This article discusses the changes introduced by Republic Act 11595 to Republic Act 8762 also known as the Retail Trade Liberalization Act of 2000.
Republic Act 8762: A Local Retail Trade Protectionist Regime
Republic Act 11595 amends Republic Act 8762 also known as the Retail Trade Liberalization Act of 2000. Passed on 07 March 2000, the Retail Trade Liberalization act sought to stimulate economic growth by allowing foreigners to engage in retail trade enterprises in the Philippines, and at the same time protect a segment of the Philippine market by defining minimum capital restrictions for foreigners seeking to invest in the Philippines in the retail trade industry. The Retail Trade Liberalization Act sought to encourage foreign investment in Philippine retail trade by allowing for 100% foreign ownership of single-unit outlets.
However, it did so by mandating that these single-unit outlets had to meet a certain paid-up capital requirement – initially set at US$2.5 million and increased to US$7.5 million in 2003. With Republic Act 11595, this requirement has been lowered further still down to just US$200 thousand – an 80% decrease from its 2003 value.
Under the original law, enterprises with paid-up capital of the equivalent in Philippine Pesos of less than Two Million Five Hundred Thousand US dollars (US$2,500,000.00) shall be reserved exclusively for Filipino citizens and corporations wholly owned by Filipino citizens. Wholly-owned foreign retail trade enterprises are allowed to setup and do business in the Philippines, provided the comply with steep capitalization requirements, as follows:
Category B — Enterprises with a minimum paid-up capital of the equivalent in Philippine Pesos of Two million five hundred thousand US dollars (US$2,500,000.00) but less than Seven million five hundred thousand US dollars (US$7,500,000.00) may be wholly owned by foreigners except for the first two (2) years after the effectivity of this Act wherein foreign participation shall be limited to not more than sixty percent (60%) of total equity.
Category C — Enterprises with a paid-up capital of the equivalent in Philippine Pesos of Seven million five hundred thousand US dollars (US$7,500,000.00) or more may be wholly owned by foreigners: Provided, however, That in no case shall the investments for establishing a store in Categories B and C be less than the equivalent in Philippine Pesos of Eight hundred thirty thousand US dollars (US$830,000.00).
Category D — Enterprises specializing in high-end or luxury products with a paid-up capital of the equivalent in Philippine Pesos of Two hundred fifty thousand US dollars (US$250,000.00) per store may be wholly owned by foreigners.
Further to these paid-up capitalization requirements in the Philippines, the original law also listed under Section 8 certain capitalization requirements for the foreign parent corporation themselves. As originally required, only foreign retailers who meet the following requirements would be allowed to engage in retail trade in the Philippines:
- A minimum of Two hundred million US dollars (US$200,000,000.00) net worth in its parent corporation for Categories B and C, and Fifty million US dollars (US$50,000,000.00) net worth in its parent corporation for Category D;
- Five (5) retailing branches or franchises in operation anywhere around the world unless such retailer has at least one (1) store capitalized at a minimum of Twenty-five million US dollars (US$25,000,000.00);
- Five (5)-year track record in retailing; and
- Only nationals from, or juridical entities formed or incorporated in countries which allow the entry of Filipino retailers shall be allowed to engage in retail trade in the Philippines.
The capitalization requirements for foreign retail enterprises are clearly restrictive, if not prohibitive. The goal then was to impose these limitations so that a segment of the retail industry would remain Filipino in ownership, assisting small local manufacturers, retail enterprises and small Filipino stores.
RA 11595 Amends the Retail Trade Liberalization Act
Republic Act 11595 is a major amendment to the Retail Trade Liberalization Act. Republic Act 11595 dispenses with these somewhat prohibitive requirements by significantly lowering the minimum capitalization requirements for foreigners wanting to engage in retail trade in the Philippines.
The previous minimum paid-up capital of the equivalent in Philippine Pesos of Two million five hundred thousand US dollars (US$2,500,000.00) required for foreign retail trade enterprises or roughly Philippine Pesos of One Hundred Forty Million (PhP140,000,000.00) under Republic Act 11595 was significantly lowered to Twenty-Five Million Pesos (PhP25,000,000.00) or roughly Four Hundred Fifty-four Thousand US Dollars (US$454,000.00), or a mere 0.32% of the previously required minimum paid-up capitalization.
In addition, under the previous law, the minimum investment required for establishing a store outlet was pegged at the equivalent in Philippine Pesos of Eight hundred thirty thousand US dollars (US$830,000.00) or roughly Forty-Six Million Five Hundred Thousand Pesos (PhP46,500,000.00). This was reduced by over eighty percent (80%), such that under Republic Act 11595, the minimum investment per store must only be at least Ten Million Pesos(PhP10,000,000.00).
Moreover, Republic Act 11595 expressly repealed Section 8, thereby dispensing with the minimum net worth requirements for the parent corporation (i.e., Two hundred million US dollars (US$200,000,000.00) net worth in its parent corporation for Categories B and C, and Fifty million US dollars (US$50,000,000.00) net worth in its parent corporation for Category D), and minimum five (5) retailing branches, store capitalization, and five (5) year track record in retailing. As it stands, foreign retailers, even those that were recently established, can now setup shop in the Philippines, provided that they meet the reduced capitalization requirements under Republic Act 11595.
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