Foreign Ownership Rules under Philippine Laws

The Philippines has a nuanced and dynamic legal framework governing foreign ownership of businesses. While the country generally encourages foreign investment as a driver of economic growth, it also reserves certain sectors for Filipino nationals to protect national interests. This balancing act is reflected in a web of laws, regulations, and court decisions that can be complex for foreign investors to navigate. This explainer provides a comprehensive overview of the key rules and regulations to help foreign investors understand the landscape of foreign ownership in the Philippines.

Governing Laws: A Patchwork of Legislation

Foreign investments in the Philippines are primarily governed by the Foreign Investments Act of 1991 (Republic Act No. 7042), which has been amended by Republic Act No. 8179 and, most recently, by Republic Act No. 11647. These laws should be understood in the context of the 1987 Philippine Constitution, which sets the fundamental limitations on foreign ownership, and the Revised Corporation Code, which governs the formation and operation of corporations in the country.

The 60-40 Rule and the Foreign Investment Negative List

A cornerstone of Philippine foreign ownership restrictions is the “60-40 rule,” which mandates that at least 60% of the capital of corporations engaged in certain activities must be owned by Filipino citizens. This rule is enshrined in the Constitution and applies to sectors such as land ownership, mass media, and public utilities. However, there are certain industries such as mass media, practice of certain professions.

To operationalize these restrictions, the Foreign Investments Act establishes the Foreign Investment Negative List (FINL), which is a list of economic activities where foreign ownership is limited. The FINL is divided into two lists:

• List A: This list includes areas of investment where foreign ownership is limited by the Constitution and specific laws, regardless of the nature of the business activity.
• List B: This list includes areas of investment where foreign ownership is limited for reasons of national security, defense, public health, and morals.

The FINL is periodically reviewed and updated to reflect the country’s changing economic needs and priorities.

Key Amendments under RA 11647

The most recent amendment to the Foreign Investments Act, RA 11647, introduced several significant changes aimed at making the Philippines a more attractive destination for foreign investment. These include:

• Creation of the Inter-Agency Investment Promotion Coordination Committee (IIPCC): This committee is tasked with streamlining the registration process for foreign investors and coordinating the efforts of various government agencies to promote foreign investment.
• Reduced Capital Requirements: The law reduces the minimum paid-up capital for certain foreign-owned enterprises, particularly those that involve advanced technology or employ a significant number of Filipino workers.
• Foreign Investment Promotion and Marketing Plan: The Department of Trade and Industry (DTI) is now mandated to create a comprehensive plan to promote the Philippines as a prime investment destination.

Supreme Court Decisions: Shaping the Landscape

The Supreme Court has played a crucial role in interpreting and applying foreign ownership laws. Two recent landmark cases are particularly noteworthy:

• Gamboa v. Teves (G.R. No. 176579, June 28, 2011): In this case, the Supreme Court clarified the meaning of “capital” in the context of the 60-40 rule. The Court held that “capital” refers only to shares of stock entitled to vote in the election of directors, and not to the total outstanding capital stock. This decision has significant implications for how foreign ownership is calculated in corporations with different classes of shares.
• Klaus Peter Neunzig v. Hon. Court of Appeals and Rossana Balcom-Doring (G.R. No. 260983, February 10, 2025): This case reaffirmed the constitutional prohibition on foreign ownership of land. The Court ruled that even private agreements designed to circumvent this prohibition are void and that parties who enter into such agreements cannot seek legal relief from the courts. This decision serves as a stark reminder of the strict enforcement of land ownership laws in the Philippines.
• 4E Steel Builders Corporation v. Maybank Philippines, Inc (G.R. No. 230013, March 13, 2023): The Supreme Court clarified the rights of foreign banks in foreclosure proceedings. While foreign banks are generally prohibited from owning land in the Philippines, RA 10641 allows them to possess foreclosed properties for up to five years, during which time they must transfer the property to a qualified Filipino.

SEC Memorandum Circulars: Providing Detailed Guidance

The Securities and Exchange Commission (SEC) has issued several memorandum circulars to provide more detailed guidance on the implementation of foreign ownership laws. These circulars cover a range of topics, including:

• SEC Memorandum Circular No. 08-13: This circular provides guidelines for corporations on how to comply with Filipino-foreign ownership requirements. It includes provisions on the inclusion of ownership restrictions in the articles of incorporation, the application of the 60-40 rule to both voting and non-voting shares, and the monitoring of compliance by corporate secretaries.
• SEC Memorandum Circular No. 30, Series of 2020: This circular requires all SEC-registered foreign corporations to disclose their beneficial owners in their General Information Sheet (GIS). This is in line with the government’s efforts to promote transparency and combat money laundering and terrorist financing.

Practical Implications for Foreign Investors

Foreign investors looking to do business in the Philippines should carefully consider the following:

• Business Structure: The choice of business structure is crucial. In many cases, forming a joint venture with a Filipino partner is the most viable option for complying with foreign ownership restrictions.
• Due Diligence: It is essential to conduct thorough due diligence to ensure that the proposed business activity is not subject to foreign ownership restrictions. This includes checking the latest version of the FINL and seeking legal advice on the interpretation of relevant laws and regulations.
• Compliance with Reporting Requirements: Foreign-owned corporations are subject to various reporting requirements, including the disclosure of beneficial ownership information. It is important to comply with these requirements to avoid penalties and sanctions.
• Land Ownership: Foreigners cannot own land in the Philippines. However, they can lease land for a long term (aggregate period of lease not to exceed 99 years under RA 12252) or own condominium units, provided that the foreign ownership of the condominium building does not exceed 40%.

The legal framework for foreign ownership in the Philippines is complex and constantly evolving. While the country has taken significant steps to liberalize its economy and attract foreign investment, it also maintains a strong commitment to protecting its national interests. By understanding the key laws, regulations, and court decisions, foreign investors can navigate this complex landscape and make informed decisions about their investments in the Philippines. It is always advisable to seek the assistance of a qualified legal professional to ensure full compliance with all applicable laws and regulations.

09 February 2026

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