Are you a foreigner or with a foreign-registered company planning to put up a business in the Philippines?
Here are some smart tips on foreign ownership/equity restrictions to get you started:
The Philippines has been traditionally known to restrict foreign ownership of companies to 40% of total equity only, with 60% equity reserved for citizens. The government, however, has initiated actions in the past to relax this rule in order to attract foreign investments to help grow the country’s economy.
This guide is intended to help prospective foreign investors and/or their local partners or agents to determine how much foreign equity is allowed in their line of business.
1. First thing to check: Foreign investment negative lists
The first law liberalizing foreign investments (Foreign investment act of 1991) resulted in the creation of a foreign investment negative list (FINL) that seeks to define restrictions on foreigner’s and foreign companies’ economic activities in the country.
The FINL is regularly updated and is now on its tenth revision to reflect new laws. The list is divided into two as follows:
Negative List A
Negative List B
2. Domestic Corporations and Subsidiaries
Up to 100% foreign ownership is allowed for domestic corporations that:
Are not part of the foreign investment negative lists
*Note that retail businesses (selling directly to consumers) with less than $2.5 Million in paid-up capital is listed under Negative List A.
Have at least the peso equivalent of USD $200,000 in paid-in equity capital.
This amount can be reduced to USD $100,000 if :
the enterprise employs 50 employees or
if it will be using “advanced technology”—to be determined by the Department of Science and Technology.
3. Retail Trade Enterprise
Retail Trade Enterprise are businesses that sell directly to consumers.
Under the law (RA 8762 - Retail Trade Liberalization Act of 2000) , up to 100% foreign ownership is allowed for retail trade enterprises for two categories of businesses:
Category A: Have a paid-up capital of USD 2.5 Million or more
Category B:Specializing in high end or luxury products, provided that the paid-up capital per store is not less than USD 250,000.00 (Sec. 5 of R.A. 8762)
Additional qualification requirements for foreign retailers can be found below:
Parent company with USD 200M net worth (USD 50M net worth for luxury brands)
At least 5 branches or franchises around the world OR at least one store capitalized at a minimum of USD $25M
Five 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.
Finally, all retail trade enterprises under category A that exceeds 80% foreign equity must list and offer a minimum of 30% equity in any stock market in the Philippines. This should be done within 8 years from the company’s start of operations.
4. Export Businesses
100% foreign ownership is allowed for export businesses, as long as it doesn’t fall under the negative lists. A business is considered as an export business if at least 60% of its output or sales are exported.
Call centers, BPOs, KPOs, back offices and similar businesses can all be considered as export businesses provided they adhere to the output rule.
Export businesses can also claim tax incentives via various laws (EO 226 / Board of Investments, PEZA law, and other economic zone laws)
We wish to remind the reader that this content should serve as a rough guide only and not to be used as proper legal advice. Please get in touch with an attorney to get specific advice for your situation.