Thursday, September 3, 2015

Foreign Investment In The Philippines

See - Foreign Investment In The Philippines – To Be Or Not To Be? | Conventus Law

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How to operate in the Philippines: some legal considerations

The Negative List

Under the Foreign Investments Act of 1991 (Republic Act 7042, as amend- ed), foreign investors are allowed to invest 100% equity in companies engaged in the majority of business activities in the Philippines, subject to certain restrictions as prescribed in the Foreign Investments Negative List (“FINL”), the latest of which was issued on 29 May 2015. The FINL is a list of areas of economic activity in respect of which foreign investors are limited to a certain percentage or which are reserved for Philippines nationals. The FINL is classified as follows:

List A - consists of areas of activ- ity reserved to Philippines nationals where foreign equity participation in any domestic or export enterprise engaged in any activity listed there- in shall be limited to a maximum of 40% as prescribed by the Constitu- tion and other specific laws; and

List B - consists of areas of activity where foreign ownership is limited for reasons of security, defence, risk to health and morals and for the pro- tection of small and medium-scale enterprises.

In essence, a foreign investor may invest up to 100% equity into the Philippines provided that: (i) the proposed activity is not among those listed on the FINL; and (ii) the paid- up capital for investing in a domestic market enterprise (being an enter- prise which produces goods for sale or renders service or otherwise en- gages in any business inside the Phil- ippines) must be at least $200,000 (which may be lowered to $100,000 if the business involves the introduc- tion of advanced technology as de- termined by the Philippine Depart- ment of Science and Technology, or employment of at least 50 direct employees). If the investment is into an export enterprise, the minimum paid-up capital requirement is only PhP 5,000.

Some of the activities included in the Tenth Negative List (which took effect on 29 May 2015) are as follows:

No Foreign Equity

The practice of professions (including, but not limited to pharmacy, forestry and law)

Retail trade enterprises with paid-up capital of less than $2,500,000

Small-scale mining

Up to 20% Foreign Equity

• Private radio communications network

Up to 25% Foreign Equity

• Private recruitment, whether for local or overseas employment
• Save as provided by law, contracts for the construction and repair of locally-funded public works

Up to 30% Foreign Equity

• Advertising

Up to 40% Foreign Equity

Save as provided by law, exploration, development and utilisation of natural resources

Ownership of private lands

Ownership of condominium units

Anti-Dummy law
The Philippines has an Anti-Dummy Law (Commonwealth Act No. 108, as amended) which punishes the eva- sion of the laws on nationalisation of certain rights, franchises or privi- leges. The Anti-Dummy Law pun- ishes any citizen of the Philippines or of any other specific country who allows his name or citizenship to be used for the purpose of evading such provision (and any alien or foreigner profiting thereby), or allows a foreigner to intervene in the management, operation, administration or control of a nationalised business or corporation, except technical personnel whose employment may be specifically authorised by the Secretary of Justice or foreigners who are elected as directors in proportion to the allowable foreign ownership, by imprisonment for not less than five nor more than fifteen years, and by a fine of not less than the value of the right, franchise or privilege, which is enjoyed or acquired in violation of the Anti-Dummy Law. As a result, we strongly recommend that any for- eign investor seeks appropriate legal advice prior to embarking on any in- vestment activity in the Philippines, particularly in any area contained in the FINL.

Key advantages at a glance Investors registering with the invest- ment promotion agencies are guaranteed certain rights relating to the protection of their investment includ- ing, among other things, the right to repatriate the entire proceeds of the liquidation of the investment, the right to remit earnings, freedom from expropriation by the govern- ment without just compensation and to equal treatment with local inves- tors (to the extent permitted by law).

The Philippines’ government also of- fers many fiscal and non-fiscal incentives for foreign investors. Projects outside of the economic zones may register with the BOI to qualify for certain incentives including, among others, income tax holidays or ex- emptions from corporate income tax for four years (for “Non-Pioneer” projects) or six years (for “Pioneer” projects), extendible to a maximum of eight years, duty-free importa- tion of capital equipment, permit- ted deductions for labour expenses, permitted employment of foreign nationals in supervisory, technical or advisory positions and simplified customs procedures for the importa- tion of equipment, spare parts, raw materials and supplies and exports of processed products.

Many of the projects and potential projects we have recently advised on have involved foreign investment into the Philippines through various of the special economic zones. The Philippines has won praise for its “PEZA” zones, which offer a stream- lined permit process for foreign in- vestors. These economic zones of- fer further incentives under various laws such as the Special Economic Zone Act of 1995 (implemented by PEZA) and the Bases Conversion and Development Act of 1992.

40% ownership rule
Many argue that foreign investors are put-off by the 40% foreign-own- ership rule in relation to certain business activities. Whilst there has been some further opening up to foreign investors, for example, the passing into law of Republic Act No. 10641 in July 2014, which permits, among other things, qualified foreign banks to own 100% of a Philippine bank and to invest up to 100% equity in a new banking subsidiary, many ana- lysts feel that there are still so many limitations built into the Philippines Constitution that significant open- ing up to FDI is, in reality, probably not politically possible, at least right now. One major limitation is in re- lation to land ownership by foreign investors, which is still restricted to 40% under the latest FINL, issued on 29 May 2015.

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