Foreign Investment Negative List in the Philippines
Table of contents
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.
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 Twelve Regular Foreign Investment Negative Lists, updated List A and List B include the restrictions on foreign participation are written into law in order to align existing laws, policies, and regulations.
The following items have been included in the new Twelfth Regular Foreign Investment Negative Lists:
- The removal of manufacture, repair, storage, and distribution processes required by the Department of National Defense (“DND”) for products.
- The RTLA has been amended recently to allow for full foreign ownership of retail trade enterprises, so long as the company’s paid-up capital is at least $446,000.
List A: Foreign Ownership is Limited by a Constitutional Mandate and Specific Laws.
- No Foreign Equity
- Mass media, except recording and internet business
- Practicing a profession without being licensed or registered, unless the law provides otherwise and sets out conditions.
- Professions in which foreigners are prohibited from practicing, except when the PRC grants them a license as allowed by law.
- The corporate practice of professions that are restricted by law to individuals who meet certain qualifications.
- Retail trade enterprises with paid-up capital of less than ₱25,000,000.00
- Cooperatives, except investments of former natural-born citizens of the Philippines
- Organization and operation of private agencies for security guards, watchmen, or detectives
- Small-scale mining
- Use of marine and inland water resources in the archipelagic waters, territorial sea, and exclusive economic zone as well as small-scale use of natural resources within rivers.
- Ownership, operation, and management of cockpits
- Manufacture, repair, stockpiling, and/or distribution of nuclear weapons
- Manufacture, repair, stockpiling, and/or distribution of biological, chemical, and radiological weapons and anti-personnel mines
- Manufacture of firecrackers and other pyrotechnic devices
Up to 25% Foreign Equity
- Private recruitment for local or overseas jobs
- Contracts for the construction of defense-related structures
Up to 30% Foreign Equity
Up to 40% Foreign Equity
- Procuring infrastructure projects in accordance with Section 22.214.171.124 (b), (c), and (e) of the Implementing Rules and Regulations for Republic Act 9184
- Exploration, development, and utilization of natural resources
- A natural-born citizen who has lost his Philippine citizenship and has the legal capacity to enter into a contract under any country’s laws, cannot own private lands in the Philippines.
- Operation of public utilities
- Educational institutions, other than those established by religious groups and mission boards, for foreign diplomats and other foreign residents.
- Short-term high-level skills development that do not form part of the formal education system as defined in Section 20 of Batas Pambansa (BP) No. 232, otherwise known as the “Education Code”
- Culture, production, milling, and processing of rice and corn; trading in rice or corn (except retail sale), subject to a period of divestment.
- Contracts for the supply of materials, goods, and commodities to government-owned or -controlled corporations (GOCC), companies, agencies, or municipal subdivisions
- Operation of deep-sea commercial fishing vessels
- Ownership of condominium units
- Private radio communications network
- 100% foreign equity – Operation of public utilities
List B: Foreign Ownership is Limited to Reason of Security, Defense, and Risk to Health.
- Protection of Small and Medium Scale Enterprises also included
Up to 40% Foreign Equity
- The manufacture, repair, storage, and/or distribution of products or ingredients requiring a Philippine National Police clearance
- Firearms (handguns to shotguns) and their parts, ammunition therefore, instruments or implements used or intended for use in the manufacture of firearms
- Blasting supplies
- Ingredients used in making explosives
- Chlorates of potassium and sodium
- Nitrates of ammonium, potassium, sodium barium, copper (11), lead (11), calcium, and cuprite
- Nitric acid
- Perchlorates of ammonium, potassium, and sodium
- Amorphous phosphorus
- Hydrogen peroxide
- Strontium nitrate powder
- Toluene; and telescopic sights, sniper scopes, and other similar devices.
The manufacture or repair of these items, however, may be authorized by the Chief of the PNP to non-Philippine nationals; provided that a substantial percentage as determined by the said agency of output (product produced) is exported. The extent of foreign equity ownership allowed shall be specified in the relevant authority/clearance (RA No. 7042 as amended by RA 8179).
As per 10th Regular Foreign Investment Negative List:
Categories in which no foreign ownership is allowed
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.
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.
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