Investing in the Philippines: Foreign Ownership Limitations

Posted by Maria Katrina dela Cruz

Feb 26, 2020 8:00:00 AM

As the local economy grows, foreign investments continue to expand the livelihood and employment opportunities for many. However, there are still limitations in foreign ownership in the Philippines.

foreign ownership limitations  in the Philippines

Related: Starting A Business In The Philippines: What are the Corporate Business Entities? 

Starting a Business in the Philippines

Displaying robust growth ahead of its Southeast Asian neighboring countries, the Philippines is among the top choices of foreign investors for building their business overseas. 

Alongside the advantages the country offers, there are also challenges they face when settling their firm in the Philippines; one of which is the government’s restrictions on foreign equity. 

Here is a guide to fully understand the foreign ownership limitations  in the Philippines:

List A 

Last October 2018, the 11th version of the Negative List was signed by President Rodrigo Duterte, which added more sectors allowing 100% foreign ownership of any local business enterprise. 

According to Executive Order No. 65, there will be no foreign equity on: 

  • Mass media (except recording) and internet business
  • Practice of professions.
    • Foreigners may teach at higher education levels provided that the subject being taught is not a professional subject
  • Retail trade enterprises with paid-up capital of less than US$2,500,000
  • Cooperatives
  • Organization and operation of private detective, watchmen or security guards agencies
  • Small-scale mining
  • Utilization of marine resources in archipelagic waters, as well as utilization of natural resources in rivers, lakes, bays and lagoons
  • Ownership, operation and management of cockpit
  • 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 pyrotechnic devices

Foreign ownership is allowed on export enterprises. However, domestic market enterprises with an exceeding 40% foreign ownership allows foreigners to have as much as 100% equity investment except in the sectors included in the Negative List. 

Restrictions in Foreign Equity

The Constitution provides certain statutes about foreign business ownership, and to what extent they can operate in the country. While there are still sectors exclusive for Filipinos, the Foreign Investments Act (FIA) grants permissions to foreign investors to establish their presence in the Philippines under certain conditions.

  • Up to 25% Foreign Equity

    • Private recruitment (for local or overseas employment)
    • Contracts for construction of defense-related structures

  • Up to 30% Foreign Equity 

    • Advertising

  • Up to 40% Foreign Equity

    • Subject to applicable regulatory frameworks, contracts for construction and repair of locally-funded public works except
      • Infrastructures/development projects covered in RA No. 7718 
      • Projects which are foreign-funded or assisted and required to undergo international competitive bidding
      • Exploration, development and utilization of natural resources
      • Ownership of private lands
      • Operation of public utilities except power generation and the supply of electricity to the contestable market and such other like businesses or services not covered by the definition 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 Sec. 20 of Batas Pambansa No. 232
      • 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
      • Contracts for the supply of materials, goods and commodities to government-owned or controlled corporation, company, agency or municipal corporation
      • Operation of deep sea commercial fishing vessels
      • Ownership of condominium units
      • Private radio communications network

List B

In List B, foreign ownership is restricted for reasons of security, defense, risk to health and moral and protection of small and medium scale enterprises. 

  • Up to 40% Foreign Equity

  • Manufacture, repair, storage and/or distribution of products and/or ingredients requiring the Philippine National Police clearance:
    • Firearms
    • Gunpowder
    • Dynamite
    • Blasting supplies
    • Ingredients used in making explosives
      • Chlorates of potassium and sodium;
      • Nitrates of ammonium, potassium, sodium barium, copper (l l), lead (l l), calcium and cuprite;
      • Nitric acid;
      • Nitrocellulose;
      • Perchlorates of ammonium, potassium and sodium;
      • Dinitrocellulose;
      • Glycerol;
      • Amorphous phosphorus;
      • Hydrogen peroxide;
      • Strontium nitrate powder;
      • Toluene; and

  • Telescopic sights, sniper scope and other similar devices.

    However, the manufacture or repair of these items may be authorized by the Chief of the PNP to non-Philippine nationals; Provided that a substantial percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership allowed shall be specified in the said authority/clearance.

  • Manufacture, repair, storage and/or distribution of products requiring Department of National Defense clearance:

      • Guns and ammunition for warfare;
      • Military ordnance and parts thereof (e.g., torpedoes, depth charges, bombs, grenades, missiles);
      • Gunnery, bombing and fire control systems and components;
      • Guided missiles/missile systems and components;
      • Tactical aircraft (fixed and rotary-winged), parts and components thereof;
      • Space vehicles and component systems;
      • Combat vessels (air, land and naval) and auxiliaries;
      • Weapons repair and maintenance equipment;
      • Military communications equipment;
      • Night vision equipment;
      • Stimulated coherent radiation devices, components and accessories;
      • Armament training devices; and
      • Others as may be determined by the Secretary of the DND.

However, the manufacture or repair of these items may be authorized by the Secretary of National Defense to non-Philippine nationals; Provided that a substantial percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership allowed shall be specified in the said authority/clearance.

  • 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 PAGCOR.
  • 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 (50) direct employees with paid-in equity capital of less than the equivalent of US$100,000.

 

Investing in the Philippines may be a huge ordeal, but with the right partner, you are sure to seamlessly navigate the local business climate in a matter of few years. 

Let us help grow your startup in the country. 

Though there are foreign ownership limitations in the Philippines, our team of experts can give you a boost in your business journey. Our extensive experience in registering and incorporating foreign companies guarantees a successful setup in the local business hub. Read our guide Getting your Business In- A Startup’s Gateway to the Philippines to know how we can help you foster your firm’s growth.

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Topics: Business in the Philippines

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