DOING BUSINESS IN THE

PHILIPPINES:
FOREIGN INVESTMENT
ACT AND RELATED LAWS
Prof. Maria Lulu G. Reyes, LlB, LlM

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 Republic Act 7042 as amended
by RA 8179, also known as the
Foreign Investments Act of 1991,
is the basic law that governs
foreign investments in the
Philippines. It is considered a
landmark legislation because it
liberalized the entry of foreign
investments into the country.

FOREIGN INVESTMENTS ACT OF 1991

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Under this law, foreign investors
are allowed to invest 100%
equity in companies engaged
in almost all types of business
activities subject to certain
restrictions as prescribed in the
Foreign Investments Negative
List (FINL)

FOREIGN INVESTMENTS ACT OF 1991

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"PHILIPPINE NATIONAL"
a citizen of the Philippines;

a domestic partnership or association wholly

owned by citizens of the Philippines;

a corporation organized under the laws of the

Philippines of which at least sixty percent
(60%) of the capital stock outstanding and
entitled to vote is owned and held by
citizens of the Philippines;
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a corporation organized abroad and
registered as doing business in the Philippines
under the Corporation Code of which one
hundred percent (100%) of the capital stock
outstanding and entitled to vote is wholly
owned by Filipinos
a trustee of funds for pension or other
employee retirement or separation benefits,
where the trustee is a Philippine national and at
least sixty percent (60%) of the fund will accrue
to the benefit of Philippine nationals

"PHILIPPINE NATIONAL"
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 Provided, That where a corporation and its non-Filipino
stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty
percent (60%) of the capital stock outstanding and
entitled to vote of each of both corporations must be
owned and held by citizens of the Philippines and at
least sixty percent (60%) of the members of the Board
of Directors of eachof both corporations must be
citizens of the Philippines, in order that the corporation,
shall be considered a "Philippine national”
 See Gamboa v. Teves

"PHILIPPINE NATIONAL"
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 shallmean equity participation in
any enterprise organized or
existing under the laws of the
Philippines;

"INVESTMENT"
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 shall mean an equity investment made
by non-Philippine national in the form of
foreign exchange and/or other assets
actually transferred to the Philippines
and duly registered with the BSP which
shall assess and appraise the value of
such assets other than foreign exchange
 Investment as stockholder

"FOREIGN INVESTMENT"
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 soliciting orders, service contracts,

 opening offices, whether called "liaison" offices or

branches;

 appointing representatives or distributors domiciled

in the Philippines or who in any calendar year stay in
the country for a period or periods totaling one
hundred eighty [180] days or more;

"DOING BUSINESS"
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 participatingin the management, supervision or
control of any domestic business, firm, entity or
corporation in the Philippines; and

 anyother act or acts that imply a continuity of

commercial dealings or arrangements and
contemplate to that extent the performance of acts
or works, or the exercise of some of the functions
normally incident to, and in progressive prosecution
of commercial gain or of the purpose and object of
the business organization:

"DOING BUSINESS" 11
Does not include:
 mere investment as a shareholder by a foreign
entity in domestic corporations duly registered
to do business, and/or the exercise of rights as
such investor;
 norhaving a nominee director or officer to
represent its interests in such corporation;
 norappointing a representative or distributor
domiciled in the Philippines which transacts
business in its own name and for its own
account

"DOING BUSINESS"
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 FIA
does not apply to banking and
other financial institutions, which
are governed and regulated by
the General Banking Act and other
laws under the supervision of the
Bangko Sentral ng Pilipinas

SCOPE
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Section 123 of the Corporation Code:

A foreign corporation as one

formed, organized, and existing
under any laws other than those of
the Philippines and whose laws
allow Filipino citizens and
corporations to do business in the
Philippines.

FOREIGN CORPORATION /NON-

PHILIPPINE NATIONAL
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Branch
Representative Office
RHQ
ROHQ
Subsidiary/Domestication

MODES OF ENTRY OF FOREIGN

CORPORATIONS IN THE PHILIPPINES
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 A Branch office is a foreign corporation
organized and existing under foreign laws that
carries out business activities of the head office
 derives income from the host country.
 It is required to put up a minimum paid in capital
of US$200,000.00, which can be reduced to
US$100,000.00 if (a) activity involves advanced
technology, or (b) company employs at least 50
direct employees. Registration with the SEC is
mandatory.

MODE OF ENTRY 1: BRANCH

OFFICE
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 In the case of Citibank and BA, it is
apparent that they both did not
incorporate a separate domestic
corporation to represent its business
interests in the Philippines. Their Philippine
branches are, as the name implies,
merely branches, without a separate
legal personality from their parent
company, Citibank and BA xxx being
one and the same entity (PDIC v.
Citibank NA and BA, 11 April 2012)

MODE OF ENTRY 1: BRANCH

OFFICE
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 a foreign corporation organized and existing
under foreign laws.
 does not derive income from the Philippines
 fully subsidized by its head office and all of its
operating costs must be covered by transfer of
funds from the parent company
 required annual minimal inward remittance: of as
working capital is US$ 30,000.00

MODE OF ENTRY 2:
REPRESENTATIVE OFFICE
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 activities allowed are:
 dealing with the clients of the parent company,
 dissemination of information,
 promotion of company products and quality control
of products for export.

 forbidden to offer services to 3rd parties

MODE OF ENTRY 2:
REPRESENTATIVE OFFICE
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 RHQ or Regional Headquarters can only be setup
and operated by a foreign corporation, which
has subsidiaries, branches, affiliates and clients in
the Asia-Pacific Region and other foreign
markets. It is a branch of a multinational
company that exists under the laws of a nation
other than the Philippines

MODE OF ENTRY 3: RHQ

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 primary purpose of an RHQ is to act as a
supervisory, communications, and coordinating
center for its subsidiaries affiliates and branches
in the Asia- Pacific region
 not allowed to derive income in the Philippines
 minimum of USD50,000.00 must be remitted
yearly to the Philippines RHQ to cover
operational expenses

MODE OF ENTRY 3: RHQ

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Tax Incentives for Philippines RHQ
 Exemption from corporate income tax
 Exemption from value-added tax (0%VAT)
 Sale or lease of goods and property, and services to the RHQ shall be
subjected to zero VAT
 Exemption from all kinds of local taxes, fees or charges imposed by a
local government unit, except real property tax on land improvement
and equipment
 Tax and duty free importation of equipment and materials for training
and conferences needed and solely used for the RHQ functions, and
which are not locally available, subject to prior BOI approval.
 Equipment disposed of within 2 years after importation subject to payment of
taxes and duties
 Importation of brand new motor vehicle but subject to payment of taxes
and duties.

MODE OF ENTRY 3: RHQ

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 A Regional Operating Headquarters can only be
established and run by a multinational
corporation, which has subsidiaries, branches,
affiliates and clients in the Asia-Pacific Region
and other foreign markets and as long as they
exist under laws other than those of the
Philippines.

MODE OF ENTRY 4: ROHQ

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 may engage in any of the following qualifying services to its
affiliates, subsidiaries and branches in the Philippines:
– General administration and planning
– Business planning and coordination
– Sourcing/procurement of raw materials components
– Corporate finance advisory services
– Marketing control and sales promotion
– Training and personnel management
– Logistics services
– Research and development services and product
development
– Technical support and maintenance
– Data processing and communications
– Business development

MODE OF ENTRY 4: ROHQ

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 An ROHQ is allowed to derive income in the
Philippines by delivering the above mentioned
services.
 ROHQ is allowed to offer qualifying services only to
its affiliates, branches, or subsidiaries as declared in
its registration with the Philippines Securities and
Exchange Commission (SEC).
 It is not allowed to directly or indirectly engage in
the sale and distribution of goods and services
whether on behalf of their mother company,
branches, affiliates, subsidiaries, or any other
company

MODE OF ENTRY 4: ROHQ

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 Proof of inward remittance of USD200,000
 Tax Incentives for Philippines ROHQ
 Exemption from all kinds of local taxes, fees or charges imposed by a
local government unit, except real property tax on land improvements
and equipment.
 Tax and duty free importation of equipment and materials for training
and conferences needed and solely used for the RHQ functions, and
which are not locally available, subject to prior BOI approval.
 Equipment disposed of within 2 years after importation subject to
payment of taxes and duties
 Importation of brand new motor vehicle but subject to payment of
taxes and duties.
 Note: ROHQ’s are subject to 12% VAT, 10% corporate income tax and
15% branch office profit remittance when profit remitted to parent
company

MODE OF ENTRY 4: ROHQ

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 Form, register and capitalize a new corporation
under Philippine law

OR

 Domestication Principle: transfer of an existing

corporation from one jurisdiction (i.e. state) to
another. This happens when an existing
corporation relocates and changes domicile for its
business operations to another state and typically
ceases operation in the existing state.
 Same corporation, no new legal entity

MODE OF ENTRY 5:
SUBSIDIARY/DOMESTICATION
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 It is 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 consistency export at least 60% thereof. (Sec 3
(e), R.A. 7042).
 Non-Philippine nationals may own up to one hundred percent
[100%] of domestic market enterprises unless business is listed in the
FINL (Sec. 7, R.A. 7042)
 minimum paid-capital of foreign companies serving the domestic
market from US$500,000 to US$200,000. The minimum maybe
decreased further to US$150,000 if a company uses advanced
technology as certified by the Department of Science and
Technology or directly employs at least 50 employees.

DOMESTIC MARKET ENTERPRISE

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 an enterprise wherein a manufacturer,
processor or service (including tourism)
enterprise exports sixty percent (60%) or
more of its output, or wherein a trader
purchases products domestically or exports
sixty percent (60%) or more of such
purchases.
 exemption to the minimum capital
investment of US$200,000.00 if the investor
would like to own 100% of the company

EXPORT MARKET ENTERPRISE

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 Business Process Outsourcing,
Call Centers and Back Office
Operations are all considered
export market enterprise
because more than 60% of its
service output is exported.

EXPORT MARKET ENTERPRISE

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The FINL is a shortlist of investment areas or activities which may be
opened to foreign investors and/or reserved to Filipino nationals.

The Foreign Investments Negative Lists (FINL) are classified as follows:

1. List A - consists of areas of activities reserved to Philippine nationals
where foreign equity participation in any domestic or export
enterprise engaged in any activity listed therein shall be limited to
a maximum of forty percent (40%) as prescribed by the
Constitution and other specific laws.
2. 2. List B - consists of areas of activities where foreign ownership is
limited pursuant to law such as defense or law enforcement-
related activities, which have negative implications on public
health and morals, and small and medium-scale enterprises.

FOREIGN INVESTMENT NEGATIVE

LIST 31
NEGATIVE LIST A

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 No Foreign Equity

1. Mass Media except recording

2. Practice of professions
3. Retail trade enterprises with paid-up capital of not less than US$2,500,000.00
4. Cooperatives
5. Private Security Agencies
6. Small-scale Mining
7. Utilization of Marine Resources in archipelagic
waters, territorial sea, and exclusive economic zone
8. Ownership, operation and management of cockpits
9. Manufacture, repair, stockpiling and/or distribution of nuclear weapons
10. Manufacture, repair, stockpiling and/or distribution of biological, chemical
and
radiological weapons and anti-personal mines
11. Manufacture of firecrackers and other pyrotechnic devices

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NEGATIVE LIST A
 Up to Twenty Percent (20%) Foreign Equity

12. Private radio communication network

 Up to Twenty-Five Percent (25%) Foreign Equity

13. Private recruitment, whether for local or overseas employment

14. Contracts for the construction and repair of locally-funded public works,
except:

a. infrastructure/development projects covered in RA 7718; and

b. projects which are foreign funded or assisted and required to undergo
international competitive bidding (Sec. 2(a) of RA 7718)

15. Contracts for construction of defense-related structure

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NEGATIVE LIST A
 Up to Thirty Percent (30%) Foreign Equity
16. Advertising

NEGATIVE LIST A
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 Up to Forty Percent (40%) Foreign Equity

17. Exploration, development and utilization of natural resources

18. Ownership of Private Lands

19. Operation and management of public utilities

20. Ownership/establishment and administration of educational institutions

21. Culture, production, milling, processing, trading excepting retailing, of rice and corn
and acquiring, by barter, purchase or otherwise, rice and corn and the by-products
thereof

22. Contracts for the supply of materials, goods and commodities to government-owned
or controlled corporation, company, agency or Municipal Corporation

NEGATIVE LIST A 36
 Up to Forty Percent (40%) Foreign Equity
23. Project Proponent and facility Operator of a BOT project
requiring a public utilities franchise
24. Operation of deep-sea commercial fishing vessels
25. Adjustment Companies
26. Ownership of condominium units where the common areas
in the condominium projects are co-owned by the owners of
the separate units or owned by a corporation

NEGATIVE LIST A 37
 Up to Sixty Percent (60%) Foreign Equity

27. Financing companies regulated by the

Securities and Exchange Commission

28. Investment houses regulated by the SEC

NEGATIVE LIST A
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NEGATIVE LIST B

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 Up to Forty Percent (40 %) Foreign Equity
1. Manufacture, repair, storage and/or distribution of products
and/or ingredients requiring Philippine National Police (PNP)
clearance:
a. Firearms (handguns to shotguns), parts of firearms and
ammunition therefore, instruments or implements used or
intended to be used in the manufacture of firearms
b. Gunpowder
c. Dynamite
d. Blasting supplies
e. Ingredients used in making explosives
f. Telescopic sight, sniper scope and other similar devices

NEGATIVE LIST B 40
 Up to Forty Percent (40 %) Foreign Equity
2. Manufacture, repair, storage and/or distribution of products requiring Department of
National Defense (DND) clearance;
a. Guns and ammunition for warfare
b. Military ordnance and parts thereof (e.g., torpedoes, depth charges, bombs,
grenades, missiles)
c. Gunnery, bombing and fire control systems and components
d. Guided missiles/missile systems and components
e. Tactical aircraft (fixed and rotary -winged), parts and components thereof
f. Space vehicles and component systems
g. Combat vessels (air. land and naval) and auxiliaries
h. Weapons repair and maintenance equipment
i. Military communications equipment
j. Night vision equipment
k. Stimulated coherent radiation devices, components and accessories
l. Armament training devices
m. Others as may be determined by the Secretary of the DND

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NEGATIVE LIST B
 Up to Forty Percent (40 %) Foreign Equity
3. Manufacture and distribution of dangerous drugs

4. Sauna and steam bathhouses, massage clinics and other like activities
regulated by law because of risks posed to public health and morals

5. All forms of gambling, e.g. race track operation

6. Domestic market enterprises with paid-in equity capital of less than the
equivalent of US$200,000

7. Domestic market enterprises, which involve advanced technology or employ

at least fifty (50) direct employees with paid-in-equity capital of less than the
equivalent of US$100,000

NEGATIVE LIST B 42
 For Acquisition to be valid:
(a) it must be a private land; and
(b) the foreign equity in the corporation must
not exceed forty percent (40%)
 Foreign corporations can acquire other
immovable or real properties such as buildings
and other improvements on the land, including
condominium units (up to 40%)

LAND RIGHTS OF FOREIGN

CORPORATIONS: OWNERSHIP
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a. Acquisition through hereditary succession;

b. Purchase by a former natural-born Filipino citizen pursuant to the Dual

Citizenship Law which states that a former Filipino re-acquiring Filipino
Citizenship shall be deemed not to have lost Philippine citizenship, thus
enabling them to enjoy all the rights and privileges of a Filipino;

c. If a former natural-born Filipino who has becomes a naturalized citizen of

another state opts not to re-acquire Filipino citizenship according to the Dual
Citizenship Act, he may nonetheless own land but limited to: (BP 185 and RA
8179)
i. For residential use:
1. Up to 1,000 square meters of residential land
2. Up to 1 hectare of agricultural land

ii. For business or commercial use

1. Up to 5,000 square meters of urban land
2. Up to 3 hectares of rural land

EXCEPTIONS TO LAND OWNERSHIP BAN 44

d. Purchase of not more than 40% interest in a condominium
project; and

e. Ownership through Filipinos who are married to aliens who

retain their Filipino citizenship

EXCEPTIONS TO LAND OWNERSHIP BAN45

 R.A. No. 7652, entitled “Investor’s Lease Act”,
lease agreements may be entered into with
Filipino landowners.
 Lease period is 50 years, renewable once for
another 25 years (maximum 75 years)
 For tourism projects, the lease shall be limited to
projects with an investment of not less than
US$5M, 70% of which shall be infused in said
project within 3 years from signing of the lease
contract.

LAND RIGHTS OF FOREIGN

CORPORATIONS: LEASE
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 Types of businesses where former natural-born Filipinos can enjoy the same
investment rights as a Philippine citizen

1. Cooperatives
2. Rural banks
3. Thrift banks and private development banks
4. Financing companies

 Former natural born Filipinos can also engage in activities under List B of the
FINL.This means that their investments shall be treated as Filipino or will be
considered as forming part of Filipino investments in activities closed or limited
to foreign participation.
 The equal investment rights of former Filipino nationals do not extend to
activities under List A of FINL which are reserved for Filipino citizens under the
Constitution.

SPECIFIC AREAS OF EQUAL INVESTMENT

RIGHTS FOR FORMER FILIPINO
NATIONALS 47
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