Many people ask how they may circumvent the Philippines laws on foreign ownership as stated in the foreign investment negative list.
Most inquires pertain to foreign ownership of land and foreign ownership of corporations engaged in retail business or where the foreign equity is restricted to 40% or less.
No legal solutions exist for a foreigner to own land in their own name or to own more than the legal percentage of a business allowed to him by law. The use of nominees with side agreements is illegal and is a violation of the Anti-Dummy Law.
The Department of Justice Opinion No. 165, Series of 1984 indicates what may determine that the Anti-Dummy Law is being violated:
• That the foreign investor provides practically all the funds for the joint investment undertaken by Filipino businessmen and their foreign partner.
• That the foreign investors undertake to provide practically all the technological support for the joint venture.
• That the foreign investors, while being minority stockholders, manage the company and prepare all economic viability studies.
Foreign investors may think they are protected by side agreements naming them the beneficial owners, however when the time comes to use the agreement in court, they will discover that the agreement has no value being a document that violates the law. Another common occurrence is for the foreign investor to find that the nominee has taken over the business or has sold all the business’s assets.
No matter what people may tell you, the best way to do business in the Philippines is to obey the foreign investment act regulations regarding foreign ownership. Shortcuts only equal unnecessary risks.
About David Elefant
Philippines business consultant specializing in assisting companies setup their operations in the Philippines.
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