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For : FMH/LTC
From : JBO
Date : 12 May 2017
Re : Foreign Equity Restrictions
______________________________________________________________________________
1. The Foreign Investment Act of 1991 (“FIA”), as amended by R.A. 8179, provides the general
rule that in domestic market enterprises, foreigners can invest as much as one hundred
percent (100%) equity, subject to certain conditions and except in areas included in the
Foreign Investment Negative List (“FINL”). The current FINL, which took effect in 2015, is
reported to be reviewed by Congress and the National Economic and Development Authority
in May 2017.1
2. Due to the recent enactment of several laws (i.e. R.A. 10607- the Amended Insurance Code,
which was promulgated on 15 August 2013 - and R.A. 10881 on Lending and Finance
Companies, which lapsed into law on 17 July 2016), equity restrictions in Insurance, Finance,
and Lending industries have been lifted, allowing 100% foreign ownership in these industries.
3. The FIA expressly excluded in its scope Banking and other Financial Institutions regulated by
the General Banking Law (R.A. 8791) and other laws under the supervision of the Central
Bank. Under R.A. 8791, foreign individuals and non-bank corporations may each own or
control up to forty percent (40%) of the outstanding voting stock of a universal, commercial,
or thrift bank, provided that the aggregate foreign-owned voting stock owned by foreign
individuals and non-bank corporations shall not exceed forty percent (40%) of the
outstanding voting stock of the universal or commercial bank, and sixty percent (60%) in case
of thrift banks.
4. On 7 August 2014, R.A. 106412 became effective, allowing the full entry of qualified foreign
banks, which may be 100% foreign-owned, to operate in the Philippines.
5. With respect to the Construction Industry, there are two views- both with legal bases.
On one hand, the Securities and Exchange Commission (SEC) in an Opinion dated 2 October
2014 said that Construction corporations which will cater exclusively to private construction
contracts are domestic market enterprises, and are not subject to limitation on foreign
ownership, provided that it is not engaged in any of the industries indicated in the current
FINL and the minimum capitalization requirement therein is satisfied.
On the other hand, the Amended IRR of R.A. 4566 (Contractor’s License Law) contains a
Filipino- Foreign equity requirement, depending on whether the type of license being applied
for is regular or special. A regular license is reserved and issued to a construction firm, with
1
New Foreign Investment Negative List Due by May, available at
http://www.bworldonline.com/content.php?section=Economy&title=new-foreign-investment-negative-list-due-
by-may&id=137570 (last accessed May 11, 2017). See also Government to Review Foreign Investment Negative List
in May 2017 available at http://www.rappler.com/business/economy-watch/152331-dof-foreign-negative-list-
may-2017 (last accessed May 11, 2017).
2
An Act Allowing the Full Entry of Foreign Banks in the Philippines, amending for the purpose Republic Act No.
7721.
Additional Notes:
The percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship of all
the stockholders in that bank.
The citizenship of the corporation, which is a stockholder of a bank shall follow the citizenship of the
controlling stockholders of the corporation, irrespective of the place of incorporation. The term
“controlling stockholders” shall refer to stockholders holding more than fifty percent (50%) of the
voting stock of the corporate stockholders of the bank. In case of Rural Banks, a corporate stockholder
thereof shall be deemed Filipino-owned if it is organized under Philippine laws and at least sixty percent
(60%) of its capital is owned by Filipino citizens.
Non-Filipino citizens may become members of the Board of Directors of a bank to the extent of the
foreign participation in the equity of said bank: Provided, that pursuant to Section 23 of the Corporation
Code of the Philippines (BP Blg. 68), a majority of the directors must be residents of the Philippines.
The information above is taken from the 31 October 2015 Manual of Regulations for Banks (MORB), an
authoritative codification of laws and regulations governing the banking industry. The MORB covers
laws promulgated by Congress as well as rules and regulations cumulatively issued as of 31
October 2015.
3
Manual of Regulations for Banks X126.1a.
2
Industry Foreign Equity Notes/ Conditions
Threshold
BANKING Up to 100%4 3 modes of entry for foreign banks to
re: entry of foreign banks in the operate in the Philippines:
Philippines
1. Acquire up to 100% of the
Governing Law: voting stock of an existing bank;
Conditions:
1. Bank should be established,
reputable, and financially sound;
3. Capital Requirements:
Non-Philippine banks authorized to do banking business in the Philippines can participate in foreclosure
sales of real properties mortgaged to them and to use enforcement proceedings. Non- Philippine banks
can take possession of mortgaged real properties for a maximum of 5 years, during which time the bank
should take steps to transfer its rights to a Philippine national. In case the bank is unable to transfer its
rights to the real property within the 5-year period, the bank will be penalized ½ of 1% per annum of
the price at which the real property was foreclosed until actual transfer to a Philippine national.
3
Industry Foreign Equity Notes/ Conditions
Threshold
CONSTRUCTION Up to 100% 100% foreign equity is allowed if the
company5:
Governing Law:
1. Will cater exclusively to private
construction contracts,
R.A. 4566
Contractor’s License Law 2. Is not engaged in any of the
industries found in Foreign
IRR of RA 4566 Investment Negative List
3. Has a paid in capital of more than
FINL US$200,000.00. This amount can
be reduced to US$100,000.00 if
the business would involve
advance technology or employ at
least 50 direct employees.
4. ***will not own land in the
Philippines
RA 4566 (Contractor’s License Law) does not contain a provision on foreign equity limitation. However, Section
3.1 (a) of the IRR of RA 4566 contains a Filipino- Foreign equity requirement, depending on whether the type of
license being applied for is REGULAR or SPECIAL.
a) REGULAR LICENSE- is reserved and issued to a construction firm, with at least 60% Filipino equity participation
and duly organized and existing under Philippine laws.
b) SPECIAL LICENSE- is issued to a joint venture, consortium, a foreign constructor or a project owner which shall
authorize the licensee to engage only in the construction of a single specific undertaking / project. In case the
licensee is a foreign firm, the license/authorization shall be further subject to condition(s) as may have been
imposed by the proper Philippine government authority in the grant of the privilege for him to so engage in
construction contracting in the Philippines.
The recent amendment of the IRR would allow a domestic corporation, IRRESPECTIVE OF EQUITY OWNESHIP,
with a capitalization of ONE BILLION PESOS to secure a REGULAR LICENSE WITH ANNOTATION and to undertake
certain projects with a required Minimum Contract Value per project.
4
RA 10641, Section 2.
5
SEC-OGC Opinion No. 14-27 dated 2 October 2014.
6
IRR of R.A. 4566.
4
Industry Foreign Equity Notes/ Conditions
Threshold
SCHOOLS Up to 40%7 Foreigners are not allowed any control
and administration of educational
institutions, thus are barred from
Foreign equity restriction is
becoming members of the Board of
provided in the Constitution.
Directors/Trustees of educational
institutions.
7
PHIL. CONST. art. XIV, Section 4(2) - Educational institutions, other than those established by religious groups and
mission boards, shall be owned solely by citizens of the Philippines or corporations or associations at least sixty per
centum of the capital of which is owned by such citizens. The Congress may, however, require increased Filipino
equity participation in all educational institutions.
8
PHIL. CONST. art. XII, Section 7- Save in cases of hereditary succession, no private lands shall be transferred or
conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain.
9
R.A. 10607.
10
R.A. 10881 Lapsed into Law on 17 July 2016 without the signature of the President.
11
Section 4 of R.A. 10881, amending Section 332 of PD No. 612, as amended by R.A. 10607.
5
Industry Foreign Equity Notes/ Conditions
Threshold
LENDING COMPANIES Up to 100%12 Where the loan is secured by land, a
foreign- owned lending company, may:
Rule on Foreign Equity
1. bid and take part in any sale of
participation is contained in R.A.
such land as a consequence of
10881.
such mortgage;
2. avail of enforcement
proceedings;
6
Industry Foreign Equity Notes/ Conditions
Threshold
INVESTMENT HOUSES Up to 100%14
Foreign nationals may become members
of the Board of Directors to the extent of
Rule on Foreign equity
the foreign participation in the equity of
participation is contained in R.A.
said enterprise.
10881.
14
Section 7 of R.A. 10881, amending Section 5 of PD 129 as amended by R.A. 8366, otherwise known as The
Investment Houses Law’.