Amended Legislations Relating to Foreign Investments in the Philippines



Recently, the Philippines enacted three (3) pieces of legislation aimed at attracting more foreign investors to the country, which would generate more foreign investments, open more job opportunities to Filipinos, aid in the economic recovery of the country due to the deleterious effects of the COVID-19 pandemic, and facilitate the transfer of technology or skills.

Last 10 December 2021, the Philippine President signed into law Republic Act No. 11595, otherwise known as “An Act Amending Republic Act No. 8762 otherwise known as the Retail Trade Liberalization Act of 2000, by lowering the required paid-up capital for foreign retail enterprises, and for other purposes”. Then on 2 March 2022, the Philippine President signed into law Republic Act No. 11647, or “An Act Promoting Foreign Investments, Amending Thereby Republic Act No. 7042 otherwise known as the Foreign Investments Act of 1991, as Amended, and for other purposes”. Then on 21 March 2022, the Philippine President signed into law Republic Act No. 11659, otherwise known as “An Act Amending Commonwealth Act No. 146 otherwise known as the Public Service Act, as amended.” These three laws amended the Retail Trade Liberalization Act of 2000, the Foreign Investments Act of 1991, and the Public Service Act of 1936, respectively.

Amendments to the Retail Trade Liberalization Act Previously, foreign retailers engaged in business in the Philippines are required to have a minimum paid-up capital of Two Million Five Hundred Thousand US Dollars (USD 2,500,000.00) or roughly around One Hundred Thirty-Three Million Philippine Pesos (Php 133,000,000.00). With the enactment of Republic Act No. 11595, the minimum paid-up capital for a foreign retailer has been significantly reduced to Twenty-Five Million Philippine Pesos (Php 25,000,000.00). The reduced minimum paid-up capital is intended to entice foreign retailers to enter the Philippine market.

In addition, If the foreign retailer has more than one (1) physical store in the country, the minimum investment per store should be at least Ten Million Philippine Pesos (Php 10,000,000.00).

Amendments to the Foreign Investments Act Under Republic Act No. 11647, micro and small domestic market enterprises with paid-in equity capital less than the equivalent of Two Hundred Thousand US Dollars (USD 200,000.00) are reserved for Philippine nationals. However, foreign nationals are allowed a minimum paid-in capital of One Hundred Thousand US Dollars (USD 100,000.00) if their enterprise satisfies any of the following conditions: (1) it is involved in advanced technology, as determined by the Department of Science and Technology; or (2) it is endorsed as a start-up or startup enabler by the lead host agencies pursuant to the Innovative Startup Act; or (3) a majority of its direct employees are Filipinos, but the number of Filipino employees shall not be less than fifteen.

Moreover, Republic Act No. 11647 protects foreign investors against graft and corruption. Under the said law, public officials and employees involved in foreign investment promotions shall uphold the highest standards of public service, accountability, and integrity. Any public official or employee involved in foreign investment promotions who shall commit any of the acts under Section 3 of the Anti-Graft and Corrupt Practices Act, shall, in addition to the penalties provided under the said penal law, be punished by a fine of not less than Two Million Philippine Pesos (Php 2,000,000.00) but not more than Five Million Philippine Pesos (Php 5,000,000.00).

Amendments to the Public Service Act Under Section 11 of Article XII of the 1987 Philippine Constitution: “[n]o franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens”.

The Public Service Act of 1936 did not define the term “public utility”. For this reason, the “public services” enumerated in the Public Service Act of 1936 had to conform to the nationality requirement under the Philippine Constitution wherein the maximum foreign ownership shall only be 40% and the minimum Philippine ownership should be 60%.

With the passing of Republic Act No. 11659, the definition of “public utility” is now clear. Public utility is now defined as a public service that operates, manages or controls for public use any of the following: (1) Distribution of Electricity; (2) Transmission of Electricity; (3) Petroleum and Petroleum Products Pipeline Transmission Systems; (4) Water Pipelines Distribution Systems and Wastewater Pipeline Systems, including sewerage pipeline systems; (5) Seaports; and (6) Public utility vehicles. Thus, only the foregoing services are subject to the 40% foreign ownership limitation under the Philippine Constitution.

Further, Republic Act No. 11659 allows foreign nationals to invest in public services considered as critical infrastructure. Critical infrastructure refers to any public service which owns, uses, or operates systems and assets, whether physical or virtual, so vital to the Republic of the Philippines that the incapacity or destruction of such systems or assets would have a detrimental impact on national security, including telecommunications and other such vital services as may be declared by the President of the Philippines. However, a foreign national is only allowed to own more than 50% of the capital of an entity engaged in the operation and management of critical infrastructure provided that the country of such foreign national extends the same privilege to Philippine nationals as may be provided by foreign law, treaty or international agreement.

Implications of these new legislations With these new laws enacted in the Philippines, there are now more opportunities for foreign investors to do business in the country. There are now less restrictions for foreign nationals, whether they are foreign retailers, startups, or public service companies. The entry of more foreign investors would be beneficial to the Philippine economy. It can also potentially upgrade the quality of products and services due to the increase of competition in the marketplace. Thus, this can be a win-win situation for the foreign investors and the Philippines.


 

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