foreign investors

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

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

Republic Act No. 8762

REPUBLIC ACT NO. 8762 – AN ACT LIBERALIZING THE RETAIL TRADE BUSINESS, REPEALING FOR THE PURPOSE REPUBLIC ACT NO. 1180, AS AMENDED, AND FOR OTHER PURPOSES.

Section 1. Title. – This Act shall be known as the “Retail Trade Liberalization Act of 2000.”

Sec. 2. Declaration of Policy. – It is the policy of the State to promote consumer welfare in attracting, promoting and welcoming productive investments that will bring down prices for the Filipino consumer, create more jobs, promote tourism, assist small manufacturers, stimulate economic growth and enable Philippine goods and services to become globally competitive through the liberalization of the retail trade sector.

Pursuant to this policy, the Philippine retail industry is hereby liberalized to encourage Filipino and foreign investors to forge an efficient and competitive retail trade sector in the interest of empowering the Filipino consumer through lower prices, higher quality if goods, better services and wider choices.

Sec. 3. Definition. – As used in this Act:

(1) “Retail Trade” shall mean any act, occupation or calling of habitually selling direct to the general public merchandise, commodities or goods for consumption, but the restriction of this law shall not apply to the following:

(a) Sales by a manufacturer, processor, laborer, or worker, to the general public the products manufactured, processed or produced by him if his capital does not exceed One Hundred Thousand Pesos (P100,000.00);

(b) Sales by a farmer or agriculturist selling the products of his farm;

(c) Sales in restaurant operations by a hotel owner or inn-keeper irrespective of the amount of capital: Provided, that the restaurant is incidental to the hotel business; and

(d) Sales which are limited only to products manufactured, processed or assembled by a manufacturer through a single outlet, irrespective of capitalization.

(2) “High-end or luxury goods” shall refer to goods which are not necessary for life maintenance and whose demand is generated in large part by the highest income groups. Luxury goods shall include, but are not limited to, products such as: jewelry, branded or designer clothing and footwear, wearing apparel, leisure and sporting goods, electronics and other personal effects.

Sec. 4. Treatment of Natural-Born Citizen Who Has Lost His Philippine Citizenship. – A natural-born citizen of the Philippines who has lost his Philippine citizenship but who resides in the Philippines shall be granted the same rights as Filipino citizens for purposes of this Act.

Sec. 5. Foreign Equity Participation. – Foreign-owned partnerships, associations and corporations formed and organized under the laws of the Philippines may, upon registration with the Securities and Exchange Commission (SEC) and the Department of Trade and Industry (DTI) or in case of foreign-owned single proprietorships, with the DTI, engage or invest in the retail trade business, subject to the following categories:

Category A – Enterprises with paid-up capital of the equivalent in Philippine Pesos of less than Two Million Five Hundred Thousand US Dollars (US$2,500,000.00) shall be reserved exclusively for Filipino citizens and corporations wholly-owned by Filipino citizens.

Category B – Enterprises with a minimum paid-up capital of the equivalent in Philippine Pesos of Two Million Five Hundred Thousand US Dollars (US$2,500,000.00) may be wholly owned by foreigners except for the first two (2) years after the effectivity of this Act wherein foreign participation shall be limited to not more than (60%) of total equity.

Category C – Enterprises with a paid-up capital of the equivalent in Philippine Pesos of Seven Million Five Hundred Thousand US Dollars (US$7,500,000.00) or more maybe wholly owned by foreigners: Provided, however, that in no case shall the investments for establishing a store in Categories B and C be less than the equivalent in Philippine Pesos of Eight Hundred Thirty Thousand US Dollars (US$830,000.00).

Category D – Enterprises specializing in high-end or luxury products with a paid up capital of the equivalent in Philippine Pesos of Two Hundred Fifty Thousand US Dollars (US$250,000.00) per store may be wholly-owned by foreigners.

The foreign investor shall be required to maintain in the Philippines, the full amount of the prescribed minimum capital.  Unless the foreign investor has notified the SEC and the DTI of its intention to repatriate its capital and cease operations in the Philippines. The actual use in Philippine operations of the inwardly remitted minimum capital requirements shall be monitored by the SEC.

Failure retail stores shall secure a certification from the Bangko Sentral ng Pilipinas (BSP) and the DTI, which will verify or confirm inward remittance of the minimum required capital investment.

Sec. 6. Foreign Investors Acquiring Shares of Stock of Local Retailers. – Foreign Investors acquiring shares from existing retail stores whether or not publicly listed whose net worth is in excess of the peso equivalent of Two Million Five Hundred Thousand US Dollars (US$2,500,000.00) may purchase only up to a minimum of sixty percent (60%) of the equity thereof within the first two (2) years from the effectivity of this Act and thereafter, they may acquire the remaining percentage consistent with the allowable foreign participation as herein provided.

Sec. 7. Public Offering of Shares of Stock. – All retail trade enterprises under Categories B and C in which foreign ownership exceeds eighty percent (80%) of equity shall offer a minimum of thirty percent (30%) of their equity to the public through any stock exchange in the Philippines within eight (8) years from their start of operations.

Sec. 8. Qualifications of Foreign Retailers. – No foreign retailer shall be allowed to engage in retail trade in the Philippines unless all the following qualifications are met:

(a)   A minimum of Two Hundred Million US Dollars (US$200,000,000.00) net worth in its parent corporation for Categories B and C, and Fifty Million US Dollars (US$50,000,000.00) net worth in its parent corporation for Category D;

(b)  Five (5) retailing branches or franchises in operation anywhere around the world unless such retailers has at least one (1) store capitalized at a minimum of Twenty-Five Million US Dollars (US$25,000,000.00);

(c)  Five (5)-year track record in retailing; and

(d)  Only nationals from, or judicial entities formed or incorporated in, countries which allow the entry of Filipino retailers, shall be allowed to engage in retail trade in the Philippines.

The DTI is hereby authorized to pre-qualify all foreign retailers, subject to the provisions of this Act, before they are allowed to conduct business in the Philippines.

The DTI shall keep a record of qualified foreign retailers who may, upon compliance with law, establish retail stores in the Philippines.  It shall ensure that the parent retail trading company of the foreign investor complies with the qualifications on capitalization and track record prescribed in this Sec..

The Inter-Agency Committee on Tariff and Related Matters of the National Economic Development Authority (NEDA) Board shall formulate and regularly update a list of foreign retailers of high-end or luxury goods and render an annual report on the same to Congress.

Sec. 9. Promotional of Locally Manufactured Products. – For ten (10) years after the effectivity of this Act, at least thirty percent (30%) of the aggregate cost of the stock inventory of foreign retailers falling under Categories B and C and ten percent (10%) for Category D, shall be made in the Philippines.

Sec. 10. Prohibited Activities of Qualified Foreign Retailers. – Qualified foreign retailers shall not be allowed to engage in certain retailing activities outside their accredited stores through the use of mobile or rolling stores or carts, the use of sales representatives, door-to-door selling, restaurants and sari-sari stores and such other similar retailing activities: Provided, that a detailed list of prohibited activities shall hereafter be formulated by the DTI.

Sec. 11. Implementing Agency; Rules and Regulations. – The monitoring and regulation of foreign sole proprietorships, partnerships, associations or corporations allowed to engage in retail trade shall be the responsibility of the DTI. This shall include resolution of conflicts.

The DTI, in coordination with the SEC, the NEDA and the BSP, shall formulate and issue the implementing rules and regulations necessary to implement this Act within ninety (90) days after its approval.

Sec. 12. Penalty Clause. – Any person who shall be found guilty of violation of any provision of this Act shall be punished by imprisonment of not less than six (6) years and one (1) day but not more than eight (8) years, and a fine of not less than One Million Pesos (P1,000,000.00) but not more than Twenty Million Pesos (P20,000,000.00).

In the case of associations, partnerships or corporations, the penalty shall be imposed upon its partners, president, directors, managers and other officers responsible for the violation.  If the offender is not a citizen of the Philippines, he shall be deported immediately after service of sentence.  If the Filipino offender is a public officer or employee, he shall, in addition to the penalty prescribed herein, suffer dismissal and permanent disqualification from public office.

Sec. 13. Repealing Clause. – Republic Act No. 1180, as amended, is hereby repealed.  Republic Act No. 3018, as amended, and all other laws, executive orders, rules and regulations or parts thereof inconsistent with this Act are repealed or modified accordingly.

Sec. 14. Separability Clause. – If any provision of this Act shall be held unconstitutional, the other provisions not otherwise affected thereby shall remain in force and effect.

Sec. 15. Effectivity. – This Act shall take effect fifteen (15) days after its approval and publication in at least two (2) newspapers of general circulation in the Philippines.

MANUEL B. VILLAR, JR.
Speaker of the House of Representatives

BLAS F. OPLE
President of the Senate

[This Act, which is a consolidation of Senate Bill No. 153 and House Bill No. 7602, was finally passed by the Senate and House of Representatives on February 15, 2000].

ROBERTO P. NAZARENO
Secretary General
House of Representatives

HEZEL P. GACUTAN
Secretary
Senate

Approved:

JOSEPH EJERCITO ESTRADA
President of the Philippines