SEC Memorandum Circular NO. 11 Series of 2013

Republic of the Philippines

Department of Finance

Securities and Exchange Commission

SEC Building, EDSA, Greenhills, Mandaluyong City

SEC MEMORANDUM CIRCULAR NO. 11

Series of 2013

 

SUBJECT:    FINANCIAL STATEMENTS TO SUPPORT AN APPLICATION FOR A LICENSE TO TRANSACT BUSINESS IN THE PHILIPPINES

In line with Administrative Order No. 38 on Ease of Doing Business Reforms, the Commission in its meeting on 30 May 2013 resolved to revise the requirements on financial statements and supporting documents that shall be submitted with an application of a foreign corporation for a license to transact business in the Philippines, as follows:

1. For those whose home country requires audited financial statements, the applicant shall submit the audited financial statements (AFS) as of date not exceeding one (1) year immediately prior to the filing of the application;

If the date of the AFS exceeds the one-year requirement, the following shall be submitted:
a. Audited financial statements that are available as of date of filing of the application; and
b. Unaudited financial statements (UFS) as of date not exceeding one (1) year immediately prior to the filing of the application.

2. For those whose home country does not require audited financial statements, the applicant shall submit the unaudited financial statements (UFS) as of a date not exceeding one (1) year immediately prior to the filing of the application provided that the UFS shall be accompanied by a Certification signed under oath by an officer of a responsible regulatory institution or by the applicant’s legal counsel that the applicant  is not required to prepare and submit audited financial statements, with a citation of the law or regulation on which it is based.

The aforementioned AFS and UFS must be signed under oath by the president or any other person authorized by the corporation. No authentication shall be necessary if the signatory to the said financial statements is the same as that in the corporation’s application.

Pursuant to Section 125 of the Corporation Code, the applicant’s financial statements must show that it is solvent and in sound financial condition.

This Memorandum Circular shall take effect immediately.

6th day of June 2013, Mandaluyong City, Philippines.

 

 

MA. JUANITA E. CUETO

Officer-in-Charge

 

SEC Resolution No. 165 Series of 2012

Republic of the Philippines
Department of Finance
Securities and Exchange Commission
SEC Building, EDSA, Greenhills, Mandaluyong City
Office of the Commision Secretary

1 October 2012

Mr. Ver S. Peralta
ACCRA Law Firm
ACCRALAW Tower
Avenue Corner 30th Street
Cresent Park Bonifacio, Global, Taguig City

Dear Mr. Peralta:
Per your request quoted hereunder is the excerpt from the minutes of the Commission Meeting held on March 22, 2012 which reads, to wit:

“SEC RES. NO. 165, a. of 2012

     RESOLVED, To REVISE the requirements on financial statements that accompany applications of foreign corporations for a license to transact business in the Philippines, as follows:

    For those whose home country requires audited financial statements, unaudited financial statements as of date not exceeding one (1) year immediately prior to the filing of the application provided that: (1) the said financial report is certified correct by the president or any other person authorized by the corporation, signed under oath and authenticated before the Philippine Consulate/Embassy; and (2) there is an undertaking to submit to the Commission its audited financial statements as of the most recent fiscal year end, within 105 calendar days from the date issuance of the license.

For those whose home country does not require audited financial statements, unaudited financial statements as of a date not exceeding one (1) year immediately prior to the filing of the application provided that: (1) there is a Certification from a responsible regulatory institution that corporations operating in their country are not required to prepare and submit audited financial statements, with a citation of the law or regulation on which it is based; (2) the said unaudited financial report is certified correct by the president or any other person authorized by the corporation; and (3) both of the said certifications are signed under oath and authenticated before the Philippine Consulate/Embassy.”

Very truly yours,
C.A. GERARD M. LUKBAN
Commission Secretary

Foreign Ownership of Rural Banks

Foreign Ownership of Rural Banks

President Aquino approved Republic Act No. 10574 on May 24, 2013. This Act which is a consolidation of House Bill No. 5360 and Senate Bill No. 3282 was finally passed by the House of Representatives and the Senate on February 4, 2013 and January 30, 2013, respectively.

Republic Act No. 10574 is an act allowing the infusion of foreign equity in the capital of rural banks, amending Republic Act No. 7353, otherwise known as “the rural bank act of 1992″, as amended, and for other purposes.

The highlights of this act are:

– That foreigners may own a maximum of sixty percent (60% ) of the voting stock of a rural bank.

– Non-Filipino citizens may become members of the Board of Directors of a rural bank but their participation in the Board shall be limited to their proportionate share in the equity of the rural bank: Provided, however, That at least one (1) independent director shall be elected to the Board of Directors.

– “Rural banks which are not qualified to acquire or hold land in the Philippines shall be allowed to bid and take part in foreclosure sales of real property mortgaged to them, as well as to avail of enforcement and other proceedings, and accordingly to take possession of the mortgaged property, for a period not exceeding five (5)-years from actual possession: Provided, That in no event shall title to the property be transferred to such rural bank. In case the rural bank is the winning bidder, it shall, during the said five (5)-year period, transfer its rights to a qualified Philippine national, without prejudice to a borrower’s rights under applicable laws. Should a rural bank be not able to transfer such property within the five (5)-year period, the rural bank shall be penalized one-half (1/2) of one percent (1%) per annum of the price at which the property was foreclosed until the rural bank is able to transfer the property to a qualified Philippine national.”

A rural bank in the Philippines must have forty percent (40%) or less foreign ownership to qualify to acquire or hold land in the Philippines.

(Article No. XII, Sec. 7 of the Constitution; Ch. 5, Sec. 22 of C.A. 141; Sec. 4 of R.A. 9182)

Philippines Foreign Ownership of Resorts

There are a few legal options to owning and managing a resort in the Philippines.

Because of the restrictions on foreign ownership of land which is in Article XII of the
1987 Philippine Constitution, one solution is to lease/rent the land needed for the resort.

Foreign individuals and business entities may lease land for a period of 25 years
renewable for another 25 years. (P.D. No 471, Fixing a Maximum Period for the
Duration of Leases or Private Lands to Aliens). Tourism projects with a minimum
investment of USD five million may be able to qualify for a lease of 50 years renewable
for another 25 years (Republic Act No. 7652, otherwise know as the Investors’ Lease
Act).

To ensure the rights of the lessee it is good practice to have the lease annotated on the
land title.

For those who wish to own the land on which the resort will operate, a corporation which
is 60% Filipino owned and 40% Foreign may be incorporated to purchase the property.
This corporation may then lease the land to another 100% Foreign Owned Corporation
which may own the buildings and other infrastructure and manage the resort.

Foreigners married to Filipinos: this is controversial, as a foreigner may not own land
many think that buying property (land) in their spouse’s name is a solution; this is far
from being true. Any contract or side deal for control of the land will most probably be
considered a circumvention of the law. Even a long term lease contract may or may not
be held valid by the courts.

There is a Supreme Court decision pertaining to the rights of foreign spouses land
ownership and the equal partition of conjugal property.

http://sc.judiciary.gov.ph/jurisprudence/2006/august2006/G.R.%20No.%20149615.htm

In this case the Supreme Court declared that the foreign spouse had the property titled in
his Filipino spouse’s name knowing the Constitutional prohibition of foreign ownership
of land and can not claim reimbursement of the funds used to purchase neither the land
nor the house built on it.

Foreigners should not use nominees
to purchase land on their behalf or use nominee
shareholders and directors in a corporation that will own real property. Doing so, is
a circumvention of the laws that prohibits land from being 100% foreign owned and
would be a violation of the Anti Dummy Law.

Foreign Ownership of Land in the Philippines

Real Estate Ownership in the Philippines

In general Philippine real estate law prohibits the foreign ownership of land. This prohibition on foreigners owning land in the Philippines is found in the Philippines Constitution.

Former Filipinos and corporations of Philippine nationality may own land, buildings, condominiums and townhouses. A corporation is considered to be of Philippine nationality if at least 60% of the corporation is owned by Filipino citizens.

Foreign nationals may buy condominiums units in Philippine condos (shares in condominium corporations) as long as not more than 40% of the units in a project are acquired by foreigners (Republic Act No. 4726, otherwise known as the Condominium Act).

Exceptions to the 40% Foreign Ownership of Philippine Real Property

• Land Aquired before the 1935 constitution
• Acquisition through hereditary succession if the foreigner is a legal or natural heir
• Foreigners who acquired Philippine property when they used to be Filipino citizens, will maintain ownership of those properties even after their change of citizenship.
• Former natural-born Filipino citizen subject to the limitations prescribed by Law (Batas Pambansa 185 and R.A. 8179)
1 – For residential purpose – 1,000 square meters of urban land or one (1) hectare of rural land (BP 185)
2 – Cannot own both urban and rural land. Choose one type only.
3 – Previous ownership (when still a Filipino citizen) of residential urban or rural land will lower the 1,000 sq meter and 1 hectare limits above.
4 – Can own a maximum of two (2) lots only.
5 – Those lots must be in different cities or municipalities in the Philippines.
6 – A transferee of residential land acquired under Batas Pambansa Blg. 185 may still avail of the privileges granted under R.A. 7042 as amended by R.A. 8179.
For business or other commercial purpose – 5,000 square meters of urban land or three hectares of rural land. Section 5 of Rule XII states: “the land should be primarily, directly and actually used in the performance or conduct of the owner’s business or commercial activities in the broad areas of agriculture, industry and services including the lease of land but excluding the buying or selling thereof.”
– Ownership (when still a Filipino citizen) of urban or rural land used for business purposes will lower the 5,000 square meter and 3 hectare limits.
– Ownership of only one type of land is allowed either urban or rural not both.
– Ownership is restricted to 2 lots. Each lot must be in a different municipality.

Ownership Of Houses or Buildings by Foreigners in the Philippines

Foreigners my own buildings or houses in the Philippines legally; as long as they do not own the land on which it is built.

Foreign individuals, corporations or associations may lease land for a period of 25 years renewable for another 25 years. (P. D. No 471, Fixing a Maximum Period for the Duration of Leases or Private Lands to Aliens)

Companies or individuals investing in the Philippines may receive government permission to lease land for up to 50 years renewable for another 25 years. (Republic Act No. 7652, otherwise know as the Investors’ Lease Act)

Foreign Ownership of Corporations in the Philippines

Foreign investors usually have the same rights as Filipino citizens and must register their businesses with the Securities and Exchange Commission (SEC) (corporation, partnership, branch office or representative office) or with the Department of Trade and Industry’s Bureau of Trade Regulation and Consumer Protection (sole proprietorship). Foreign ownership of corporations is defined in the Corporation Code of the Philippines. The Foreign Investment Act (R.A. 7042, 1991, amended by R.A. 8179, 1996) liberalized the entry of foreign investment into the Philippines.

Businesses with Foreign Investment Restrictions

Within the 1991 Foreign Investment Act (FIA) there are 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. Negative List A & Foreign ownership is limited for reasons of security, defense, risk to health and morals and protection of small and medium scale enterprises. Negative List B

Domestic Corporations (subsidiary)

A registered company with at least 60% Filipino ownership is considered as having Philippine nationality; if more than 40% foreign-owned, it is considered a foreign owned domestic corporation.

More than 40% and up to 100% foreign ownership of a Domestic Market Enterprise is allowed as long as the paid-in capital is a minimum of USD 200,000.00. Employing a minimum of 50 direct employees or using advanced technology may allow a paid-in capital of less than USD 100,000.00 (R.A. 7042 as amended by R.A. 8179).**

Retail Trade Enterprises

100% foreign ownership is allowed for Philippine retail trade enterprises: (a) with paid-up capital of USD 2,500,000.00 or more provided that investments for establishing a store is not less than USD 830,000.00; or (b) specializing in high end or luxury products, provided that the paid-up capital per store is not less than USD 250,000.00 (Sec. 5 of R.A. 9762). No foreign equity is allowed in Retail Trade Enterprises with less than the above mentioned capital.

Export Businesses

An export enterprise is defined as a business who exports at least 60% of its output.
Export Business Enterprises may be 100% fully foreign owned and may file with the SEC for an exemption of the paid-up capital requirement of USD 200,000.00.
KPO, BPO, Back Office, IT, Web Development and call centers are all considered Philippines Export Enterprises.

** Unless otherwise indicated in the Philippine Foreign Investment Negative List

Foreign ownership of land in the Philippines