Amendments to Foreign Investments Act aim to reduce restrictions and increase economic growth

Foreign investors in the Philippines will have a significantly better experience due to amendments provided by the Republic Act (RA) 11647 towards Section 8 of the Foreign Investments Act (FIA) of 1991. President Rodrigo Duterte signed the amendment on March 2, 2022. Changes that lessen restrictions on foreign investments and improve economic growth are among its new decrees now that the Covid-19 Pandemic has slowed down. 

This act was signed not long after amendments to another RA called the Trade Retail Trade Liberalization Act of 2000 (RTLA), which reduces the minimum paid-up capital of foreign retailers. These laws aim to bring in additional foreign investors and gain a more substantial economic presence in the global market. 

Foreign Investment Negative List in the Philippines 

Initially, the FIA provides a general rule explaining that there are no restrictions on the extent of foreign ownership of export enterprises (i.e., those that consistently export at least 60 percent of their products or services) and in domestic market enterprises (i.e., those that produce goods for sale or render services to the local market entirely or export less than 60 percent of their products or services). 

These changes allow foreigners to invest as much as 100 percent equity except in areas in the Foreign Investment Negative List, which enumerates the business activities subject to nationality requirements or restrictions as provided in the Constitution, existing laws, and governmental policy.

The Negative List in the Philippines is divided in two, the first one is titled List A: Foreign Ownership is Limited by Mandate of the Constitution and Specific Laws and the second one List B: Foreign Ownership is Limited for Reasons of Security, Defense, Risk to Health and Morals and Protection of Small Medium scale enterprises. 

The businesses included in the list are as follows:

LIST A 

Those with no Foreign Equity 

• Mass media, except recording and internet business
• Practice of professions, except in cases specifically allowed by the law following the prescribed conditions therein
  • Professions where foreigners are not allowed to practice in the Philippines, except if the subject to reciprocity as provided in pertinent laws. 
  • Corporate practice of professions with foreign equity restrictions under pertinent laws. 

• 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, whether for local or overseas employment
• Contracts for the construction of defense-related structures

Up to 30% Foreign Equity

• Advertising 

Up to 40% Foreign Equity 

• Procurement of infrastructure projects in accordance with Section 23.4.2.1(b), (c), and (e) of the Implementing Rules and Regulations (IRR) of RA. 9184
• Exploration, development, and utilization of natural resources
• Ownership of private lands, except for a natural-born citizen who has lost his Philippine citizenship and has the legal capacity to enter into a contract under Philippine laws. 
• Operation of public utilities
• Educational institutions other than those established by religious groups and mission boards, for foreign diplomatic personnel and their dependents and other foreign temporary residents, or for 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 (1982)
• Culture, production, milling, processing, trading except retailing, of rice and corn and acquiring, by barter, purchase or otherwise, rice and corn and the by-products thereof, subject to a period of divestment.
• Contracts for the supply of materials, goods, and commodities to Government-Owned and Controlled Corporation (GOCC), company, agency or municipal corporation 
• Operation of deep-sea commercial fishing vessels
• Ownership of condominium units
• Private radio communications network

Up to 60% Foreign Equity 

• Financing companies regulated by the Securities and Exchange Commission (SEC)
• Investment housed regulated by the SEC.

LIST B 

• Manufacture, repair, storage, and/or distribution of products and/or ingredients requiring Philippine National Police (PNP) clearance:
  • • Firearms (handguns to shotguns), parts of firearms and ammunition therefor, instruments or implements used or intended to be used in the manufacture of firearms; 
    • Gunpowder;
    • Dynamite;
    • 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;
      • Nitrocellulose;
      • Perchlorates of ammonium, potassium, and sodium;
      • Dinitrocellulose;
      • Glycerol;
      • Amorphous phosphorus;
      • Hydrogen peroxide;
      • Strontium nitrate powder;
      • Toluene; and

• Manufacture, repair, storage and/or distribution of products requiring Department of National Defense (DND) clearance;
  • Guns and Ammunition for Warfare 
  • Military Ordnance and parts thereof (torpedoes, bombs, grenades, etc..)
  • Gunnery, bombing and fire control systems and components. 
  • Guided Missiles/missile systems and components 
  • Tactical aircraft 
  • Space Vehicles and component systems 
  • Combat Vessels and auxiliaries 
  • Weapons repair and maintenance equipment 
  • Military communications equipment 
  • Night Vision Equipment 
  • Stimulated coherent radiation devices 
  • Armament training devices 
  • Others to be determined by the secretary of the DNC. 

• Manufacture and distribution of dangerous drugs 
• Sauna and steam bathhouses, massage clinics, and other like activities regulated by law because of risks posed to public health and morals, except wellness centers
• All forms of gambling, except those covered by investment agreements with Philippine Amusement and Gaming Corporation (PAGCOR)
• Domestic market enterprises with paid-in equity capital of less than the equivalent of US$200,000
• Micro and small domestic markets that involves the following:
  • Advance technology as determined by Department of Science and Technology (DOST) 
  • Endorsed as a start-up or start-up enablers by Department of Trade Industry, or DOST
  • Employ at least fifty (50) direct employees with paid-in equity capital of less than the equivalent of US$100,000

Amendments to the Foreign Investments Act in the Philippines 

RA 11647 adds the condition that micro and small domestic market enterprises with a paid-up capital requirement of $200,000 are still reserved for Philippine nationals unless otherwise set under RA 8762 or the "Retail Trade Liberalization Act" and other relevant laws. Furthermore, it clarified that the paid-up threshold was provided before the amendment, but only the term used is "small- and medium-sized domestic market enterprises.". 

Amendments to the law explain that foreign nationals must include citizens of the Philippines in the operations. Furthermore, a domestic partnership or association wholly owned by citizens of the Philippines, or a corporation organised under the laws of the Philippines of which at least 60 percent of the capital stock outstanding and entitled to vote is owned and held by citizens of the country must be enforced. 

Additionally, RA 11647 strives to further technological innovation and create a solid foundation when creating startups or startup enablers following the "Innovative Startup Act" (RA 11337) and lowering the capitalisation requirement to $100,000. 

The amendment also covers the previous rule of foreign nationals employing at least fifty (50) direct employees to become eligible for the $100,000 capitalisation requirement. The new law states that enterprises now only need to have most of their direct employees be Filipinos to become eligible for the lower capitalisation rule. However, this will only apply to the number of Filipino employees not less than fifteen (15). Domestic enterprises are mandated to implement an understudy or skills development program if they benefit from said lower capitalisation requirement to ensure the transfer of technology or skills to Filipinos. 

Another critical amendment provided by RA 11647 was the creation of an agency called the Inter-agency Investment Promotion Coordination Committee (IIPCC), which is mandated to help develop a comprehensive and strategic Foreign Investment Promotion and Marketing Plan (FIPMP) for the next five years and ten (10) years. 

The proposed plan must be based on competitive advantages, natural resources, skill and educational development, traditional linkages, and international market potential while still entirely consistent with the strategic investment priorities plan under Title XIII of the National Internal Revenue Code. 

Additionally, the IIPCC also serves to help review foreign investments involving military-related industries, cyberinfrastructure, pipeline transportation or other activities that may threaten the territorial integrity and the safety, security, and well-being of Filipinos. To accomplish these tasks, it will consult local chambers of commerce and business groups about developing the FIPMP. 

The final amendment explained in the RA was creating an accessible database for the FIPMP to be used by local enterprises to increase the chances of partnering with potential investors. Several government agencies, including The Department of Education, the Department of Labor and Employment and more, are required to create a curriculum and exert training efforts to address FIPMP workforce requirements. 

The country’s expenses and overall debt has increased drastically because of the Covid-19 pandemic, and these amendments were implemented to make foreign investments a strong driving force in developing the economy. It would attract domestic market innovations through good marketing plans that dramatically boost the number of investments in the country.