I. FOREIGN INVESTMENTS IN THE PHILIPPINES
The law that governs the participation of foreign entities in economic and
commercial activities in the Philippines is Republic Act No. 7042, as amended,
otherwise known as the Foreign Investments Act of 1991 (“FIA”). According to the
FIA, itis the policy of the State to attract, promote, and welcome productive
investments from foreign individuals, partnerships, corporations, and governments,
including their political subdivisions, in activities which significantly contribute to
national industrialization and socioeconomic development to the extent that foreign
investment is allowed in such activity by the Constitution and relevant laws.
To encourage foreign investments, Philippine laws expressly recognize various rights
of foreign investors in the Philippines, including the rights to repatriation of
investments, remittance of earnings, and freedom from expropriation (except for
public use or in the interest of national welfare or defense and upon payment of just
compensation).
Foreigners may hold interests in corporations, partnerships, and other entities in the
Philippines, provided that such corporations, partnerships, and other entities are not
engaged in an activity that is reserved by law only to Philippine citizens or to entities
that are wholly owned by Philippine citizens. The maximum amount of foreign
equity that is allowed in a company depends on the type ofactivity that the company
is engaged in.
1. Extent of Foreign Equity
The FIA provides for the formulation ofa Foreign Investment Negative List
(“Negative List”) – a list ofeconomic activities where foreign equity is either
prohibited or limited to a certain percentage. The Negative List has two component
lists: List A and List B. List A contains areas of investment where foreign ownership
is limited by the mandate of the PhilippineConstitution or by specific laws. List B
contains areas of investment where foreign ownership is limited for reasons of
security, defense, risk to health and morals, or protection of local small and
medium-sized enterprises. A new Negative List is prospective in application and
will not affect foreign investment that already exists on the date of its publication.
Except with respect to activities where restrictions on foreign equity are
imposed under the Philippine Constitution or statutes, the President of the
Philippines may amend the Negative List. However, amendments to List B may not be
made more often than once every two years.
A non-Philippine national may do business or invest in a domestic enterprise in the
Philippines to the extent of 100 percent ofits capital, provided that the following
conditions are complied with:
a. It is investing in a domestic market enterprise in areas outside the Negative
List or it is investing in an export enterprise whose products and services do
not fall within Lists A and B of the Negative List. A domestic market
enterprise is an enterprise which produces goods for sale or renders service
or otherwise engages in any business in the Philippines. An export enterprise is
a manufacturer, processor,or service (including tourism) enterprise that
exports 60 percent or more of its output, or a trader that purchases products
domestically and exports 60 percent or more of such purchases.
b. The country or state of the applicant must also allow Filipino citizens and
corporations to do business therein.
c. It must have a paid-in capital of at least the peso equivalent of US $200,000