allowed provided that within the 30-year period from start of operation, the foreign investor shall divest a minimum of 60 percent of their equity to Filipino citizens (Sec. 5 of P.D. 194; NFA Council Resolution No. 193 s. 1998)]
22. Contracts for the supply of materials, goods and commodities to government-owned or controlled corporation, company, agency or municipal corporation (Sec. 1 of R.A. 5183)
23. Project Proponent and Facility Operator of a BOT project requiring a public utilities franchise (Art. XII, Sec. 11 of the Constitution; Sec. 2a of R.A. 7718)
24. Operation of deep sea commercial fishing vessels (Sec. 27 of R.A. 8550)
25. Adjustment Companies (Sec. 323 of PD 612 as amended by P.D. 1814)
26. Ownership of condominium units where the common areas in the condominium project are co-owned by the owners of the separate units or owned by a corporation (Sec. 5 of R.A. 4726)

 FOREIGN OWNERSHIP IS LIMITED FOR REASONS OF SECURITY, DEFENSE, RISK TO HEALTH AND MORALS AND PROTECTION OF SMALL- AND MEDIUM SCALE ENTERPRISES

27. Manufacture, repair, storage, and/or distribution of products and/or ingredients requiring Philippine National Police (PNP) clearance:

a) Firearms (handguns to shotguns), parts of firearms and ammunition therefor, instruments or implements used or intended to be used in the manufacture of firearms
b) Gunpowder
c) Dynamite
d) Blasting supplies
e) Ingredients used in making explosives:

i. Chlorates of potassium and sodium
ii. Nitrates of ammonium, potassium, sodium, barium, copper (11), lead
(11), calcium and cuprite
iii. Nitric acid
iv. Nitrocellulose
v. Perchlorates of ammonium, potassium and sodium
vi. Dinitrocellulose
vii. Glycerol
viii. Amorphous phosphorus
ix. Hydrogen peroxide
x. Strontium nitrate powder
xi. Toluene

f) Telescopic sights, sniper scope and other similar devices

However, the manufacture or repair of these items may be authorized by the Chief of the PNP to non-Philippine nationals; Provided that a substantial percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership allowed shall be specified in the said authority/clearance (R.A. 7042 as amended by R.A. 8179)

28. Manufacture, repair, storage and/or distribution of products requiring Department of National Defense (DND) clearance:

a) Guns and ammunition for warfare

b) Military ordnance and parts thereof (e.g., torpedoes, depth charges, bombs, grenades, missiles)
c) Gunnery, bombing and fire control systems and components
d) Guided missiles/missile systems and components
e) Tactical aircraft (fixed and rotary-winged), parts and components thereof
f) Space vehicles and component systems
g) Combat vessels (air, land and naval) and auxiliaries
h) Weapons repair and maintenance equipment
i) Military communications equipment
j) Night vision equipment
k) Stimulated coherent radiation devices, components and accessories
l) Armament training devices
m) Other as may be determined by the Secretary of the DND

However, the manufacture or repair of these items may be authorized by the Secretary of the DND to non-Philippine nationals; Provided that a substantial percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership allowed shall be specified in the said authority/clearance (R.A. 7042 as amended by R.A. 8179)

29. Manufacture and distribution of dangerous drugs (R.A. 7042 as amended by R.A. 8719)

30. Sauna and steam bathhouses, massage clinics and other like activities regulated by law because of risks posed to public health and morals (R.A. 7042 as amended by R.A. 8179)

31. All forms of gambling (R.A. 7042 as amended by R.A. 8179), except those covered by investment agreements with PAGCOR (R.A. 9487) operating within special economic zones administered by the Philippine Economic Zone Authority (R.A. 7916)

32. Domestic market enterprises with paid-in equity capital of less than the equivalent of US$200,000 (R.A.  7042 as amended by R.A. 8179)

33. Domestic market enterprises which involve advanced technology or employ at least fifty (50) direct employees with paid-in equity capital of less than the equivalent of US$100,000 (R.A. 7042 as amended by R.A. 8179)

VI.       UP TO FORTY-NINE PERCENT (49%) FOREIGN EQUITY ALLOWED

34. Lending Companies (SEC.6 of R.A. 9474) [No foreign national may be allowed to own stock in lending companies unless the country of which he is a national accords the same reciprocal rights to Filipinos (Sec. 6 of RA 9474; Sec. 6 of R.A. 5980 as amended by R.A. 8556; P.D. 129 as amended by R.A. 8366)]

 VII.     UP TO SIXTY PERCENT (60%) FOREIGN EQUITY ALLOWED

35. Financing companies regulated by the Securities and Exchange Commission (SEC) (Sec. 6 of R.A. 5980 as amended by R.A. 8556) [No foreign national may be allowed to own stock in financing companies unless the country of which he is a national accords the same reciprocal rights to Filipinos (Sec. 6 of RA 9474; Sec. 6 of R.A. 5980 as amended by R.A. 8556; P.D. 129 as amended by R.A. 8366)]

36. Investment houses regulated by the SEC (Sec. 5 of P.D. 129 as amended by R.A. 8366) (Sec. 6 of R.A. 5980 as amended by R.A. 8556) [No foreign national may be allowed to own stock in investment houses unless the country of which he is a national accords the same reciprocal rights to Filipinos (Sec. 6 of RA 9474; Sec. 6 of R.A. 5980 as amended by R.A. 8556; P.D. 129 as amended by R.A. 8366)]

If a business or industry is not included in the list above, then 100% foreign equity is allowed.  The minimum paid-up capital for a Foreign-owned Domestic Corporation is Two Hundred Thousand United States Dollars (US$200,000.00).  However, if it is an export market enterprise, the minimum paid-up capital is only Five Thousand Pesos (P5,000.00) [roughly US$113.00].  An export market enterprise is an enterprise wherein a manufacturer, processor or service enterprise exports sixty percent (60%) or more of its output, or wherein a trader purchases products domestically and exports sixty per cent (60%) or more of such purchases.

It is always best to consult a corporate lawyer who can give proper advice on foreign equity restrictions and corporate vehicle structures.

Nicolas & De Vega Law Offices is a full service law firm in the Philippines. You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines. You may also call us at +632 4706126, +632 4706130, +632 4016392, or email us at info@ndvlaw.com.

Related Posts:

Leave a Reply

  • fb
  • twitter
  • twitter