Holding Companies and Land Ownership: Strict Rules for Foreign Equity in Philippine Real Estate

Introduction

Foreign participation in Philippine real estate is legally possible, but only within firm constitutional limits on land ownership. This matters most when investors use a holding company structure—for example, a Philippine corporation that owns shares of subsidiaries that own land, or a parent company whose business includes acquiring real property. The central compliance problem is that corporate layers can accidentally (or intentionally) hide foreign control; regulators and courts look past form to enforce the 60% Filipino ownership requirement for landholding companies.

This article explains the rules that govern land ownership by corporations, the corporate structuring issues that commonly arise in holding company arrangements, and the compliance steps used to reduce the risk that a land acquisition is later questioned.

Governing legal rules on land ownership by corporations

The starting point is the Constitution’s rule that only Philippine nationals may acquire or hold private land, generally meaning corporations with at least 60% Filipino ownership. The Supreme Court reiterated that international agreements do not override this limit where reservations expressly preserve Article XII restrictions, including that only corporations with a maximum of 40% foreign equity can own private land. This was discussed in Initiatives for Dialogue and Empowerment Through Alternative Legal Services, Inc., et al. v. Senate of the Philippines, et al., G.R. No. 184635 & 185366, September 19, 2023.

For transactions involving U.S. citizens divesting land, Letter of Instruction No. 307 (1975) reflects the State policy of strict enforcement against schemes that create indirect alien control (e.g., pyramiding, trust arrangements, stock classification). While historically specific, it remains instructive on the types of arrangements regulators consider suspect.

What is a “real estate holding company” in practice?

In deal practice, a “real estate holding company” often refers to a corporation that: (1) directly owns land; or (2) owns shares in a subsidiary that owns land; or (3) was formed to acquire land and later develop or lease it through operating entities.

Legally, the decisive question is not the label “holding company,” but whether the corporation (or any landholding subsidiary) is a Philippine national for purposes of owning land, and whether the structure is being used to bypass the 60-40 rule.

Foreign equity limits: the 60-40 rule and why structure matters

A corporation that will acquire or hold Philippine land must generally have at least 60% of its capital owned by Filipinos. If foreign equity exceeds 40%, the corporation becomes disqualified from land ownership.

Regulators focus on whether the landholding entity is Filipino-controlled in substance, not only on paper. The SEC’s opinions consistently treat land ownership as a sensitive activity requiring strict compliance even when land is only one part of the corporate purpose, or when the land is held through corporate groups.

Control test and when “look-through” ownership is examined

In determining whether a corporation is a Philippine national for landholding purposes, SEC guidance uses the control test where Filipino ownership is clear and undisputed, and applies a look-through (grandfather) approach in specific situations where compliance is doubtful due to corporate layering.

SEC-OGC Opinion No. 10-23 (2010) and Opinion No. 09-09 (2009) discuss the use of the control test when there is no doubt that at least 60% Filipino ownership exists, making further tracing unnecessary.

However, SEC-OGC Opinion No. 07-22 (2007) explains that a look-through approach is applied where a corporate shareholder in the landholding company is itself not at least 60% Filipino-owned, requiring computation of actual Filipino equity through the ownership chain to prevent circumvention.

Holding companies vs. landholding subsidiaries: what is allowed and what is risky

A foreign investor may hold shares in a Philippine corporation that owns land, but only up to the foreign equity ceiling. The more complex the holding structure, the higher the risk of a later finding that the landholding entity is not validly Filipino.

Common compliant structures

Below are typical patterns used in Philippine real estate deals, subject to careful validation of facts and documents.

Structure	How it works	Primary compliance point
Single landholding corporation	One Philippine corporation acquires and holds title to land.	Foreign ownership must not exceed 40%; governance and beneficial ownership must not create foreign control.
HoldCo + PropCo (landholding subsidiary)	HoldCo owns shares of PropCo; PropCo holds the land and conducts real estate activities.	PropCo must independently meet the 60-40 rule. Ownership tracing may be required depending on shareholder composition.
Foreign-owned operating company + Filipino landowner entity	Operating company (possibly majority foreign-owned) leases land from a compliant Filipino landholding company.	Keep land title in the compliant entity; avoid lease terms that resemble disguised conveyances.

Arrangements commonly flagged as circumvention risks

Regulatory guidance warns against devices that result in foreign control despite nominal Filipino ownership. LOI No. 307 (1975) explicitly disallows schemes such as pyramiding, trust arrangements, stock classification devices, and other methods to establish alien control in a landholding entity.

In litigation, structures that confer “effective control” or beneficial ownership inconsistent with the 60-40 rule can expose the transaction to challenges, title complications, and financing delays.

Do foreigners violate the law by buying shares in a landholding corporation?

Foreigners are not automatically barred from purchasing shares in a corporation that owns land, provided the corporation remains qualified to own land. In Summit Holdings, Inc. v. Court of Appeals, et al., G.R. No. 124293, June 24, 2005, the Supreme Court emphasized that what is prohibited is the corporation’s ownership of land when disqualified, not the mere purchase of shares as such. The case also recognized that contractual rights like a right of first refusal over shares may be valid, but the exercise of such rights must not produce a prohibited outcome such as a disqualified entity ending up owning land.

Role of corporate purpose: why “primary purpose includes land ownership” matters

SEC opinions stress that where a corporation’s primary purpose includes ownership of real property, it must comply with the foreign equity ceiling applicable to landholding corporations. SEC-OGC Opinion No. 12-03 (2012) and Opinion No. 14-32 (2014) both discuss how land ownership restrictions can apply to the entity whose purposes include owning real property, even if it sits above an operating company or an institution with separate regulatory limits, and even if the corporate group asserts separate juridical personality.

SEC-OGC Opinion No. 12-11 (2012) similarly reiterates that corporations with more than 40% foreign equity are prohibited from acquiring or owning land, though they may own buildings or other property not constituting land, subject to other applicable rules.

Procedure and compliance steps when forming a real estate holding company

Below is a typical compliance sequence used in structuring a Philippine real estate holding arrangement.

• Step 1: Identify the landholding entity. Decide which corporation will hold title (PropCo), and ensure it can be kept within the 60-40 ownership rule over time.
• Step 2: Map beneficial ownership and corporate layers. Prepare an ownership chart from ultimate owners down to HoldCo and PropCo; assess whether look-through ownership computation may be needed (SEC-OGC Opinion No. 07-22, 2007).
• Step 3: Draft constitutional documents consistent with ownership limits. Align articles of incorporation, primary purposes, and share structures with the intended landholding and development activities, and avoid provisions that effectively confer foreign control.
• Step 4: Validate share classes and voting rights. Avoid arrangements where foreigners, despite minority equity, obtain control through voting mechanisms, veto rights, or management arrangements that undermine the Filipino control requirement.
• Step 5: Build monitoring and “breach” response mechanisms. Include transfer restrictions, nationality representations, periodic compliance certifications, and remedies if foreign ownership threatens to exceed the allowed ceiling.
• Step 6: Transactional due diligence and closing controls. For acquisitions, ensure the buyer’s post-closing ownership remains compliant; for financings, anticipate lender due diligence on nationality compliance.

Typical scenarios and how they are handled

Scenario 1: Foreign investor wants to “indirectly own” Philippine land through a holding company

Foreign equity can be accommodated by keeping the landholding company (PropCo) within the constitutional limit. The holding company can exist, but the landholding entity must remain a Philippine national. If corporate shareholders are involved and Filipino ownership is not clearly compliant at each layer, look-through computation may be required (SEC-OGC Opinion No. 07-22, 2007).

Scenario 2: A foreign-owned company wants to acquire land for operations

Direct acquisition is not permitted if the acquiring corporation exceeds the foreign equity ceiling. A common alternative is to use a qualified Filipino landholding entity to own the land, with the operating company entering into lease or project arrangements, taking care that the structure is not a disguised transfer prohibited by policy reflected in LOI No. 307 (1975).

Scenario 3: Foreign investors buy shares and later the landholding company becomes non-compliant

SEC guidance recognizes that losing Philippine nationality can affect the right to own land. This risk commonly arises when share transfers, capital increases, or conversions change the foreign-to-Filipino ratio (SEC Opinion No. 09-09, 2009). Internal monitoring and transfer restrictions are commonly used to prevent inadvertent breaches.

Compliance reminders for investors, founders, and counsel

Compliance area	What to check
Ownership threshold	Landholding corporation must remain at least 60% Filipino-owned; foreign equity must not exceed 40%.
Corporate layering	Assess whether the ownership chain requires look-through computation (SEC-OGC Opinion No. 07-22, 2007).
Control features	Avoid arrangements that effectively hand control to foreigners despite minority equity; regulators scrutinize circumvention devices (LOI No. 307, 1975).
Corporate purposes	If the corporation’s purposes include owning real property, it must comply with landholding foreign equity limits (SEC-OGC Opinion No. 12-03, 2012; Opinion No. 14-32, 2014).
Share transactions	Share purchase rights can be valid, but must not result in a disqualified entity owning land (Summit Holdings, Inc. v. Court of Appeals, et al., G.R. No. 124293, June 24, 2005).

Final observations

Foreign investors can participate in Philippine real estate through corporations, but compliance depends on keeping the landholding entity within the Constitution’s Filipino ownership requirement and avoiding arrangements that amount to indirect foreign control. Holding company structures add flexibility for financing and development, yet they increase the need for ownership tracing, documentary discipline, and ongoing monitoring of equity and control.

For transactions involving land, investors and counsel should treat nationality compliance as a continuing obligation, not a one-time closing item, because changes in ownership, governance rights, or group structure can create landholding disqualification long after acquisition.

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