investment

Bringing in Foreign Investors in Retail Trade (as amended by RA 11595)

(amended as of 21 January 2022)

Foreign investors who wish to engage in retail trade in the Philippines should have a minimum paid-up capital of Twenty-Five Million Pesos (P25,000,000).

You have a business idea in mind; a great concept which you think will be very profitable. You have the over-all know-how to accomplish the business, and the will to succeed. You need capital and have been thinking of bringing in foreign investors to the scene. This is a common-place scenario in business nowadays.

The law defines a retail business as any act, occupation or calling of habitually selling direct to the general public merchandise, commodities or goods for consumption. Before the enactment of the Retail Trade Liberalization Law however, foreigners were not allowed to engage in any form of retail trade or business. In fact, the Retail Trade Nationalization Law has a penal provision which punishes foreigners engaging in any retail business by not less than three years imprisonment and a fine.

The enactment of Republic Act No. 8762, otherwise known as the Retail Trade Liberalization Law has drastically changed the climate for foreign investment in the Philippines. The law now allows foreign investors to participate in a once purely Filipino industry, albeit with certain limitations. More importantly, RA 8762 has been amended by Republic Act No. 11595, which was signed into law by the President last 10 December 2021), further lowering the required paid-up capital for foreign retail enterprises.

The limitations are rather stringent. Enterprises with paid-up capital of less than Twenty-Five Million Pesos (P25,000,000.00 or roughly US$500,000.00) shall be reserved exclusively for Filipino citizens and corporations wholly owned by Filipino citizens. Businesses with more than the said capital may now be partly or even wholly owned by foreigners.

In addition to the minimum paid-up capital of P25 Million, the foreign retailer’s country of origin should not prohibit the entry of Filipino retainers. In the case of foreign retailers engaged in retail trade through more than one (1) physical store, the minimum investment per store must be at least Ten Million Pesos (P10,000,000.00 or roughly $200,000.00)

While the limitation is rather restrictive, there is actually a purpose behind the law. The law seeks to preserve retail businesses to Filipinos to encourage their entrepreneurial spirit. Knowing that within the investment below P25 Million there would be no entry of foreign capital, Filipino businesses would be encouraged to enter into all sorts of retail businesses. Furthermore, the law encourages foreign retailers to have a stock inventory of products which are made in the Philippines.

Violation of this law is punishable by imprisonment of not less than four (4) years to six (6) years and a fine of not less than One Million Pesos but not more than Five Million Pesos.

However, for entrepreneurs who need foreign capital but not to such an extent as P25 Million to do business, the Retail Trade Liberalization is not without exception.

Sales by a manufacturer of products manufactured by him, when his capital does not exceed One hundred thousand pesos (P100,000.00), is not considered retail trade. The same is true with a farmer selling the products of his farm. Sales in restaurant operations by a hotel owner or inn-keeper, irrespective of the amount of capital, where the restaurant is incidental to the hotel business, is also exempt. Finally, sales which are limited only to products manufactured, processed or assembled by a manufacturer through a single outlet, irrespective of capitalization, are likewise outside the coverage of the Retail Trade Liberalization Law.

Where a business would fall under the four (4) exceptions, foreign equity is welcomed by the law. The wording of the last exception “sales which are limited only to products manufactured, processed or assembled by a manufacturer through a single outlet, irrespective of capitalization” in fact allows for a very broad interpretation, which can cover variably any form of business.

Therefore, if after a practical analysis, you are convinced that your business reasonably falls under the last exception, you can safely assume that you are not covered by the law and thus can invite foreigners to participate your venture.

About Nicolas and De Vega Law Offices

If you  have issues in corporate law, commercial law, corporate or commercial litigation, or civil or other criminal law-related issues,  we can help you. Nicolas and 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 84706126, +632 84706130, +632 84016392 or e-mail us at info@ndvlaw.com. Visit our website https://ndvlaw.com.

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