Foreign Ownership of Businesses

FOREIGN OWNERSHIP OF BUSINESSES

 

May a Foreign Corporation do business in the Philippines?

Yes. A foreign corporation is one formed, organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. It shall have the right to transact business in the Philippines after it shall have obtained a license to transact business in this country in accordance with the Corporation Code of the Philippines and a certificate of authority from the appropriate government agency.

 

Which government agency is responsible for giving a certificate of authority?

A foreign corporation applying for a license to transact business in the Philippines shall submit to the Securities and Exchange Commission a copy of its articles of incorporation and by-laws, certified in accordance with law, and their translation to an official language of the Philippines, if necessary.

 

What are the requirements needed for the application?

The application shall be under oath and, unless already stated in its articles of incorporation, shall specifically set forth the following:

  1. The date and term of incorporation;
  2. The address, including the street number, of the principal office of the corporation in the country or state of incorporation;
  3. The name and address of its resident agent authorized to accept summons and process in all legal proceedings and, pending the establishment of a local office, all notices affecting the corporation;
  4. The place in the Philippines where the corporation intends to operate;
  5. The specific purpose or purposes which the corporation intends to pursue in the transaction of its business in the Philippines: Provided, That said purpose or purposes are those specifically stated in the certificate of authority issued by the appropriate government agency;
  6. The names and addresses of the present directors and officers of the corporation;
  7. A statement of its authorized capital stock and the aggregate number of shares which the corporation has authority to issue, itemized by classes, par value of shares, shares without par value, and series, if any;
  8. A statement of its outstanding capital stock and the aggregate number of shares which the corporation has issued, itemized by classes, par value of shares, shares without par value, and series, if any;
  9. A statement of the amount actually paid in; and
  10. Such additional information as may be necessary or appropriate in order to enable the Securities and Exchange Commission to determine whether such corporation is entitled to a license to transact business in the Philippines, and to determine and assess the fees payable.

 

Can a foreign company invest in the Philippines?

Yes. The Foreign Investment Act allows the entry of foreign investment into the Philippines. Under this law, foreign investors must register with the Securities and Exchange Commission (in the case of a corporation or partnership) or with the Department of Trade and Industry’s Bureau of Trade Regulation and Consumer Protection (in the case of a sole proprietorship)

 

What is the percentage of foreign equity allowed under the Foreign Investment Act?

With the relaxation of the foreign investment law, 100% foreign equity may be allowed in all areas of investment except those reserved for Filipinos under the Philippine Constitution and existing laws.

 

What are these restrictions?

The Foreign Investment Act (FIA) provides for two negative lists, also known as the “Foreign Investment Negative List”, which defines the foreign investments, which are limited or restricted by the Constitution and specific laws.

 

In Negative List A, foreign ownership in certain businesses is limited by mandate of the Constitution and specific laws. These are:

 

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

 

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

 

Up to Thirty Percent (30%) Foreign Equity

16. Advertising

 

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 byproducts thereof

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

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

 

Up to Sixty Percent (60%) Foreign Equity

27. Financing companies regulated by the Securities and Exchange Commission

28. Investment houses regulated by the SEC

 

In Negative List B, foreign ownership in certain business is limited for reason of security, defense, risk to health and morals and protection of small-and medium scale enterprises. These are:

 

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

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

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 50 direct employees with paid-in-equity capital of less than the equivalent of US$100,000