NATIONALITY OF

CORPORATIONS
PLACE OF INCORPORATION

 Where the corporation is incorporated

NATIONALITY OF INDIVIDUAL
STOCKHOLDERŠ

 Used to determine compliance with requirements of the Constitution and special laws
requiring foreign equity
 Two tests are used:
 Control Test
 Grandfather Rule
 According to the Redmont case, the two tests can be used together. However, the
grandfather rule is applied when there is doubt as to the nationality of the corporation
even if it meets the requirements of legal ownership.
STEPS

 FIRST, determine if the corporation’s activity can be considered as partly nationalized –

check the purpose clause of the corporation
 SECOND, check the Constitution or law requiring such (shortcut – go to the Foreign
Investment Negative List)
 Note: Please check if the proposed activity might be considered retail trade or a domestic
market enterprise under the Foreign Investment Act
 THIRD, compute. Remember SEC MC No. 8 series of 2013 which was upheld by the
Supreme Court in Roy vs Herbosa
Retail Trade

Retail trade is any act, occupation or calling of habitually selling direct to the general public
merchandise, commodities or good for consumption, subject to certain exceptions.
(a) Sales by manufacturer, processor, laborer, or worker, to the general public the products
manufactured, processed or products by him if his capital dose not exceed One hundred thousand
pesos(100,000.00);
(b) Sales by a farmer or agriculturist selling the products of his farm;
(c) Sales in restaurant operations by a hotel owner or inn-keeper irrespective of the amount capital:
provided, that the restaurant is incidental to the hotel business; and
(d) Sales which are limited only to products manufactured, processed or assembled by a
manufactured, processed or assembled by a manufacturer though a single outlet, irrespective of
capitalization.
Domestic Market Enterprise

 A domestic market enterprise is defined as “an enterprise which produces goods for sale,
or renders services to the domestic market entirely or if exporting a portion of its output fails
to consistently export at least sixty percent (60%) thereof.”
 A domestic market enterprise is even more broadly defined under Section 1(k) of the FIA’s
Implementing Rules and Regulations, which defines it as “an enterprise which produces
goods for sale, renders service, or otherwise engages in any business in the Philippines.”
 Section 3(f) of the FIA, as amended.