Your first step of company registration process should be to check the allowed foreign ownership in your desired industry. In this article, we take a closer look at the Foreign Investment Negative List in the Philippines.
What is the Foreign Investment Negative List
The Regular Foreign Investment Negative List is a document released by the government to regulate the foreign ownership percentage in certain industries. Furthermore, investors are also required to set up a corporate presence in the country.
The 1991 Foreign Investments Act (FIA) allows foreign investors to engage in any type of business in the Philippines, on the condition that their industry does not fall under categories stated in the Foreign Investment Negative List (FINL).
The FINL consists of lists A and B and separates business lines that are open to foreign investment, and those that are available only for Filipino entrepreneurs. Also note that if an industry is not in the negative list, it is 100% open to foreign investment.
Industries with limited foreign ownership in the Philippines
List A of the 10th Foreign Investment Negative List regulates foreign ownership by mandate of the constitution and specific laws:
Up to 60% foreign equity
- Financing companies and investment houses regulated by the Securities and Exchange Commission (SEC)
Up to 49% foreign equity
- Lending companies regulated by the SEC
Up to 40% foreign equity
- Exploration, development, and utilization of natural resources
- Ownership of private lands
- Operation and management of public utilities
- Ownership, establishment, and administration of educational institutions other than those established by religious groups and mission boards
- Culture, production, milling, processing, trading (except retailing), and acquisition of rice and corn, by barter, purchase or otherwise, rice and corn and the by-products thereof
- Contracts for the supply of materials, goods, and commodities to government-owned or controlled corporations, companies, agencies, or municipal corporations
- Facility operator of an infrastructure or a development facility requiring a public utility franchise
- Operation of deep sea commercial fishing vessels
- Adjustment companies
- Ownership of condominium units
Up to 30% foreign equity
Up to 25% foreign equity
- Private recruitment, whether for local or overseas employment
- Contracts for the construction and repair of locally-funded public works, except infrastructure/development projects covered in RA 7718 and foreign-funded or assisted projects which undergo international competitive bidding
- Contracts for the construction of defense-related structures
Up to 20% foreign equity
- Private radio communication network
List B of the 2015 FINL limits foreign ownership due to security, defense, risk to health, and morals and to protect small- and medium-scale businesses.
Up to 40% foreign equity
- Manufacture, repair, storage and/or distribution of products and/or ingredients requiring Philippine National Police (PNP) clearance (i.e, firearms, ingredients used in making explosives, etc)
- Manufacture, repair, storage and/or distribution of products requiring Department of National Defense (DND) clearance (i.e, guns and ammunition for warfare, military ordnance, and parts thereof, etc)
- Sauna and steam bathhouses, massage clinics and other like activities regulated by law due to risks posed to public health and morals
- Manufacture and distribution of dangerous drugs
- All forms of gambling (RA 7042 as amended by RA 8179) except those covered by investment agreements with PAGCOR (PD 1869 as amended by RA 9487)
- Domestic market enterprises with paid-in equity capital of less than the equivalent of US$ 200,000
- Domestic market enterprises which involve advanced technology or employ at least fifty direct employees with paid-in equity capital of less than the equivalent of US$ 100,000
Industries closed to foreign ownership in the Philippines
As per 10th Regular Foreign Investment Negative List:
Categories in which no foreign ownership is allowed
Most common industries available for full foreign investment in the Philippines
Opening a 100% foreign-owned manufacturing business is allowed for foreign shareholders. However, it is possible only if your business activities are not under categories listed in the Negative List.
In the Philippines, businesses need to export at least 60% of their products/services in order to be considered export enterprises.
Aside from a significantly smaller minimum capital requirement, export companies can be fully foreign-owned as well.
Foreign investors are also allowed to set up 100% foreign-owned retail trade companies in the Philippines.
However, as stated in the negative investment list, it is possible only under certain conditions:
- Minimum paid up capital must be US$ 2.5 million or more and investment for establishing a store is no less than US$ 830,000
- When specializing in high end and luxury products and minimum paid up is no less than US$ 250,000 per store.
If the minimum capital input of a retail enterprise is less than US$ 2.5 million, no foreign equity is allowed.
Foreign investors can also establish up to 100% foreign-owned e-commerce businesses. However, their activities cannot fall under industries listed in the FINL.
2017 planned Foreign Investment Negative List in the Philippines
The current, 10th FINL came into force in 2015. The government revises the list every two years and the 2017 Foreign Investment Negative List is to be announced before the end of the year.
The government is planning to reduce limitations on certain industries in order to encourage foreign direct investment in the Philippines. Thus, the 11th FINL is said to be shorter than the previous one.
For example, some industries among others that are under discussion are:
- Financing and investment companies
- Retail trade
- Mass media
Other requirements for foreign companies in the Philippines
Minimum capital requirement
In addition to foreign ownership limitations, investors aiming to establish a foreign-owned company in the Philippines also need to meet minimum investment requirements.
The general minimum capital requirement for foreign-owned companies in the Philippines is US$ 200,000. However, it is possible to lower the minimum investment significantly. For example, by exporting most of your production or by employing local employees.
The corporate structure of domestic corporations in the Philippines requires at least 5 but no more than 15 founders. Each of them has to hold at least 1 share and the majority of incorporators must be Philippines residents.
As you also need to appoint at least 3 corporate officers (President, Corporate Secretary, Treasurer) out of which the Secretary must be a citizen of the Philippines, it is common practice to use nominee shareholders and officers.
Furthermore, if your goal is to enter the market faster and without complying with the minimum requirements, you can also opt for a nominee company. Contact us via [email protected] for more information.
Take a look at our guide on how to start a corporation in the Philippines to see different legal entity types available in the Philippines as well.
In order to maximize the success of your business, it would be wise to seek legal advice before making any investments. Contact our consultants via the form below to discuss the best options for your business activities in the Philippines.