Republic Act No. 7916

Special Economic Zone Act of 1995

CHAPTER 1
PURPOSES AND OBJECTIVES; ESTABLISHMENT AND NATURE OF SPECIAL ECONOMIC ZONES; COORDINATION WITH OTHER SIMILAR SCHEMES

SECTION 1. Title. – This act shall be known and cited as “The Special Economic Zone Act of 1995.”

SECTION 2. Declaration of Policy. –
It is the declared policy of the government to translate into practical realities the following State policies and mandates in the 1987 Constitution, namely:

a)”The State recognizes the indispensible role of the private sector, encourages private enterprise, and provides incentives to needed investments.” (Sec. 20, Atr. II)

b)”The State shall promote the preferential use of Filipino labor, domestic materials and locally produced goods, and adopt measures that help make them competitive.” (Sec. 12, Art. XII)

In pursuance of these policies, the government shall actively encourage, promote, induce and accelerate a sound and balanced industrial, economic and social development of the country in order to provide jobs to the people especially those in the rural areas, increase their productivity and their individual and family income, and thereby improve the level and quality of their living condition through the establishment, among others, of special economic zones in suitable and strategic locations in the country and through measures that shall effectively attract legitimate and productive foreign investments.

SECTION 3. Purposes, Intents and Objectives. – It is the purpose, intent and objective of this Act:

a)To establish the legal framework and mechanisms for the integration, coordination, planning and monitoring of special economic zones, industrial estates/parks, export processing zones and other economic zones;

b)To transform selected areas in the country into highly developed agro-industrial, commercial, tourist, banking investment, and financial centers, where highly trained workers and efficient services will be available to commercial enterprises;

c)To promote the flow of investors, both foreign and local, into special economic zones which would generate employment opportunities and establish backward and forward linkages among industries in and around the economic zones;

d)To stimulate the repatriation of Filipino capital by providing attractive climate and incentives for business activity;

e)To promote financial and industrial cooperation between the Philippines and industrialized countries through technology-intensive industries that will modernize the country’s industrial sector and improve productivity levels by utilizing new technological and managerial know-how; and

f)To vest the special economic zones on certain areas thereof with the status of a separate customs territory within the framework of the Constitution and the national sovereignty and territorial integrity of the Philippines.

SECTION 4. Definition of Terms. – For purposes of this Act, the following definitions shall apply to the following terms:

a)”Special economic zones (SEZ)” – hereinafter referred to as the ECOZONES, are selected areas with highly developed or which have the potential to be developed into agro-industrial, industrial tourist/recreational, commercial, banking, investment and financial centers. An ECOZONE may contain any or all of the following: industrial estates (IEs), export processing zones (EPZs), free trade zones, and tourist/recreational centers.

b)”Industrial estate (IE)” – refers to a tract of land subdivided and developed according to a comprehensive plan under a unified continuos management and with provisions for basic infrastructure and utilities, with or without pre-built standard factory buildings and community facilities for the use of the community of industries.

c)”Export processing zone (EPZ)” – a specialized industrial estate located physically and/or administratively outside customs territory, predominantly oriented to export production. Enterprises located in export processing zones are allowed to import capital equipment and raw materials free from duties, taxes and other import restrictions.

d)”Free trade zone” – an isolated policed area adjacent to a port of entry (as a seaport) and/or airport where imported goods may be unloaded for immediate transshipment or stored, repacked, sorted, mixed, or otherwise manipulated without being subject to import duties. However, movement of these imported goods from the free-trade area to a non-free-trade area in the country shall be subject to import duties.

Enterprises within the zone are granted preferential tax treatment and immigration laws are more lenient.

SECTION 5. Establishment of ECOZONES. – To ensure the viability and geographic dispersal of ECOZONES through a system of prioritization, the following areas are initially identified as ECOZONES, subject to the criteria specified in Section 6:

a)So much as may be necessary of that portion of Morong, Hermosa, Dinalupihan, Orani, Samal, and Abucay in the Province of Bataan;

b)So much as may be necessary of that portion of the municipalities of Ibaan, Rosario, Taysan, San Jose, San Juan, and cities of Lipa and Batangas;

c)So much as may be necessary of that portion of the City of Cagayan de Oro in the Province of Misamis Oriental;

d)So much as may be necessary of that portion of the City of Iligan in the Province of Lanao del Norte;

e)So much as may be necessary of that portion of the Province of Saranggani;

f)So much as may be necessary of that portion of the City of Laoag in the Province of Ilocos Norte;

g)So much as may be necessary of that portion of Davao City and Samal Island in the Province of Ilocos Norte;

h)So much as may be necessary of that portion of Oroquieta City in the Province of Misamis Occidental;

i)So much as may be necessary of that portion of Tubalan Cove, Malita in the Province of Davao del Sur;

j)So much as may be necessary of that portion of Baler, Dinalungan and Casiguran including its territorial waters and islets and its immediate environs in the Province of Aurora;

k)So much as may be necessary of that portion of cities of Naga and Iriga in the Province of Camarines Sur, Legaspi and Tabaco in the Province of Albay, and Sorsogon in the Province of Sorsogon;

l)So much as may be necessary of that portion of Bataan Island in the province of Batanes;

m)So much as may be necessary of that portion of Lapu-lapu in the Island of Mactan, and the municipalities of Balamban and Pinamungahan and the cities of Cebu and Toledo and the Province of Cebu, including its territorial waters and islets and its immediate environs;

n)So much as may be necessary of that portion of Tacloban City;

o)So much as may be necessary of that portion of the Municipality of Barugo in the Province of Leyte;

p)So much as may be necessary of that portion of the Municipality of Buenavista in the Province of Guimaras;

q)So much as may be necessary of that portion of the municipalities of San Jose de Buenavista, Hamtic, Sibalom, and Culasi in the Province of Antique;

r)So much as may be necessary of that portion of the municipalities of Catarman, Bobon and San Jose in the Province of Northern Samar, the Island of Samar;

s)So much as may be necessary of that portion of the Municipality of Ternate and its immediate environs in the Province of Cavite;

t)So much as may be necessary of that portion of Polloc, Parang in the Province of Maguindanao;

u)So much as may be necessary of that portion of the Municipality of Boac in the Province of Marinduque;

v)So much as may be necessary of that portion of the Municipality of Pitogo in the Province of Zamboanga del Sur;

w)So much as may be necessary of that portion of Dipolog City-Manukan Corridor in the Province of Zamboanga del Norte;

x)So much as may be necessary of that portion of Mambajao, Camiguin Province;

y)So much as may be necessary of that portion of Infanta, Real, Polillo, Alabat, Atimonan, Mauban, Tiaong, Pagbilao, Mulanay, Tagkawayan, and Dingalan Bay in the Province of Quezon;

z)So much as may be necessary of that portion of Butuan City and the Province of Agusan del Norte, including its territorial waters and islets and its immediate environs;

aa)So much as may be necessary of that portion of Roxas City including its territorial waters and islets and its immediate environs in the Province of Capiz;

bb)So much as may be necessary of that portion of San Jacinto, San Fabian, Mangaldan, Lingayen, Sual, Dagupan, Alaminos, Manaoag, Binmaley in the Province of Pangasinan;

cc)So much as may be necessary of that portion of the autonomous region;

dd)So much as may be necessary of that portion of Masinloc, Candelaria and Sta. Cruz in the Province of Zambales;

ee)So much as may be necessary of that portion of the Palawan Island;

ff)So much as may be necessary of that portion of General Santos City in South Cotabato and its immediate environs;

gg)So much as may be necessary of that portion of Dumaguete City and Negros Oriental, including its territorial waters and islets and its immediate environs.

hh)So much as may be necessary of that portion of the Province of Ilocos Sur;

ii)So much as may be necessary of that portion of the Province of La Union;

jj)So much as may be necessary of that portion of the Province of Laguna, including its territorial waters and its immediate environs;

kk)So much as may be necessary of that portion of the Province of Rizal;

ll)All existing export processing zones and government-owned industrial estates; and

mm) Any private industrial estate which shall voluntarily apply for conversion into an ECOZONE.

This areas shall be developed through any of the following schemes:

(i)Private initiative;

(ii)Local government initiative with the assistance of the national government; and

(iii)National government initiative.

These metes and bounds of each ECOZONE are to be delineated and more particularly described in a proclamation to be issued by the President of the Philippines, upon the recommendation of Philippine Economic Zone Authority (PEZA), which shall be established under this Act, in coordination with the municipal and/or city council, National Land Use Coordinating Committee and/or the Regional Land Use Committee.

SECTION 6. Criteria for the Establishment of Other ECOZONES. – In addition to the ECOZONES identified in Section 5 of this Act, other areas may be established as ECOZONES in a proclamation to be issued by the President of the Philippines subject to the evaluation and recommendation of the PEZA, based on a detailed feasibility and engineering study which must conform to the following criteria:

a)The proposed area must be identified as a regional growth center in the Medium-Term Philippine Development Plan or by the Regional Development Council;

b)The existence of required infrastructure in the proposed ECOZONE, such as roads, railways, telephones, ports, airports, etc., and the suitability and capacity of the proposed site to absorb such improvements;

c)The availability of water source and electric power supply for use of the ECOZONE;

d)The extent of vacant lands available for industrial and commercial development and future expansion of the ECOZONE as well as lands adjacent to the ECOZONE available for development of residential areas for the ECOZONE workers;

e)The availability of skilled, semi-skilled and non-skilled trainable labor force in and around the ECOZONE;

f)The area must have a significant incremental advantage over the existing economic zones and its potential profitability can be established;

g)The area must be strategically located; and

h)The area must be situated where controls can easily be established to curtail smuggling activities.

The areas which do not meet the foregoing criteria may be established as ECOZONES: Provided, That the said area shall be developed only through local government and/or private sector initiative under any of the schemes allowed in Republic Act. No. 6957 (the build-operate-transfer law), and without any financial exposure on the part of the national government: Provided, further, That the area can be easily secured to curtail smuggling activities: Provided, finally, That after five (5) years the area must have attained a substantial degree of development, the indicators of which shall be formulated by the PEZA.

SECTION 7. ECOZONE to be a Decentralized Agro-Industrial, Industrial, Commercial/Trading, Tourist, Investment and Financial Community.-
Within the framework of the Constitution, the interest of national sovereignty and territorial integrity of the Republic, ECOZONE shall be developed, as much as possible, into a decentralized, self-reliant and self-sustaining industrial, commercial/trading, agro-industrial, tourist, banking, financial and investment center with minimum government intervention. Each ECOZONE shall be provided with transportation, telecommunications, and other facilities needed to generate linkage with industries and employment opportunities for its own inhabitants and those of nearby towns and cities.

The ECOZONE shall administer itself on economic, financial, industrial, tourism development and such other matters within the exclusive competence of the national government. The ECOZONE may establish mutually beneficial economic relations with other entities within the country, or, subject to the administrative guidance of the Department of Foreign Affairs and/or the Department of Trade and Industry, with foreign entities or enterprises. Foreign citizens and companies owned by non-Filipinos in whatever proportion may set up enterprises in the ECOZONE, either by themselves or in joint venture with Filipinos in any sector of industry, international trade and commerce within the ECOZONE. Their assets, profits and other legitimate interests shall be protected: Provided, That the ECOZONE through the PEZA may require a minimum investment for any ECOZONE enterprise in freely convertible currencies: Provided, further, That the new investments shall fall under the priorities, thrusts and limits provided for in this Act.

SECTION 8. ECOZONE to be Operated and Managed as Separate Customs Territory.- The ECOZONES shall be managed and operated by the PEZA as separate customs territory.

The PEZA is hereby vested with the authority to issue certificates of origin products manufactured or processed in each ECOZONE in accordance with the prevailing rules of origin, and the pertinent regulations of the Department of Trade and Industry and/or the Department of Finance.

SECTION 9. Defense and Security. – The defense of the ECOZONE and the security of its perimeter fence shall be the responsibility of the national government in coordination with the PEZA. Military forces sent by the national government for the purpose of defense shall not interfere in the internal affairs of any of the ECOZONE and expenditure for these military forces shall be borne by the national government. The PEZA may provide and establish the ECOZONES’ internal security and firefighting forces.

SECTION 10. Immigration. – Any investor within the ECOZONE whose initial investment shall not be less than One hundred fifty thousand dollars ($150,000), his/her spouse and dependent children under twenty-one (21) years of age shall be granted permanent resident status within the ECOZONE. They shall have freedom of ingress and egress to and from the ECOZONE without any need of special authorization from the Bureau of Immigration.

The PEZA shall issue working visas renewable every two (2) years to foreign executives and other aliens, possessing highly-technical skills which no Filipino within the ECOZONE possesses, as certified by the Department of Labor and Employment. The names of aliens granted permanent residents status and working visas by the PEZA shall be reported to the Bureau of Immigration within thirty (30) days after issuance thereof.

CHAPTER II
GOVERNING STRUCTURES

SECTION 11. The Philippine Economic Zone Authority (PEZA) Board. – There is hereby created a body corporate to be known as the Philippine Economic Zone Authority (PEZA) attached to the Department of Trade and Industry. The Board shall have a director general with the rank of a department undersecretary who shall be appointed by the President. The director general shall be at least forty (40) years of age, of proven probity and integrity, and with a degree in economics, business, public administration, law, management or its equivalent.

The director general shall be assisted by three (3) deputy directors general each for policy and planning, administration and operations, who shall be appointed by the PEZA Board, upon the recommendation of the director general. The deputy directors general shall be at least thirty-five (35) years, old, with proven probity and integrity and with a degree in economics, business, public administration, law, management or its equivalent. They must have career executive service eligibility.

The Board shall be composed of the director general as ex officio chairman with eight(8) members as follows: the Secretaries or their representatives of the Department of Trade and Industry, the Department of Finance, the Department of Labor and Employment, the Department of the Interior and Local Government, the National Economic and Development Authority, and the Bangko Sentral ng Pilipinas, one (1) representative from the investors/business sector in the ECOZONE.

The existing Export Processing Zone Authority (EPZA) created under Presidential Decree No. 66 shall evolve into the PEZA in accordance with the guidelines and regulations set forth in an executive order issued for this purpose.

Members of the Board shall receive a per diem of not less than the amount equivalent to the representation and transportation allowances of the members of the Board and/or as may be determined by the Department of Budget and Management: Provided, however, That the per diem collected per month does not exceed the equivalent of four (4) meetings.

SECTION 12. Functions and Powers of PEZA Board.- The Philippine Economic Zone Authority (PEZA) Board shall have the following functions and powers:

a)Set the general policies on the establishments and operations of the ECOZONES, industrial estates, export processing zones, free trade zones, and the like;

b)Review proposals for the establishment of ECOZONES based on the criteria under Section 6 and endorse the President the establishment of the ECOZONES , industrial estates, export processing zones, free trade zones and the like. Thereafter, it shall facilitate and assist in the organization of said entities;

c)Regulate and undertake the establishment, operation and maintenance of utilities, other services and infrastructure in the ECOZONE, such as heat, light and power, water supply, telecommunications, transport, toll roads and bridges, port services, etc., and to fix just reasonable and competitive rates, fares, charges and fees therefor;

d)Approve the annual budget of the PEZA and the ECOZONE development plans;

e)Issue rules and regulations to implement the provisions of this Act in so far as its powers and functions are concerned;

f)Exercise its powers and functions as provided for in this Act; and

g)Render annual reports to the President and the Congress

SECTION 13. General Powers and Functions of the Authority.- The PEZA shall have the following powers and functions:

a)To operate, administer, manage and develop the ECOZONE according to the principles and provisions set forth in this Act;

b)To register, regulate and supervise the enterprises in the ECOZONE in an efficient and decentralized manner;

c)To coordinate with local government units and exercise general supervision over the development, plans, activities and operations of the ECOZONES, industrial estates, export processing zones, free trade zones, and the like;

d)In coordination with local government units concerned and appropriate agencies, to construct, acquire, own, lease operate and maintain on its own or through contract, franchise, license, bulk purchase from the private sector and build-operate-transfer scheme or joint venture, adequate facilities and infrastructure, such as light and power sytems, water supply and distribution systems, telecommunications and transportation, buildings, structures, warehouses, roads, bridges, ports and other facilities for the operation and development of the ECOZONE;

e)To create, operate and/or contract to operate such agencies and functional units or offices of the authority as it may deem necessary;

f)To adopt, alter and use a corporate seal; make contracts, lease, own or otherwise dispose of personal or real property; sue and be sued; and otherwise carry out its duties and functions as provided for in this Act;

g)To coordinate the formulation and preparation of the development plans of the different entities mentioned above;

h)To coordinate with the National Economic and Development Authority (NEDA), the Department of Trade and Industry (DTI), the Department of Science and Technology (DOST), and the local government units and appropriate government agencies for policy and program formulation and implementation; and

i)To monitor and evaluate the development and requirements of entities in subsection (a) and recommend to the local government units or other appropriate authorities the location, incentives, basic services, utilities and infrastructure required or to be made available for said entities.

SECTION 14. Powers and Functions of the Director General. –The director general shall be the overall coordinator of the policies, plans and programs of the ECOZONES. As such, he shall provide overall supervision over and general direction to the development and operations of these ECOZONES. He shall determine the structure and the staffing pattern and personnel complement of the PEZA and establish regional offices, when necessary, subject to the approval of the PEZA Board.

In addition, he shall have the following specific powers and responsibilities:

a)To safeguard all the lands, buildings, records, monies, credits and other properties and rights of the ECOZONES;

b)To ensure that all revenues of the ECOZONE are collected and applied in accordance with its budget;

c)To ensure that the investors/firms and employees of the ECOZONES are properly discharging their respective duties;

d)To give such information and recommend such measures to the Board, as he shall deem advantageous to the ECOZONE;

e)To submit to the Board, the ongoing and proposed projects, work and financial program, annual budget of receipts, and expenditures of the ECOZONE;

f)To represent the ECOZONE in all its business matters and sign on its behalf after approval of the Board, all its bonds, borrowings, contracts, agreements and obligations made in accordance with this Act;

g)To acquire jurisdiction, as he may deem proper, over the protests, complaints, and claims of the residents and enterprises in the ECOZONE concerning administrative matters;

h)To recommend to the Board the grant, approval, refusal, amendment or termination of the ECOZONE franchises, licenses, permits, contracts, and agreements in accordance with the policies set by the Board;

i)To require owners of houses, buildings or other structures constructed without the necessary permit whether constructed on public or private lands, to remove or demolish such houses, buildings, structures within sixty (60) days after notice and upon failure of such owner to remove or demolish such house, building or structure within said period, the director general or his authorized representative may summarily cause its removal or demolition at the expense of the owner, any existing law, decree, executive order and other issuances or part thereof to the contrary notwithstanding;

j)To take such emergency measures as may be necessary to avoid fires, floods and mitigate the effects of storms and other natural or public calamities;

k)To prepare and make out plans for the physical and economic development of the ECOZONE, including zoning and land subdivision, and issue such rules and regulations which shall be submitted to the Board for its approval; and

l)To perform such other duties and exercise such powers as may be prescribed by the Board, and to implement the policies, rules and regulations set by the PEZA.

SECTION 15. Administration of Each ECOZONE.- Each ECOZONE shall be organized, administered, managed and operated by the ECOZONE executive committee composed of the following:

a)The administrator who shall be appointed by the PEZA Board upon recommendation of the director general;and

b)One (1) deputy administrator to be appointed by the Board upon recommendation of the director general.

An ECOZONE advisory body shall be created with the following members:

1.The president of the association of investors in the ECOZONE;

2.The governor of the province where the ECOZONE is located;

3.The mayor/s of the municipality/ies or city/ies where the ECOZONE is located;

4.The president of an accredited labor union in the ECOZONE;

5.The representative of the business sector in the periphery of the ECOZONE; and

6.The representative of the PEZA.

The ECOZONE advisory body shall have the following functions:

(i)Advise the ECOZONE management on matters pertaining to policy initiatives; and

(ii)Assist the ECOZONE management in settling problems arising between labor and any enterprise in the ECOZONE.

SECTION 16. Salary and Other Emoluments. – The salary of the director general shall be in accordance with the revised compensation and position classification system.

SECTION 17. Investigation and Inquiries. – Upon a written formal complaint made under oath, which on its face provides reasonable basis to believe that some anomaly or irregularity might have been committed, the PEZA or the administrator of the ECOZONE concerned, shall have the power to inquire into the conduct of firms or employees of the ECOZONE and to conduct investigations, and for that purpose may subpoena witnesses, administer oaths, and compel the production of books, papers, and other evidences: Provided, That to arrive at the truth, the investigator (s) may grant immunity from prosecution to any person whose testimony or whose possessions of documents or other evidence is necessary or convenient to determine the truth in any investigation conducted by him or under the authority of the PEZA or the administrator of the ECOZONE concerned.

SECTION 18. Prohibition Against Holding Any Other Office. – The director general, deputy directors general, administrators, officials and staff or assistants of the PEZA shall not hold any other office or employment within or outside the PEZA during their tenure, directly or indirectly, practice any profession, participate in any business, or be financially interested in any contract with, or in any franchise, or special privilege granted by the PEZA or national government, or any subdivision, agency, or instrumentality thereof, including any government-owned or controlled corporation, or its subsidiary.

SECTION 19. Disbursement of Funds. – No money shall be paid out of the funds of any ECOZONE except in pursuance of the budget as formulated and approved by the PEZA.

SECTION 20. Full Disclosure of Financial and Business Interests. – Every member of the Board of the PEZA, the director general, the deputy directors general, and their staff shall, upon assumption of office, make full disclosure of their financial and business interests.

CHAPTER III
OPERATIONS WITHIN THE ECOZONE

SECTION 21. Development Strategy of the ECOZONE. – The strategy and priority of development of each ECOZONE established pursuant to this Act shall be formulated by the PEZA, in coordination with the Department of Trade and Industry and the National Economic and Development Authority: Provided, That such development strategy is consistent with the priorities of the national government as outlined in the medium-term Philippine development plan.

It shall be the policy of the government and the PEZA to encourage and provide incentives and facilitate private sector participation in the construction and operation of public utilities and infrastructure in the ECOZONE, using any of the schemes allowed in Republic Act. No. 6957 (the build-operate-transfer law).

SECTION 22. Survey or Resources. – The PEZA shall, in coordination with appropriate authorities and neighboring cities and municipalities, immediately conduct a survey of the physical, natural assets and potentialities of the ECOZONE areas under it jurisdiction.

SECTION 23. Fiscal Incentives. – Business establishments operating within the ECOZONES shall be entitled to the fiscal incentives as provided for under Presidential Decree No. 66, the law creating the Export Processing Zone Authority, or those provided under Book VI of Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987.

Furthermore, tax credits for exporters using local materials as inputs shall enjoy the same benefits provided for in the Export Development Act of 1994.

SECTION 24. Exemption from Taxes Under the National Internal Revenue Code.  –
Any provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the ECOZONE shall be remitted to the national government. This five percent (5%) shall be shared and distributed as follows:

a)Three percent (3%) to the national government;

b)One percent (1%) to the local government units affected by the declaration of the ECOZONE in proportion to their population, land area, and equal sharing factors; and

c)One percent (1%) for the establishment of a development fund to be utilized for the development of municipalities outside and contiguous to each ECOZONE: Provided, however, That the respective share of the affected local government units shall be determined on the basis of the following formula:

1)Population – fifty percent (50%)
2)Land area – twenty-five percent (25%); and
3)Equal sharing – twenty-five percent (25%)

SECTION 25. Applicable National Taxes. – All income derived by persons and all service establishments in the ECOZONE shall be subject to taxes under the National Internal Revenue Code.

SECTION 26. Domestic Sales. –
Goods manufactured by an ECOZONE enterprise shall be made available for immediate retail sales in the domestic market, subject to payment of corresponding taxes on the raw materials and other regulations that may be adopted by the Board of the PEZA.

However, in order to protect the domestic industry, there shall be a negative list of industries that will be drawn up by the PEZA. Enterprises engaged in the industries included in the negative list shall not be allowed to sell their products locally. Said negative list shall be regularly updated by the PEZA. The PEZA, in coordination with the Department of Trade and Industry and the Bureau of Customs, shall jointly issue the necessary implementing rules and guidelines for the effective implementation of this section.

SECTION 27. Applicability of Banking Laws and Regulations. –
Existing banking laws and Bangko Sentral ng Pilipinas (BSP) rules and regulations shall apply to banks and financial institutions to be established in the ECOZONE and to other ECOZONE-registered enterprises. Among other pertinent regulations, these include those governing foreign exchange and other current account, transactions (trade and non-trade) local and foreign borrowings, foreign investments, establishment and operation of local and foreign banks, foreign currency deposit units, offshore banking units and other financial institutions under the supervision of the BSP.

SECTION 28. After Tax Profits. – Without prior Bangko Sentral approval, after tax profits and other earnings of foreign investments in enterprises in the ECOZONE may be remitted outward in the equivalent foreign exchange through any of the banks licensed by the Bangko Sentral ng Pilipinas in the ECOZONE: Provided, however, That such foreign investments in said enterprises have been previously registered with the Bangko Sentral.

SECTION 29. Eminent Domain. – The areas comprising an ECOZONE may be expanded or reduced when necessary. For this purpose, the government shall have the power to acquire, either by purchase, negotiation or condemnation proceedings, any private lands within or adjacent to the ECOZONE for:

a)Consolidation of lands for zero development purposes;

b)Acquisition of right way to the ECOZONE; and

c)The protection of watershed areas and natural assets valuable to the prosperity of the ECOZONE.

SECTION 30. Leases of Lands and Buildings. – Lands and buildings in each ECOZONE may be leased to foreign investors for a period not exceeding fifty (50) years renewable once for a period of not more than twenty-five (25) years, as provided for under Republic Act No. 7652, otherwise known as the Investors’ Lease Act. The leasehold right acquired under long-term contracts may be sold, transferred or assigned, subject to the conditions set forth under Republic Act. No. 7652.

SECTION 31. Land Conversion. – Agricultural lands may be converted for residential, commercial, industrial and other non-agricultural purposes, subject to the conditions set forth under Republic Act. No.. 6657 and other existing laws.

SECTION 32. Shipping and Shipping Register. – Private shipping and related business including private container terminals may operate freely in the ECOZONE, subject only to such minimum reasonable regulations of local application which the PEZA may prescribe.

The PEZA shall, in coordination with the Department of Transportation and Communications, maintain a shipping register for each ECOZONE as a business register of convenience for ocean-going vessels and issue related certification. Ships of all sizes, descriptions and nationalities shall enjoy access to the ports of the ECOZONE, subject only to such reasonable requirement as may be prescribed by the PEZA in coordination with the appropriate agencies of the national government.

SECTION 33. Protection of Environment. – The PEZA, in coordination with the appropriate agencies, shall take concrete and appropriate steps and enact the proper measures for the protection of the local environment.

SECTION 34. Termination of Business. – Investors in the ECOZONE who desire to terminate business or operations shall comply with such requirements and procedures which the PEZA shall set, particularly those relating to the clearing of debts. The assets of the closed enterprises can be transferred and the funds can be remitted out of the ECOZONE subject to the rules, guidelines and procedures prescribed jointly by the Bangko Sentral ng Pilipinas, the Department of Finance and the PEZA.

SECTION 35. Registration of Business Enterprises. – Business enterprises within a designated ECOZONE shall register with the PEZA to avail of all incentives and benefits provided for in this Act.

SECTION 36. One Stop Shop Center. – The PEZA shall establish a one stop shop center for the purpose of facilitating the registration of new enterprises in the ECOZONE. Thus, all appropriate government agencies that are involved in registering, licensing or issuing permits to investors shall assign their representatives to the ECOZONE to attend to investor’s requirements.

CHAPTER IV
INDUSTRIAL HARMONY IN THE ECOZONES

SECTION 37. Labor and Management Relations. – Except as otherwise provided in this Act, labor and management relations in the ECOZONE shall be governed by the existing Labor Code of the Philippines. Employees and personnel in the ECOZONE enterprises shall receive salaries and benefits and shall enjoy working conditions not less than those provided under the Philippine Labor Code and other relevant laws, issuances, rules and regulations of the Philippine government and the Department of Labor and Employment.

SECTION 38. Promotion of Industrial Peace. –
In the pursuit of industrial harmony in the ECOZONE, a tripartite body composed of one (1) representative each from the Department of Labor and Employment, labor sector and business and industry sectors shall be created in order to formulate a mechanism under a social pact for the enhancement and preservation of industrial peace in the ECOZONE within thirty (30) days after the effectivity of this Act.

SECTION 39. Master Employment Contracts. – The PEZA, in coordination with the Department of Labor and Employment, shall prescribe a master employment contract for all ECOZONE enterprise staff members and workers, the terms of which provide salaries and benefits not less than those provided under this Act, the Philippine Labor Code, as amended, and other relevant issuances of the national government.

SECTION 40. Percentage of Foreign Nationals. –
Employment of foreign nationals hired by ECOZONE enterprises in a supervisory, technical or advisory capacity shall not exceed five percent (5%) of its workforce without the express authorization of the Secretary of Labor and Employment.

SECTION 41. Migrant Worker. – The PEZA, in coordination with the Department of Labor and Employment, shall promulgate appropriate measures and programs leading to the expansion of the services of the ECOZONE to help the local governments of nearby areas meet the needs of the migrant workers.

SECTION 42. Incentive Scheme. – Ad additional deduction equivalent to one-half (1/2) of the value of training expenses incurred in developing skilled or unskilled labor or for managerial or other management development programs incurred by enterprises in the ECOZONE can be deducted from the national government’s share of three percent (3%) as provided in Section 24.

The PEZA, the Department of Labor and Employment, and the Department of Finance shall jointly make a review of the incentive scheme provided in this section every two (2) years or when circumstances so warrant.

CHAPTER V
NATIONAL GOVERNMENT AND OTHER ENTITIES

SECTION 43. Relationship with the Regional Development Council. – The PEZA shall determine the development goals for the ECOZONE within the framework of national development plans, policies and goals, and the administrator shall, upon approval by the PEZA Board, submit the ECOZONE plans, programs and projects to the regional development council for inclusion in and as inputs to the overall regional development plan.

SECTION 44. Relationship with Local Government Units. – Except as herein provided, the local government units comprising the ECOZONE shall retain their basic autonomy and identity. The cities shall be governed by their respective charters and the municipalities shall operate and function in accordance with Republic Act No. 7160, otherwise known as the Local Government Code of 1991.

SECTION 45. Relationship of PEZA to Privately Owned Industrial Estates. –
Privately-owned industrial estates shall retain their autonomy and independence and shall be monitored by the PEZA for implementation of incentives.

SECTION 46. Transfer of Resources. – The relevant functions of the Board of Investments over industrial estates and agri-export processing estates shall be transferred to the PEZA. The resources of government-owned industrial estates and similar bodies except the Bases Conversion Development Authority and those areas identified under Republic Act No. 7227, are hereby transferred to the PEZA as the holding agency. They are hereby detached from their mother agencies and attached to the PEZA for policy, program and operational supervision.

The Boards of the affected government-owned industrial estates shall be phased out and only the management level and an appropriate number of personnel shall be retained. Government personnel whose services are not retained by the PEZA or any government office within the ECOZONE shall be entitled to separation pay and such retirement and other benefits they are entitled to under the laws then in force at the time of their separation: Provided, That in no case shall the separation pay less than one and one-fourth (1 1/4) month of every year of service.

CHAPTER VI
MISCELLANEOUS PROVISIONS

SECTION 47. Appropriation. – Upon the effectivity of this Act, all funds of the former Export Processing Zone Authority (PEZA) shall be transferred to the newly-created Philippine Economic Zone Authority. Thereafter, any sum as may be necessary to augment its capital outlay, shall be included in the General Appropriations Act to be treated as an equity of the national government.

Additional funding shall come from the following:

a)The annual subsidies, appropriations and/or other assets of the exports processing zone, and the industrial estates and other economic areas that have been absorbed/transferred to the PEZA as mandated in this Act;

b)The proceeds from the rent of lands, buildings, and other properties of the ECOZONES concerned;

c)The proceeds from fees, charges and other revenue-generating instruments which the PEZA is authorized to impose and collect under this Act;

d)The proceeds from bonds which the PEZA authorized to float both domestic and abroad; and

e)The advance rentals, license fees, and other charges which the PEZA is authorized to impose under this Act and which an investor is willing to advance payment for.

SECTION 48. Applicability of National Laws. – National laws shall prevail vis-a-vis ECOZONE rules, regulations and standards, unless there is a clear intent in this Act or other Acts of Congress to vest the ECOZONE specific powers and privileges not otherwise allowed under existing laws.

SECTION 49. Authority of the President to Advance Initial Funding. – Subject to existing laws, the President of the Philippines is hereby authorized to advance out of the savings of the Office of the President such funds as may be necessary to effect the organization of an ECOZONE which shall be reimbursed by the PEZA at reasonable term and condition.

SECTION 50. Non-applicability on Areas Covered by Republic Act No. 7227. –
This Act shall not be applicable to economic zones and areas already created or to be created under Republic Act No. 7227 or other special laws, and governed by authorities constituted pursuant thereto.

Any provision of this Act which provides benefits or privileges less than those granted or imposes obligations or burdens more onerous to special economic zones created or to be created under special laws shall not apply to them.

SECTION 51. Ipso Facto Clause. – All privileges, benefits, advantages or exemptions granted to special economic zones under Republic Act No. 7227, shall ipso facto be accorded to special economic zones already created or to be created under this Act. The free port status shall not be vested upon the new special economic zones.

SECTION 52. Separability Clause. – The provisions of this Act are hereby declared separable, and in the event one or more of such provisions or part thereof are declared unconstitutional, such declaration of unconstitutionality shall not affect the validity of the other provisions thereof.

SECTION 53. Interpretation/Construction. – The powers, authorities and functions that are vested in the Philippine Economic Zone Authority (PEZA) and the ECOZONES concerned are intended to establish decentralization of governmental functions and authority as well as an efficient and effective working relationship between the ECOZONE, the central government and the local government units.

SECTION 54. Repealing Clause. – All laws, acts, presidential decrees, executive orders, proclamations and/or administrative regulations which are inconsistent with the provisions of this Act, are hereby amended, modified, superseded or repealed accordingly.

SECTION 55. Implementing Rules and Regulations. – The Department of Trade and Industry, the National Economic and Development Authority, the Department of Finance, the Bureau of Customs, the Department of Agrarian Reform, the Department of the Interior and Local Government, the Philippine Economic Zone Authority, and the representatives from the technical staff of the Committee on Economic Affairs of both Houses of Congress shall formulate the implementing rules and regulations of this Act within ninety (90) days after its approval. Such rules and regulations shall take effect fifteen (15) days after their publication in a newspaper of general circulation in the Philippines.

SECTION 56. Transitory Provisions. – Prior to the effectivity of the implementing rules and regulations of this Act, the provisions of Presidential Decree No. 66, as amended, and its implementing rules and regulations shall remain in force.

SECTION 57. Effectivity. – This Act shall take effect upon its approval.
This Act which is a consolidation of House Bill No. 14295 and Senate bill No. 1061 was finally passed by the House of Representatives and the Senate on February 21, 1995.

a)To safeguard all the lands, buildings, records, monies, credits and other properties and rights of the ECOZONES;

b)To ensure that all revenues of the ECOZONE are collected and applied in accordance with its budget;

c)To ensure that the investors/firms and employees of the ECOZONES are properly discharging their respective duties;

d)To give such information and recommend such measures to the Board, as he shall deem advantageous to the ECOZONE;

e)To submit to the Board, the ongoing and proposed projects, work and financial program, annual budget of receipts, and expenditures of the ECOZONE;

f)To represent the ECOZONE in all its business matters and sign on its behalf after approval of the Board, all its bonds, borrowings, contracts, agreements and obligations made in accordance with this Act;

g)To acquire jurisdiction, as he may deem proper, over the protests, complaints, and claims of the residents and enterprises in the ECOZONE concerning administrative matters;

h)To recommend to the Board the grant, approval, refusal, amendment or termination of the ECOZONE franchises, licenses, permits, contracts, and agreements in accordance with the policies set by the Board;

i)To require owners of houses, buildings or other structures constructed without the necessary permit whether constructed on public or private lands, to remove or demolish such houses, buildings, structures within sixty (60) days after notice and upon failure of such owner to remove or demolish such house, building or structure within said period, the director general or his authorized representative may summarily cause its removal or demolition at the expense of the owner, any existing law, decree, executive order and other issuances or part thereof to the contrary notwithstanding;

j)To take such emergency measures as may be necessary to avoid fires, floods and mitigate the effects of storms and other natural or public calamities;

k)To prepare and make out plans for the physical and economic development of the ECOZONE, including zoning and land subdivision, and issue such rules and regulations which shall be submitted to the Board for its approval; and

l)To perform such other duties and exercise such powers as may be prescribed by the Board, and to implement the policies, rules and regulations set by the PEZA.

Implementing Rules & Regulations of the Foreign Investments Act of 1991

[Republic Act No. 7042]

AN ACT TO PROMOTE FOREIGN INVESTMENTS, PRESCRIBE THE PROCEDURES FOR REGISTERING ENTERPRISES DOING BUSINESS IN THE PHILIPPINES AND FOR OTHER PURPOSES

RULE I
DEFINITIONS

SECTION 1. Definition of Terms. – For the purpose of these Rules and Regulations:

a.  “Act” shall refer to Republic Act 7042 entitled “An Act to Promote Foreign Investments, Prescribe the Procedures for Registering Enterprises Doing Business in the Philippines, and for Other Purposes”, also known as the Foreign Investments Act of 1991, as amended.

b.  “Philippine national” shall mean a citizen of the Philippines or a domestic partnership or association wholly owned by the citizens of the Philippines; or 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; or 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 the Philippine nationals; Provided, that where a corporation 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 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 each of both corporation must be citizens of the Philippines, in order that the corporation shall be considered a Philippine national. The control test shall be applied for this purpose.

Compliance with the required Filipino ownership of a corporation shall be determined on the basis of outstanding capital stock whether fully paid or not, but only such stocks which are generally entitled to vote are considered.

For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential. Thus, stocks, the voting rights of which have been assigned or transferred to aliens cannot be considered held by Philippine citizens or Philippine nationals.

Individuals or juridical entities not meeting the aforementioned qualifications are considered as non-Philippine nationals.

c.  “Foreign corporation” shall mean one which is formed, organized or existing under laws other than those of the Philippines.

Branch office of a foreign company carries out the business activities of the head office and derives income from the host country.

Representative or liaison office deals directly, with the clients of the parent company but does not derive income from the host country and is fully subsidized by its head office. It undertakes activities such as but not limited to information dissemination and promotion of the company’s products as well as quality control of products.

d.  Investment shall mean equity participation in any enterprise organized or existing under the laws of the Philippines. It includes both original and additional investments, whether made directly as in stock subscription, or indirectly through the transfer of equity from one investor to another as in stock purchase. Ownership of bonds [including income bonds], debentures, notes or other evidences of indebtedness does not qualify as investments.

The purchase of stock options or stock warrants is not an investment until the holder thereof exercises his option and actually acquires stock from the corporation.

e.  “Foreign investment” shall mean an equity investment made by a non-Philippine national; Provided, however, That for purposes of determining foreign ownership, peso investments made by non-Philippine nationals shall be considered; Provided, further, That only foreign investments in the form of foreign exchange and/or other assets actually transferred to the Philippines and duly registered with the Central Bank (CB) and profits derived therefrom can be repatriated; and Provided, finally, That, for purposes of Section 8 of the Act, and Rule VIII, Section 6 of these Rules and Regulations, “Existing Foreign Investments” shall mean an equity investment made by a non-Philippine national duly registered with the SEC or the Bureau of Trade Regulation and Consumer Protection (BTRCP) in the form of foreign exchange and/or other assets transferred to the Philippines.

f.  “Doing business” shall include soliciting orders, service contracts, opening offices, whether liaison offices or branches; appointing representatives or distributors, operating under full control of the foreign corporation, domiciled in the Philippines or who in any calendar year stay in the country for a period totaling one hundred eighty [180] days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other 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.

The following acts shall not be deemed “doing business” in the Philippines:

1.  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;

2.  Having a nominee director or officer to represent its interest in such corporation;

3.  Appointing a representative or distributor domiciled in the Philippines which transacts business in the representative’s or distributor’s own name and account;

4.  The publication of a general advertisement through any print or broadcast media;

5.  Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines;

6.  Consignment by a foreign entity of equipment with a local company to be used in the processing of products for export;

7.  Collecting information in the Philippines; and

8.  Performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis, such as installing in the Philippines machinery it has manufactured or exported to the Philippines, servicing the same, training domestic workers to operate it, and similar incidental services.

g.  “Export enterprise” shall mean 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 and exports sixty percent [60%] or more of such purchases.

h.  “Exports” shall mean the volume of the Philippine port F. O. B. peso value, determined from invoices, bills of lading, inward letters of credit, loading certificates, and other commercial documents, of products exported directly by an export enterprise or the value of services including tourism sold by service-oriented enterprises to non-resident foreigners or the net selling price of export products sold by an export enterprise to another export enterprise that subsequently exports the same; Provided, That sales of export products to another export enterprise shall only be deemed exports when actually exported by the latter, as evidenced by loading certificates or similar commercial documents; and Provided, finally, That without actual exportation, the following shall be considered constructively exported for purposes of the Act: [1] sales of products to bonded manufacturing warehouses of export enterprises; [2] sales of products to export processing zone enterprises; [3] sales of products to export enterprises operating bonded trading warehouses supplying raw materials used in the manufacture of export products; and [4] sales of products to foreign military bases, diplomatic missions and other agencies and/or instrumentalities granted tax immunities of locally manufactured, assembled or repacked products whether paid for in foreign currency or pesos funded from inwardly remitted foreign currency.

Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad and other non-residents of the Philippines as well as returning overseas Filipinos under the Internal Export Program of the Government and paid for in convertible foreign currency inwardly remitted through the Philippine banking system shall also be considered exports.

i.  “Output” shall refer to the export enterprise’s total sales in a taxable year. The term sales shall refer to the value in case of heterogeneous products and volume in case of homogeneous products.

Heterogeneous products shall refer to products of different kinds and characteristics as well as to those of the same kind but with various categories using different units of measurement.

Homogeneous products shall refer to products of the same kind or category using a common unit of measurement.

j.  “Export ratio” shall refer to:

1.  the percentage share of the volume or peso value of goods exported to the total volume or value of goods sold in any taxable year if the export enterprise is engaged in manufacturing or processing;

2.  the percentage share of the peso value of services sold to foreigners to total earnings or receipts from the sale of its services from all sources in any taxable year if the export enterprise is service-oriented; Value of services sold shall refer to the peso value of all services rendered by an export enterprise to foreigners that are paid for in foreign currency and/or pesos funded from inwardly remitted foreign currency as properly documented by the export enterprise; or

3.  the percentage share of the volume or peso value of goods exported to the total volume or value of goods purchased domestically in any taxable year if the export enterprise is engaged in merchandise trading.

k.  “Domestic market enterprise” shall mean an enterprise which produces goods for sale, or renders service or otherwise engages in any business in the Philippines.

l. “Joint venture” shall mean two or more entities, whether natural or juridical, one of which must be a Philippine national, combining their property, money, efforts, skills or knowledge to carry out a single business enterprise for profit, which is duly registered with the SEC as a corporation or partnership.

m.  “Substantial partner” shall mean an individual or a firm who owns enough shares to be entitled to at least one [1] seat on the Board of Directors of a corporation, or in the case of a partnership, any partner.

n.  “Dangerous drug” as defined under Republic Act 6425 or the Dangerous Drugs Act, as amended, refers to either:

1. “Prohibited drug” which includes opium and its active components and derivatives, such as heroin and morphine; coca leaf and its derivatives, principally cocaine; alpha and bet eucaine; hallucinogenic drugs, such as mescaline, lysergic and dicthlylamide [LSD] and other substances producing similar effects; Indian hemp and its derivatives; all preparations made from any of the foregoing; and other drugs and chemical preparations whether natural or synthetic, with the physiological effects of a narcotic or hallucinogenic drug; or

2.  “Regulated drug” which includes, unless authorized by the Department of Health [DOH] and in accordance with the Dangerous Drugs Board, self-inducing sedatives, such as secobarbital, phenobarbital, pentobarbital, barbital, amobarbital or any other drug which contains a salt or a derivative of salt of barbituric acid; any salt, isomer, or salt of an isomer, of amphetamine such as benzedrine or dexedrine, or any drug which produces a physiological action similar to amphetamine; and hypnotic drugs, such as methaqualone, nitrazepam or any other compound producing similar physiological effects.

o.  “Advanced technology” refers to a higher degree or form of technology than what is domestically available and needed for the development of certain industries as subject to guidelines of the Department of Science and Technology [DOST].  Its introduction into the country through foreign investments under the terms and conditions of the Act must be linked to its appropriateness and adaptability to local conditions with a view towards eventual transfer and applicability including the upgrading of the indigenous technology available.

p.  “Paid-in equity capital” shall mean the total investment in a business that has been paid-in in a corporation or partnership or invested in a single proprietorship, which may be in cash or in property. It shall also refer to inward remittance or assigned capital in the case of foreign corporations.

q. “Foreign Investment Negative List [FINL]” or “Negative List” shall mean a list of areas of economic activity whose foreign ownership is limited to a maximum of forty percent [40%] of the outstanding capital stock in the case of a corporation, or capital in the case of a partnership.

r.  “NEDA Board” shall refer to the body constituted as such under Executive Order No. 230 entitled “Reorganizing the National Economic and Development Authority” and in which reside the powers and functions of the Authority.

s.  “NEDA” shall refer to the NEDA Secretariat, which is the body constituted as such under Executive Order No. 230 and which serves as the research and technical support arm and the Secretariat of the NEDA Board.

t.  “SEC” shall refer to the Securities and Exchange Commission.

u.  “BTRCP” shall refer to the Bureau of Trade Regulation and Consumer Protection as represented by the provincial offices of the Department of Trade and Industry [DTI].

v.  “BOI” shall refer to the Board of Investments.

w.  “Technology Transfer Board” shall refer to the Bureau of Patents, Trademarks and Technology Transfer (BPTTT).

x.  “Former natural born Filipino” shall mean those who have lost Philippine citizenship but were previously citizens of the Philippines falling in either of the following categories: [a] from birth without having to perform any act to acquire or perfect their Philippine citizenship; or [b] by having elected Philippine citizenship upon reaching the age of majority, if born before January 17, 1973, of a Filipino mother.

y.  “Transferee of private land” shall mean a person to whom the ownership rights of private land is transferred through either voluntary or involuntary sale, devise or donation or involuntary executions of judgment.

z.  “Direct employees” shall mean Filipino personnel hired and engaged under the control and supervision of the applicant investor/employer in the production of goods or performance of services. Excluded from this definition are personnel hired as casual, seasonal, learner, apprentice or any employee of subcontractor or those under fixed term employment.

aa.  “Start of commercial operation” shall mean the date when a particular enterprise actually begins production of the product for commercial purposes or commercial harvest in the case of agricultural activities. In the case of export traders and service exporters, the date when the initial export shipment in commercial quantity has been made or initial performance of service as borne out by the appropriate supporting documents.

RULE II
SCOPE

SECTION 1. Coverage. – The Act covers all investment areas or areas of economic activity except banking and other financial institutions which are governed and regulated by the General Banking Act and other laws under the supervision of the CB.

RULE III
BASIC GUIDELINES

SECTION 1. The Act covers restrictions pertaining to foreign equity participation only. All other regulations governing foreign investments remain in force.

SECTION 2. Monitoring of compliance with equity participation requirements. – The SEC or BTRCP, as applicable, shall monitor the compliance with the equity requirements of the Act.

RULE IV
REGISTRATION OF INVESTMENTS OF NON-PHILIPPINE NATIONALS

SECTION 1. Qualifications. –

a.  Any non-Philippine national may do business or invest in a domestic enterprise up to one hundred percent [100%] of its capital provided:

1.  it is investing in a domestic market enterprise in areas outside the FINL; or
2.  it is investing in an export enterprise whose products and services do not fall within Lists A and B [except for defense-related activities, which may be approved pursuant to Section 8(b)(1) of the Act] of the FINL.

Provided,  further,  That, as required by existing laws, the country or state of the applicant must also allow Filipino citizens and corporations to do business therein.

b.  Non-Philippine nationals qualified to do business per paragraph [a] above, but who will engage in more than one investment area, one or more of which is in the FINL, may be registered under the Act. However, said non-Philippine national will not be allowed to engage in the investment areas which are in the FINL.

c.  Existing enterprises which are non-Philippine nationals at the time of effectivity of the Act and which intend to increase the percentage of foreign equity participation under the Act, beyond that previously authorized by SEC, shall be governed by the qualifications in item [a] above. Thus, existing enterprises shall be allowed to increase the percentage share of foreign equity participation beyond current equity holdings only if their existing investment area is not in the FINL. Similarly, existing enterprises engaged in more than one [1] investment area shall be allowed to increase percentage of foreign equity participation if none of the investment areas they are engaged in is in the FINL.

Existing foreign corporations shall be allowed to increase capital even if their existing investment area is in the FINL.

Transfer of ownership from one foreign company to another shall be allowed even if the enterprise is engaged in an area in the FINL as long as there is the percentage share of foreign equity.

SECTION 2. Application for registration. –

a.  Filing of Application. Applications for registration shall be filed with the SEC in the case of foreign corporations and domestic corporations or partnerships which are non-Philippine nationals. In the case of single proprietorships, applications for Metro Manila shall be filed with the BTRCP or the DTI-National Capital Region. In the provinces, applications may be filed with the extension offices of the SEC for corporations/partnerships and the provincial offices of the DTI for sole proprietorships.

b.  Pre-Processing of Documents. Pre-processing of documents shall be undertaken to assist the investor in determining the completeness of his documents. All applications are considered officially accepted only upon submission of complete documents to either the SEC or BTRCP. Applications for clearances from the Department of National Defense [DND] or Philippine National Police [PNP] for defense-related activities, or the DOST for investments involving advanced technology shall be decided upon by said agencies within fifteen [15] working days.

c.  Approval. Within fifteen [15] working days from official acceptance of an application, the SEC or BTRCP shall act on the same. Otherwise, the application shall be considered as automatically approved if it is not acted upon within said period for a cause not attributable to the applicant.

SECTION 3. Registration with the SEC. –

a.  Existing Requirements. As required by existing laws and regulations, an application form together with the following documents shall be submitted to the SEC:

1.  In the case of new domestic corporation or a partnership:

i.    Articles of Incorporation/Partnership

ii.   Name Verification Slip

iii.  Bank Certificate of Deposit

iv. ACR/ICR, SIRV [Special Investors Resident Visa], Visa No. 13 of the alien subscribers

v.  Proof of Inward Remittance [for non-resident aliens]

2.  In the case of a foreign corporation:

i.   Name verification slip

ii.  Certified Copy of the Board Resolution authorizing the establishment of an office in the Philippines; designating the resident agent to whom summons and other legal processes may be served in behalf of the foreign corporation; and stipulating that in the absence of such agent or upon cessation of its business in the Philippines, the SEC shall receive any summons or legal processes as if the same is made upon the corporation at its home office.

iii.  Financial statements for the immediately preceding year at the time of filing of the application, certified by an independent Certified Public Accountant of the home country.

iv.  Certified copies of the Articles of Incorporation/Partnership with an English translation thereof,  if in a foreign language.

v.  Proof of inward remittance such as bank certificate of inward remittance or credit advices.
For representative offices, the amount remitted initially should be at least US$30,000.

If the paid-in equity/capital is in kind, additional requirements shall be submitted to the SEC pursuant to its existing rules and regulations.

All documents executed abroad should be authenticated by the Philippine Embassy or Consular Office.

3.  In the case of an existing corporation intending to increase foreign equity participation, all documents required of the proposed transaction under applicable laws, rules and regulations shall be submitted.

b.  Additional Requirements. As required by the Act, the following shall be submitted to the SEC:

1.  For enterprises wishing to engage in defense-related activities, clearance from the Department of National Defense [DND] or Philippine National Police [PNP].

2.  For small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent of US$200,000 but not less than the equivalent of US$100,000, a certificate from the Department of Science and Technology [DOST] that the investment involves advance technology, or a certificate from the appropriate Department of Labor and Employment [DOLE] Regional Office that the enterprise has issued an undertaking to employ at least 50 direct employees shall be submitted.

The Dole through its Regional Offices, shall validate and monitor compliance by the investor to the undertaking that it will hire at least 50 direct employees within six [6] months from the start of commercial operations. Non-satisfaction of the undertaking shall be reported to the DOLE Regional Offices and to the SEC, which shall cause the investor to satisfy the appropriate higher investment requirement, with penalty for failure to satisfy the undertaking.

3.  For former natural-born Filipinos wishing to engage in investment areas allowed to them under this Act, the following documents are required:

I. Copy of birth certificate

a.  Certified by the local civil registrar or the National Statistics Office [NSO]; or

b.  For those born abroad, certificate of birth from the appropriate government agency of the country where the birth is recorded showing the father or mother to be a Filipino at the time of birth or if the citizenship of the parents is not indicated, additional proof that the parent is a Filipino at the time of the applicant investor’s birth.

II.  Those born before 17 January 1973 of Filipino mother must additionally submit all of the following: certified true copies of his/her sworn statement of election of Filipino citizenship, oath of allegiance from the civil registrar where the documents were filed and/or forwarded, and identification certificate issued by the Bureau of Immigration.

III.  In case of loss and/or destruction of the record of birth or non-registration of birth.

• Certificate of non-availability of birth certificate on account of loss and/or destruction of birth record from the local civil registrar and/or appropriate government agency if birth was registered abroad;
• Copy of birth certificate of mother or father certified by the local civil registrar or the NSO; and
• Affidavit of two [2] disinterested persons attesting to their personal knowledge that at the time of the applicant’s birth, the child was born of a Filipino mother or father.

Any document executed or issued abroad must be authenticated by the Philippine embassy or consulate having jurisdiction over the place of execution or issuance of the document.

c.  Application Fee. A reasonable application fee to be determined by the SEC shall be collected from each applicant.

d.  SEC Action. Upon fulfillment of all SEC requirements and favorable evaluation by the SEC, the Certificate of Registration under the Act for domestic corporations and partnerships, or license to do business in the case of a foreign corporation, shall be issued by the SEC. In case of disapproval, the SEC shall also inform the applicant in writing of the reasons for the disapproval of the registration.

SECTION 4. Registration with the BTRCP-Department of Trade and Industry. – .

a.  Existing Requirements. As required by existing laws and regulations, BTRCP Form No. 17 and accompanying documents shall be submitted to BTRCP.

All documents executed abroad should be authenticated by the Philippine Embassy or Consular Office.

b.  Additional Requirements. The additional requirements for corporations and partnerships provided under Sec. 3[b] hereof shall be complied with.

c.  Application Fee. A reasonable application fee to be determined by BTRCP shall be collected from each applicant.

d.  BTRCP-DTI Action. Upon fulfillment of all BTRCP-DTI requirements and favorable evaluation by DTI, the Certificate of Registration for Sole Proprietorship shall be issued by DTI. In case of disapproval, DTI shall also inform the applicant in writing of the reasons for the disapproval of the registration.

SECTION 5. Registration of non-Philippine nationals intending to engage in the same line of business as their existing joint venture. –

a.  During the transitory period, any applicant who has an investment in an existing joint venture, in which he or his majority shareholder in the existing joint venture is a substantial partner, shall be registered with the SEC or BTRCP in the same line of business if the Filipino partners representing the majority of the Filipino equity in the existing joint venture certify under oath that they are not capable and willing to make the investment needed for the domestic market activities, which is being proposed to be undertaken by the applicant.

b.  If the Filipino partners are willing and able to make the needed investment, the SEC shall not register the applicant, in which case, both joint venture partners may agree to undertake the expansion. Both partners are then required to place the balance of their agreed upon investment shares within six [6] months from the date of the agreement. The Filipino partner[s] shall not be compelled to make additional investment for the proposed expansion of domestic market activities, if such will result in a higher Filipino equity share. If the Filipino partner[s] fails to infuse said capital within said period, per the report of the non-Philippine national applicant to the SEC, the SEC or BTRCP shall then allow the registration of said non-Philippine national applicant as a separate enterprise under the Act.

RULE V
REGISTRATION WITH THE CENTRAL BANK

SECTION 1. CB Requirements. – Enterprises seeking to remit foreign exchange abroad for purposes of remittance of profits and dividends and capital repatriation in connection with the foreign investment made pursuant to the Act shall be deemed registered with the CB after SEC or BTRCP registration. For this purpose, CB rules and regulations covering procedures for registration of foreign investments shall be observed.

RULE VI
FOREIGN INVESTMENTS IN EXPORT ENTERPRISES

SECTION 1. Allowable foreign equity participation. – Foreign equity participation in export enterprises shall be allowed up to one hundred percent [100%] provided that the products and services of such enterprises do not fall within Lists A and B of the FINL.

SECTION 2. Registration of export enterprises. – Export enterprises shall be deemed registered with the BOI pursuant to Section 6 of the Act upon registration with the SEC or BTRCP.

Enterprises registered under the Act seeking to avail of incentives under E. O. 226 must apply for registration with the BOI.  Rules and regulations on E. O. 226 shall be observed for this purpose.

Within ten [10] working days from the issuance of the certificate of registration, the SEC or BTRCP shall transmit to BOI copies of the Certificate of Registration together with the application form duly accomplished by the export enterprises.

SECTION 3. Submission of reports.  – All duly-registered export enterprises under this Rule shall submit to the Board of Investment a duly accomplished form within six [6] months after the end of each taxable year.

Failure of export enterprises to submit the required reports within the prescribed period of time or the submission of fraudulent reports shall be a ground for the SEC or BTRCP to impose appropriate sanctions as provided for under Rule XVII, Section 1, of these Rules and Regulations.

SECTION 4. Monitoring of compliance with the export requirement. – Upon receipt of the report submitted by the export enterprise, the BOI shall determine compliance of the enterprise with the export requirement. If the enterprise fails to comply with the export requirement, the BOI shall advise the SEC or BTRCP of said failure. The SEC or BTRCP shall require the firm to immediately increase its export to at least sixty percent [60%] of total sales. If the firm fails to comply with the order of the SEC or BTRCP without any justifiable reason, it shall be penalized in accordance with the provisions of Rule XVIII, Section 1 of these Implementing Rules and Regulations. The BOI, in consultation with the SEC and BTRCP, shall issue guidelines for this purpose.

RULE VII
FOREIGN INVESTMENTS IN DOMESTIC MARKET ENTERPRISES

SECTION 1. Allowable foreign equity participation. – Foreign equity participation in domestic market enterprises shall be allowed up to one hundred percent [100%] unless such participation is prohibited or limited by existing laws or the FINL.

SECTION 2. Change of status from domestic market enterprise to export enterprise. – At its option, a domestic market enterprise may change its status to an export enterprise if, over the last three [3] years, it consistently exported in each year thereof sixty percent [60%] or more of its output.

Section 2 of Rule VI shall apply for any change of status from domestic to export enterprise. Such application shall be supported by the relevant reports cited in Rule VI, Section 3 hereof, as evidence that the applicant enterprise has consistently exported sixty percent [60%] or more of its output.

The new export enterprise shall be subject to the reportorial requirements and shall be monitored or its compliance with the export requirement under Sections 3 and 4, respectively, of Rule VI of these Rules and Regulations.

RULE VIII
THE REGULAR FOREIGN INVESTMENT NEGATIVE LIST

SECTION 1. Description. – The Regular FINL shall have three [3] component list: A, B, and C which shall contain areas of economic activities reserved to the Philippine nationals. The description and guidelines governing Lists A, B and C are provided for in Rules IX, X and XI hereof, respectively.

SECTION 2. Formulation. – The NEDA shall be responsible for the formulation of the Regular FINL, following the process and criteria provided in Section 8 of the Act and in Rules IX, X and XI hereof.

SECTION 3. Approval.  – The NEDA shall submit the proposed Regular FINLs to the President for approval and promulgation. The NEDA shall submit the first Regular FINL to the President at least forty five [45] days before the scheduled date of publication.

SECTION 4. Publication. – The NEDA shall publish the first Regular Negative List not later than sixty [60] days before the end of the transitory period.

SECTION 5. Effectivity. – The first Regular Negative List shall become immediately effective at the end of the transitory period. Subsequent Regular FINLs shall become effective fifteen [15] days after publication in two [2] newspapers of general circulation in the Philippines.  Except for List A, each Regular FINL shall remain in force for two [2] years from the date of its effectivity.

SECTION 6. Coverage of operation. – Each Regular FINL shall apply only to new foreign investments and shall not affect existing foreign investments at the time of its publication.

RULE IX
GUIDELINES FOR LIST A OF THE REGULAR FOREIGN INVESTMENT NEGATIVE LIST

SECTION 1. Coverage. – List A of the FINL shall consist of the 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.

The NEDA shall make an enumeration of said activities reserved to Philippine nationals by the Constitution and other specific laws.

SECTION 2. Amendments.  – Amendments to List A may be made by the NEDA anytime to reflect changes made by law regarding the extent of foreign equity participation in any specific area of economic activity.

RULE X
GUIDELINES FOR LIST B
OF THE REGULAR FOREIGN INVESTMENT NEGATIVE LIST

SECTION 1. Coverage. – List B shall consist of the following:

a.  Activities regulated pursuant to law which are defense or law enforcement-related, requiring prior clearance and authorization from the DND or PNP, to engage in such activity as the manufacture, repair, storage and/or distribution of firearms, ammunition, armored vests and other bullet proof attires, lethal weapons, military ordinance, explosives, pyrotechnics and similar materials.

However, the manufacture and repair of said items may be specifically authorized by the Secretary of National Defense or Chief of the PNP to non-Philippine nationals, provided a substantial percentage of output as determined by said agencies is exported.

Compliance with the export requirement shall be monitored by the DND or PNP, as the case may be.

b.  Activities which have negative implications on public health and morals, such as the manufacture and distribution of dangerous drugs; all forms of gambling; sauna and steam bathhouses and massage clinics.

c.  Small and medium-sized domestic market enterprises with paid-in capital of less than US$500,000 or its equivalent unless they involve advanced technology as determined by DOST.

d.  Export enterprises utilizing raw materials from depleting natural resources, with paid-in equity capital of less than US$500,000 or its equivalent.

SECTION 2. Process for determination of List B. –

a.  Activities [a] and [b] above shall be determined upon recommendation of the Secretary of National Defense, Chief of the PNP, Secretaries of Health or Education, Culture and Sports and endorsed by the NEDA or upon recommendation motu proprio of NEDA, approved and promulgated by the President. List B shall be submitted for Presidential action together with List A. The NEDA shall inform said agencies of the deadline for the submission of their recommendations.

b.  Enterprises which are covered by Section 1 [c] above are automatically reserved to Philippine nationals.

SECTION 3. Amendments.  – Amendments to List B shall be made only after two years, upon the recommendation of the Secretary of National Defense, Chief of the PNP, Secretaries of Health and Education, Culture and Sports, endorsed by the NEDA, or upon recommendation motu proprio of NEDA, approved and promulgated by the President. List B shall be submitted for Presidential action together with List A.

RULE XI
INVESTMENT RIGHTS OF FORMER NATURAL BORN FILIPINOS

SECTION 1. Former natural-born citizens of the Philippines shall have the same investment rights of a Philippine citizen in cooperatives under R. A. 6938, rural banks under R. A.  7353, thrift banks and private development banks under R. A. 7906, financing companies under R. A. 5980, and activities listed under List B including defense-related activities, if specifically authorized by the Secretary of National Defense

RULE XII
RIGHTS OF FORMER NATURAL-BORN FILIPINOS TO OWN PRIVATE LAND

SECTION 1. Any natural-born citizen who has lost his Philippine citizenship and who has the legal capacity to enter into a contract under Philippine laws may be a transferee of a private land up to a maximum area of 5,000 square meters in the case of urban or three [3] hectares in the case of rural land to be used by him for business or other purposes.

SECTION 2. In case where both spouses are qualified under the law, one of them may avail of the said privilege. However, if both shall avail of the privilege, the total area acquired shall not exceed the maximum allowed.

SECTION 3. In case the transferee already owns urban or rural land for business or other purposes, he shall still be entitled to be a transferee of additional urban or rural land for business or other purposes, which when added to those already owned by him shall not exceed the maximum areas allowed.

SECTION 4. A transferee may acquire not more than two [2] lots which should be situated in different municipalities or cities anywhere in the Philippines. The total land area acquired shall not exceed 5,000 square meters in the case of urban land or three [3] hectares in the case of rural land for use by him for business or other purposes. A transferee who has already acquired urban land shall be disqualified from acquiring rural land and vice versa. However, if the transferee has disposed of his urban land, he may still acquire rural land and vice versa, provided that the same shall be used for business or other purposes.

SECTION 5. Land acquired under this Act shall be primarily, directly and actually used by the transferee in the performance or conduct of his business or commercial activities in the broad areas of agriculture, industry, and services, including the lease of land, but excluding the buying and selling thereof.  A transferee shall use his land to engage in activities that are not included in the Negative List or in those areas wherein investment rights have been granted to him under this Act.

SECTION 6. Registration of land. – The Register of Deeds in the province or city where the land is located shall register the land in the name of the transferee that it will be used for any of the purposes mentioned in Section 5 above, i.e., certification of business registration issued by the BTRCP/Department of Trade and Industry and affidavit that the land shall be used for business purposes.

The provision of B. P. 185 [An Act to Implement Section 15 of Article XIV of the Constitution and for Other Purposes Pertaining to the Ownership of Private Lands for Residential Purposes by Former Natural Born Filipinos] and its implementing Rules and Regulations shall be adopted, where applicable, in the implementation of this Act through a Circular to be issued by the Land Registration Authority.

The Register of Deeds shall also ensure that the limits prescribed by law are observed.

RULE XIII
TRANSITORY PROVISIONS

SECTION 1. Prior to effectivity of these Implementing Rules and Regulations, the provisions of Book II of E. O. 226 and its implementing rules and regulations shall govern the registration of foreign investments without incentives.

SECTION 2. There shall be a transitory period of thirty-six [36] months after issuance of these Implementing Rules and Regulations to implement the Act.

SECTION 3. During the transitory period, the Transitory FINL described in Rule XIV, Section 1 hereof shall take effect.

RULE XIV
TRANSITORY FOREIGN INVESTMENT NEGATIVE LIST

SECTION 1. Description. – The Transitory FINL shall consist of the following:

a.  List A

All investment areas in which foreign ownership is limited by mandate of the Constitution and specific laws.

b.  List B

1.  Manufacture, repair, storage and/or distribution of firearms, ammunition, armored vests and other bullet proof attires, lethal weapons, military ordnance, explosives, pyrotechnics and similar materials required by law to be licensed by and under the continuing regulation of the DND or the PNP, as the case may be.

However, the manufacture or repair of these items may be specifically authorized by the Secretary of National Defense or the Chief of the PNP to non-Philippine nationals, provided a substantial percentage of output, as determined by the said agencies, is exported.

The extent of foreign equity ownership allowed shall be specified in the said authority/clearance.

Compliance with the export requirement shall be monitored by the DND or PNP, as the case may be.

2.  Manufacture and distribution of dangerous drugs; all forms of gambling, sauna and steam bath houses, massage clinics and other like activities regulated by law because of risks they may pose to public health and morals.

3.  Small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent of Two hundred thousand US dollars [US$200,000.00], are reserved to Philippine nationals: Provided, That if: [1] they involve advanced technology as determined by the Department of Science and Technology, or [2] they employ at least fifty [50] direct employees, then a minimum paid-in capital of One hundred thousand US dollars [US$100,000.00] shall be allowed to non-Philippine nationals.

SECTION 2. Formulation of the transitory foreign investment negative list. –

a.  NEDA, in consultation with relevant agencies, shall enumerate, as appropriate, the areas of investment covered in this Transitory FINL.

b.  The Transitory FINL shall be published in full at the same time as, or prior to, the publication of these Implementing Rules and Regulations to implement the Act.

RULE XV
OPTIONS FOR EXISTING BOI-REGISTERED ENTERPRISES

SECTION 1. Existing enterprises which have been issued Certificates of Authority to do Business or to Accept Permissible Investments under Book II of E. O. 226, Book II of PD 1789 and R. A. 5455, whose activities are included in the Transitory FINL or in subsequent Negative List, are allowed to continue to undertake the same activities which they have been authorized to do subject to the same terms and conditions stipulated in their certificates of registration.

Those whose activities have been previously authorized under Book II of E. O. 226, Book II of PD 1789 and R. A. 5455, and whose activities are not in the Transitory FINL or in subsequent Negative Lists may opt to be governed by the provisions of the Act.  Said enterprises shall be considered automatically registered with the SEC upon surrender of their certificates of authority to the BOI. The SEC shall issue a new certificate of authority upon advise of the BOI.

SECTION 2. Existing enterprises with more than forty percent [40%] foreign equity which have availed of incentives under any of the investment incentives laws implemented by the BOI may opt to be governed by the Act.  In such cases, said enterprises shall be required to surrender their certificates of registration, which shall be deemed as an express waiver of their privilege to apply for and avail of incentives under the incentives law under which they were previously registered. Subject to BOI rules and regulations, said enterprises may be required to refund all capital equipment incentives availed of.

RULE XVI
CONSISTENT GOVERNMENT ACTION

SECTION 1. No agency, instrumentality or political subdivision of the Government shall take any action in conflict with or which will nullify the provisions of the Act, or any certificate or authority granted hereunder.

RULE XVII
COMPLIANCE WITH ENVIRONMENTAL STANDARDS

SECTION 1. All industrial enterprises, regardless of nationality or ownership, shall comply with existing rules and regulations, and applicable environmental standards set by the Department of Environment and Natural Resources [DENR] to protect and conserve the environment.

The DENR shall provide the SEC with a list of environmentally critical activities/projects and areas. Necessary clearances may be secured after registration with the SEC.

RULE XVIII
ADMINISTRATIVE SANCTIONS

SECTION 1. Foreign investments in export enterprises.  – Non-compliance by any duly-registered export enterprise with Rule VI, Sections 3 and 4 above shall be subject to the following sanctions:

a.  For late submission of the required annual report –

1st violation – written warning
2nd violation – basic fine of P1,000.00 and a daily fine of P50.00
3rd violation – basic fine of P2,000.00 and a daily fine of P100.00
Subsequent violation – basic fine of P5,000.00

b.  For the submission of fraudulent reports –

FINEPARTNERSHIP/CORPORATIONSOLE PROPRIETORSHIP
1st violationP100,000.00P50,000.00
2nd violationP150,000.00P70,000.00
3rd violationFine in an amount not exceeding 1/2 of 1% of total paid-in capital but not more than Five Million PesosP100,000.00
Subsequent violationCancellation of registration granted under the Act

The President and/or official/personnel of the partnership/corporation responsible for the submission of fraudulent reports shall be subject to the following sanctions:

1st violation – a fine of P50,000.00
2nd violation – a fine of P100,000.00
3rd violation – a fine of P200,000.00

c.  For non-submission of the required reports within twelve [12] months after the taxable year, cancellation of the certificate of registration granted under the Act.

d.  For failure of any duly-registered export enterprise to comply, without justifiable reason, with the SEC or BTRCP order to increase its export to at least sixty percent [60%] of total sales:

FINEPARTNERSHIP/CORPORATIONSOLE PROPRIETORSHIP
1st violationP100,000.00P50,000.00
2nd violationP150,000.00P70,000.00
3rd violationFine in an amount not exceeding 1/2 of 1% of total paid-in capital but not more than Five Million PesosP100,000.00
Subsequent violationCancellation of registration granted under the Act

The President and/or official of the partnership/corporation responsible in the failure to comply with the said SEC or BTRCP order shall be subject to the following sanctions:

1st violation – a fine of P50,000.00
2nd violation – a fine of P100,000.00
3rd violation – a fine of P200,000.00

SECTION 2. Compliance with environmental standards. – Any industrial enterprise, regardless of nationality of ownership which fails to comply with existing rules and regulations to protect and conserve the environment and meet applicable environmental standards shall be subject to the sanctions as may be provided for in the rules and regulations of the DENR.

SECTION 3. Hearing of violations of the Act. – The SEC or BTRCP shall adopt their respective rules and regulations for the purpose of conducting hearings and investigations involving violations of the provisions of the Act and these Implementing Rules and Regulations.

SECTION 4. Other grounds for cancellation – The following are other grounds for the cancellation of the certificate of registration granted under the Act:

a.  Failure of non-Philippine national intending to engage in the same line of business as an existing joint venture, in which he or his majority shareholder is a substantial partner, to disclose such fact and the names and addresses of the partners in the existing joint venture in his application for registration with the SEC; or

b.  Commission of any other fraudulent act.

SECTION 5. Other violations. – Any other violations of the Act and these Implementing Rules and Regulations shall be penalized in accordance with Section 14 of the Act.

RULE XIX
EFFECTIVITY

SECTION 1. These Implementing Rules and Regulations shall take effect fifteen [15] days after publication in a newspaper of general circulation in the Philippines.

Approved by the NEDA Board:   9 July 1996.

Republic Act No. 7652

AN ACT ALLOWING THE LONG-TERM LEASE OF PRIVATE LANDS BY FOREIGN INVESTORS

Section 1. Title. – This Act shall be known as the “Investors’ Lease Act.”

Sec. 2. Declaration of Policy. – It is hereby declared the policy of the State to encourage foreign investments consistent with the constitutional mandate to conserve and develop our own patrimony. Towards this end, the State hereby adopts a flexible and dynamic policy of the granting of long-term lease on private lands to foreign investors for the establishment of industrial estates, factories, assembly or processing plants, agro-industrial enterprises, land development for industrial, or commercial use, tourism, and other similar priority productive endeavors.

Sec. 3. Definitions. – For purposes of this Act, unless the context indicates otherwise, the term:

    (1) “Investing in the Philippines” shall mean making an equity investment in the Philippines through actual remittance of foreign exchange or transfer of assets, whether in the form of capital goods, patents, formulas, or other technological rights or processes, upon registration with the Securities and Exchange Commission; and

    (2) “Withdrawal of approved investment” shall mean either: (a) the failure to operate the investment project for any three (3) consecutive years; or (b) outright abandonment of the investment project at any time during the approved lease period: Provided, That failure to pay lease rental for three (3) consecutive months coupled with the failure to operate the investment project for the same period shall be deemed as outright abandonment of the project.

Sec. 4. Coverage. – Any foreign investor investing in the Philippines shall be allowed to lease private lands in accordance with the laws of the Republic of the Philippines subject to the following conditions:

    (1) No lease contract shall be for a period exceeding fifty (50) years, renewable once for a period of not more than twenty- five (25) years;

    (2) The leased area shall be used solely for the purpose of the investment upon the mutual agreement of the parties;

    (3) The leased premises shall comprise such area as may reasonably be required for the purpose of the investment subject however to the Comprehensive Agrarian Reform Law and the Local Government Code.

The leasehold right acquired under long-term lease contracts entered into pursuant to this Act may be sold, transferred, or assigned: Provided, That when the buyer, transferee, or assignee is a foreigner or a foreign-owned enterprise, the conditions and limitations in respect to the use of the leased property as provided for under this Act shall continue to apply.

Sec. 5. Limitations. – (1) Foreign individuals, corporations, associations, or partnerships not otherwise investing in the Philippines as defined herein shall continue to be covered by Presidential Decree No. 471 and other existing laws in lease of lands to foreigners.

(2) Withdrawal of the approved investment in the Philippines within the period of the lease agreement entered into under this Act, or use of the leased area for the purpose other than that authorized, shall warrant the ipso facto termination of the lease agreement without prejudice to the right of the lessor to be compensated for the damages he may have suffered thereby.

(3) Any lease agreement under this Act which is renewable at the option of the lessee subject to the same terms and conditions of the original contract shall be interpreted to mean as renewable upon the mutual agreement of the parties.

(4) In addition to the conditions for the renewal of a lease agreement after the period of fifty (50) years as provided herein, the foreign lease shall show that it has made social and economic contributions to the country.

(5) In the case of tourism projects, lease of private lands by foreign investors qualified herein shall be limited to projects with an investment of not less than five million (5M) US dollars, seventy percent (70%) of which shall be infused in said project within three years from the signing of the lease contract.

Sec. 6. Termination of Lease Contract.
– The Secretary of Trade and Industry shall terminate any lease contract entered into under the provisions of this Act, if the investment project is not initiated within three (3) years from the signing of the lease contract.

Sec. 7. Penal Provision. – Any contract or agreement made or executed in violation of any of the following prohibited acts shall be null and void ab initio and both contracting parties shall be punished by a fine of not less than One Hundred thousand pesos (P100,000) nor more than One million pesos (P1,000,000), or imprisonment of six (6) months to (6) years, or both, at the discretion of the court:

    (1) Any provision in the lease agreement stipulating a lease period in excess of that provided in paragraph (1) Section 4;

    (2) Use of the leased premises for the purpose contrary to existing laws of the land, public order, public policy, morals, or good customs;

    (3) Any agreement or agreements resulting is the lease of land in excess of the area approved by the DTI: Provided, That, where the excess of the totality of the area leased is due to the acts of the lessee, the lessee shall be held solely liable therefor: Provided, further, That, in the case of corporations, associations, or partnerships, the president, manager, director, trustee, or officers responsible for the violation hereof shall bear the criminal liability.

Sec. 8. Separability Clause. – In case any provision of this Act or the application of such provision is deemed unconstitutional, the remaining provisions of this Act or the application of such provisions shall not be affected thereby.

Sec. 9. Repealing Clause. – All acts, rules and regulations contrary to or inconsistent with this Act are hereby repealed or modified accordingly.

Sec. 10. Effectivity Clause. – this Act shall take effect immediately upon its approval.

Approved: June 4, 1993

Republic Act No. 8179

AN ACT TO FURTHER LIBERALIZE FOREIGN INVESTMENTS, AMENDING FOR THE PURPOSE REPUBLIC ACT NO. 7042, AND FOR OTHER PURPOSES

SECTION 1. Section 3, paragraph (a), of Republic Act No. 7042, otherwise known as the “Foreign Investments Act of 1991″, is hereby amended to read as follows:

“Section 3. Definitions. – As used in this Act:

[a] the term “Philippine national” shall mean a citizen of the Philippines, or a domestic partnership or association wholly owned by citizens of the Philippines; or 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; or 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 or 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: 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, in order that the corporation shall be considered a Philippine national.”

SEC. 2. Sec. 7 of Republic Act No. 7042 is hereby amended to read as follows:

“Sec. 7. Foreign investments in domestic market enterprises. – Non-Philippine nationals may own up to one hundred percent [100%] of domestic market enterprises unless foreign ownership therein is prohibited or limited by the Constitution and existing laws or the Foreign Investment Negative List under Section 8 hereof.”

SEC. 3. Section 8 of the Foreign Investments Act of 1991 is hereby amended to read as follows:

“Sec. 8. List of investment areas reserved to Philippine nationals [Foreign Investment Negative List]. – The Foreign Investment Negative List shall have two [2] component lists: A and B:

[a] List A shall enumerate the areas of activities reserved to Philippine nationals by mandate of the Constitution and specific laws.

[b] List B shall contain the areas of activities and enterprises regulated pursuant to law:

1. which are defense-related activities, requiring prior clearance and authorization from the Department of National Defense [DND] to engage in such activity, such as the manufacture, repair, storage and/or distribution of firearms, ammunition, lethal weapons, military ordnance, explosives, pyrotechnics and similar materials; unless such manufacturing or repair activity is specifically authorized, with a substantial export component, to a non-Philippine national by the Secretary of National Defense; or

2. which have implications on public health and morals, such as the manufacture and distribution of dangerous drugs; all forms of gambling; nightclubs, bars, beer houses, dance halls, sauna and steam bathhouses and massage clinics.

“Small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent of Two hundred thousand US dollars [US$200,000.00], are reserved to Philippine nationals: Provided, That if [1] they involve advance technology as determined by the Department of Science and Technology, or [2] they employ at least fifty [50] direct employees, then a minimum paid-in capital of One hundred thousand US dollars (US$100,000.00) shall be allowed to non-Philippine nationals.

“Amendments to List B may be made upon recommendation of the Secretary of National Defense, or the Secretary of Health, or the Secretary of Education, Culture and Sports, endorsed by the NEDA, or upon recommendation motu proprio, of NEDA, approved by the President, and promulgated by a Presidential Proclamation.
“The transitory Foreign Investment Negative List established in Section 15 hereof shall be replaced at the end of the transitory period by the First Regular Negative Lists to be formulated and recommended by NEDA following the process and criteria provided in Sections 8 and 9 of this Act. The First Regular Negative List shall be published not later than sixty [60] days before the end of the transitory period. Subsequent Foreign Investment Negative List shall become effective fifteen [15] days after publication in a newspaper of general circulation in the Philippines: Provided, however, That each Foreign Investment Negative List shall be prospective in operation and shall in no way affect foreign investments existing on the date of its publication.

“Amendments to List B after promulgation and publication of the First Regular Foreign Investment Negative List at the end of the transitory period shall not be made more often than once very two [2] years.”

SEC. 4. Section 9 of the Foreign Investments Act of 1991 is hereby amended to read as follows:

“SEC. 9. Investment rights of former natural-born Filipinos. – For purposes of this Act, former natural-born citizens of the Philippines shall have the same investment rights of Philippine citizens in Cooperatives under Republic Act No. 6938, Rural Banks under Republic Act No. 7353, Thrift Banks and Private Development Banks under Republic Act No. 7906, and Financing Companies under Republic Act No. 5980. These rights shall not extend to activities reserved by the Constitution including [1] the exercise of profession; [2] in defense-related activities under Section 8 (b) hereof, unless specifically authorized by the Secretary of National Defense; and [3] activities covered by Republic Act No. 1180 [Retail Trade Act], Republic Act No. 5487 [Security Agency Act], Republic Act No. 7076 [Small Scale Mining Act], Republic Act No. 3018, as amended [Rice and Corn Industry Act], and P.D. 449 [Cockpits Operation and Management]“.

SEC. 5. The Foreign Investments Act is further amended by inserting a new section designated as Section 10 to read as follows:

“SEC. 10. Other rights of natural-born citizen pursuant to the provisions of Article XII, Section 8 of the Constitution. – Any natural-born citizen who has lost his Philippine citizenship and who has the legal capacity to enter into a contract under Philippine Laws may be a transferee of a private land up to a maximum area of five thousand [5,000] square meters in the case of urban land or three [3] hectares in the case of rural land to be used by him for business or other purposes. In the case of married couples, one of them may avail of the privilege herein granted: Provided, That If both shall avail of the same, the total area acquired shall not exceed the maximum herein fixed.

“In case the transferee already owns urban or rural land for business or other purposes, he shall be entitled to be a transferee of additional urban or rural land for business or other purposes which when added to those already owned by him shall not exceed the maximum areas herein authorized.

“A transferee under this Act may acquire not more than two [2] lots which should be situated in different municipalities or cities anywhere in the Philippines: Provided, That the total land area thereof shall not exceed five thousand [5,000] square meters in the case of urban land or three [3] hectares in the case of rural land for use by him for business or other purposes. A transferee who has already acquired urban land shall be disqualified form acquiring rural land and vice versa.”

SEC. 6. The National Economic and Development Authority, in consultation with the Board of Investments, the Department of Trade and Industry and Securities and Exchange Commission, shall prepare and issue the necessary primer and other information campaign materials regarding the Foreign Investments Act and the amendments introduced thereto, with copies of said materials furnished all the Philippine embassies, consulates and other diplomatic offices abroad and disseminated to Filipino nationals, former natural-born Filipino citizens, and foreign investors, within sixty [60] days after the effectivity hereof.

SEC. 7. The NEDA is hereby directed to make the necessary amendments to the implementing rules and regulations of Republic Act No. 7042 in order to reflect the changes embodied in the Act.

SEC. 8. Sections 9 and 10 of Republic Act No. 7042 and all references thereto in said law are hereby repealed or modified accordingly. All other laws, rules and regulation and/or parts thereof inconsistent with the provisions of this Act are hereby repealed or modified accordingly.

SEC. 9. If any part or section of this Act is declared unconstitutional for any reason whatsoever, such declaration shall not in any way affect the other parts or sections of this Act.

SEC. 10. This Act shall take effect fifteen [15] days after publication in two [2] newspapers of general circulation in the Philippines.
Approved: March 28, 1996
_____________
Republic Act No. 7042 was amended by Republic Act No. 8179 which was approved on March 28, 1996. The date of effectivity thereof was on April 15, 1996.

SECTION 1. Section 3, paragraph (a), of Republic Act No. 7042, otherwise known as the “Foreign Investments Act of 1991″, is hereby amended to read as follows:

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