Prof. Maria Lulu G.

Reyes, LlB, LlM

1
2
 Republic Act 7042 as amended by RA 8179,
also known as the Foreign Investments Act of
1991, is the basic law that governs foreign
investments in the Philippines. It is
considered a landmark legislation because it
liberalized the entry of foreign investments
into the country.

3
 Under this law, foreign investors are
allowed to invest 100% equity in
companies engaged in almost all types
of business activities subject to certain
restrictions as prescribed in the Foreign
Investments Negative List (FINL)

4
 a citizen of the Philippines;

 a domestic partnership or association wholly

owned by citizens of the Philippines;

 a corporation organized under the laws of the

Philippines of which at least sixty percent (60%)
of the capital stock outstanding and entitled to
vote is owned and held by citizens of the
Philippines;

5
 a corporation organized abroad and registered
as doing business in the Philippines under the
Corporation Code of which one hundred percent
(100%) of the capital stock outstanding and
entitled to vote is wholly owned by Filipinos
 a trustee of funds for pension or other employee
retirement or separation benefits, where the
trustee is a Philippine national and at least sixty
percent (60%) of the fund will accrue to the
benefit of Philippine nationals

6
 Provided, That where a corporation and its non-
Filipino stockholders own stocks in a Securities and
Exchange Commission (SEC) registered enterprise, at
least sixty percent (60%) of the capital stock
outstanding and entitled to vote of each of both
corporations must be owned and held by citizens of
the Philippines and at least sixty percent (60%) of the
members of the Board of Directors of eachof both
corporations must be citizens of the Philippines, in
order that the corporation, shall be considered a
"Philippine national”
 See Gamboa v. Teves
7
 shall mean equity participation in any
enterprise organized or existing under the laws
of the Philippines;

8
 shall mean an equity investment made by
non-Philippine national in the form of foreign
exchange and/or other assets actually
transferred to the Philippines and duly
registered with the BSP which shall assess
and appraise the value of such assets other
than foreign exchange

9
 soliciting orders, service contracts,

 opening offices, whether called "liaison" offices or branches;

 appointing representatives or distributors domiciled in the Philippines

or who in any calendar year stay in the country for a period or periods
totaling one hundred eighty [180] days or more;

 participating in the management, supervision or control of any

domestic business, firm, entity or corporation in the Philippines; and

 any other act or acts that imply a continuity of commercial dealings or

arrangements and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of commercial gain or of
the purpose and object of the business organization:
10
Does not include:
 mere investment as a shareholder by a foreign
entity in domestic corporations duly registered
to do business, and/or the exercise of rights as
such investor;
 nor having a nominee director or officer to
represent its interests in such corporation;
 nor appointing a representative or distributor
domiciled in the Philippines which transacts
business in its own name and for its own account

11
 FIA does not apply to banking and other
financial institutions, which are governed and
regulated by the General Banking Act and
other laws under the supervision of the
Bangko Sentral ng Pilipinas

12
Section 123 of the Corporation Code:
 A foreign corporation as one formed,
organized, and existing under any laws other
than those of the Philippines and whose laws
allow Filipino citizens and corporations to do
business in the Philippines.

13
 Branch
 Representative Office
 RHQ
 ROHQ
 Subsidiary/Domestication

14
 A Branch office is a foreign corporation
organized and existing under foreign laws that
carries out business activities of the head office
 derives income from the host country.
 It is required to put up a minimum paid in capital
of US$200,000.00, which can be reduced to
US$100,000.00 if (a) activity involves advanced
technology, or (b) company employs at least 50
direct employees. Registration with the SEC is
mandatory.

15
 In the case of Citibank and BA, it is apparent that
they both did not incorporate a separate domestic
corporation to represent its business interests in the
Philippines. Their Philippine branches are, as the
name implies, merely branches, without a separate
legal personality from their parent company,
Citibank and BA xxx being one and the same entity
(PDIC v. Citibank NA and BA, 11 April 2012)

16
 a foreign corporation organized and existing
under foreign laws.
 does not derive income from the Philippines
 fully subsidized by its head office and all of its
operating costs must be covered by transfer
of funds from the parent company
 required annual minimal inward remittance:
of as working capital is US$ 30,000.00

17
 activities allowed are:
▪ dealing with the clients of the parent company,
▪ dissemination of information,
▪ promotion of company products and quality control of
products for export.
 forbidden to offer services to 3rd parties

18
 RHQ or Regional Headquarters can only be
setup and operated by a foreign corporation,
which has subsidiaries, branches, affiliates
and clients in the Asia-Pacific Region and
other foreign markets. It is a branch of a
multinational company that exists under the
laws of a nation other than the Philippines

19
 primary purpose of an RHQ is to act as a
supervisory, communications, and
coordinating center for its subsidiaries
affiliates and branches in the Asia- Pacific
region
 not allowed to derive income in the
Philippines
 minimum of USD50,000.00 must be remitted
yearly to the Philippines RHQ to cover
operational expenses
20
Tax Incentives for Philippines RHQ
 Exemption from corporate income tax
 Exemption from value-added tax (0%VAT)
 Sale or lease of goods and property, and services to the RHQ shall
be subjected to zero VAT
 Exemption from all kinds of local taxes, fees or charges imposed
by a local government unit, except real property tax on land
improvement and equipment
 Tax and duty free importation of equipment and materials for
training and conferences needed and solely used for the RHQ
functions, and which are not locally available, subject to prior BOI
approval.
 Equipment disposed of within 2 years after importation subject to
payment of taxes and duties
 Importation of brand new motor vehicle but subject to payment of
taxes and duties.

21
 A Regional Operating Headquarters can only
be established and run by a multinational
corporation, which has subsidiaries,
branches, affiliates and clients in the Asia-
Pacific Region and other foreign markets and
as long as they exist under laws other than
those of the Philippines.

22
 may engage in any of the following qualifying services to
its affiliates, subsidiaries and branches in the Philippines:
– General administration and planning
– Business planning and coordination
– Sourcing/procurement of raw materials components
– Corporate finance advisory services
– Marketing control and sales promotion
– Training and personnel management
– Logistics services
– Research and development services and product
development
– Technical support and maintenance
– Data processing and communications
– Business development

23
 An ROHQ is allowed to derive income in the
Philippines by delivering the above mentioned
services.
 ROHQ is allowed to offer qualifying services only
to its affiliates, branches, or subsidiaries as
declared in its registration with the Philippines
Securities and Exchange Commission (SEC).
 It is not allowed to directly or indirectly engage
in the sale and distribution of goods and services
whether on behalf of their mother company,
branches, affiliates, subsidiaries, or any other
company
24
 Proof of inward remittance of USD200,000
 Tax Incentives for Philippines ROHQ
 Exemption from all kinds of local taxes, fees or charges imposed
by a local government unit, except real property tax on land
improvements and equipment.
 Tax and duty free importation of equipment and materials for
training and conferences needed and solely used for the RHQ
functions, and which are not locally available, subject to prior BOI
approval.
 Equipment disposed of within 2 years after importation subject to
payment of taxes and duties
 Importation of brand new motor vehicle but subject to payment of
taxes and duties.
 Note: ROHQ’s are subject to 12% VAT, 10% corporate income tax
and 15% branch office profit remittance when profit remitted to
parent company

25
 Form, register and capitalize a new corporation
under Philippine law
OR
 Domestication Principle: transfer of an existing
corporation from one jurisdiction (i.e. state) to
another. This happens when an existing
corporation relocates and changes domicile for
its business operations to another state and
typically ceases operation in the existing state.
 Same corporation, no new legal entity
26
 It is an enterprise which produces goods for sale, or renders
services to the domestic market entirely or if exporting a
portion of its output fails to consistency export at least 60%
thereof. (Sec 3 (e), R.A. 7042).
 Non-Philippine nationals may own up to one hundred
percent [100%] of domestic market enterprises unless
business is listed in the FINL (Sec. 7, R.A. 7042)
 minimum paid-capital of foreign companies serving the
domestic market from US$500,000 to US$200,000. The
minimum maybe decreased further to US$150,000 if a
company uses advanced technology as certified by the
Department of Science and Technology or directly employs
at least 50 employees.
27
 an enterprise wherein a manufacturer, processor or service
(including tourism) enterprise exports sixty percent (60%) or
more of its output, or wherein a trader purchases products
domestically or exports sixty percent (60%) or more of such
purchases.
 exemption to the minimum capital investment of
US$200,000.00 if the investor would like to own 100% of the
company
 Business Process Outsourcing, Call Centers and Back Office
Operations are all considered export market enterprise
because more than 60% of its service output is exported.

28
The FINL is a shortlist of investment areas or activities which may be
opened to foreign investors and/or reserved to Filipino nationals.

The Foreign Investments Negative Lists (FINL) are classified as follows:

1. List A - consists of areas of activities reserved to Philippine nationals
where foreign equity participation in any domestic or export
enterprise engaged in any activity listed therein shall be limited to a
maximum of forty percent (40%) as prescribed by the Constitution and
other specific laws.
2. 2. List B - consists of areas of activities where foreign ownership is
limited pursuant to law such as defense or law enforcement-related
activities, which have negative implications on public health and
morals, and small and medium-scale enterprises.
29
 No Foreign Equity
1. Mass Media except recording
2. Practice of professions
3. Retail trade enterprises with paid-up
capital of not less than US$2,500,000.00
4. Cooperatives
5. Private Security Agencies
6. Small-scale Mining
7. Utilization of Marine Resources in
archipelagic
waters, territorial sea, and exclusive
economic zone
8. Ownership, operation and management
of cockpits
9. Manufacture, repair, stockpiling and/or
distribution of nuclear weapons
10. Manufacture, repair, stockpiling and/or
distribution of biological, chemical and
radiological weapons and anti-personal
mines
11. Manufacture of firecrackers and other
pyrotechnic devices
 Up to Twenty Percent (20%) Foreign Equity
12. Private radio communication network
 Up to Twenty-Five Percent (25%) Foreign
Equity
13. Private recruitment, whether for local or
overseas employment
14. Contracts for the construction and repair of
locally-funded public works, except:
a. infrastructure/development projects covered
in RA 7718; and
b. projects which are foreign funded or assisted
and required to undergo international
competitive bidding (Sec. 2(a) of RA 7718)
15. Contracts for construction of defense-
related structure
 Up to Thirty Percent (30%) Foreign Equity
16. Advertising
30
 Up to Forty Percent (40%) Foreign
Equity
17. Exploration, development and utilization
of natural resources
18. Ownership of Private Lands
19. Operation and management of public
utilities
20. Ownership/establishment and
administration of educational institutions
21. Culture, production, milling, processing,
trading excepting retailing, of rice and corn
and acquiring, by barter, purchase or
otherwise, rice and corn and the by-
products thereof
22. Contracts for the supply of materials,
goods and commodities to government-
owned or controlled corporation, company,
agency or Municipal Corporation
23. Project Proponent and facility Operator
of a BOT project requiring a public utilities
franchise
24. Operation of deep-sea commercial
fishing vessels
25. Adjustment Companies
26. Ownership of condominium units where
the common areas in the condominium
projects are co-owned by the owners of the
separateunits or owned by a corporation
 Up to Sixty Percent (60%) Foreign Equity
27. Financing companies regulated by the
Securities and Exchange Commission
28. Investment houses regulated by the SEC
31
 Up to Forty Percent (40 %) Foreign Equity
1. Manufacture, repair, storage and/or distribution of
products and/or ingredients requiring Philippine
National Police (PNP) clearance:
a. Firearms (handguns to shotguns), parts of firearms
and ammunition therefore, instruments or
implements used or intended to be used in the
manufacture of firearms
b. Gunpowder
c. Dynamite
d. Blasting supplies
e. Ingredients used in making explosives
f. Telescopic sight, sniper scope and other similar
devices
2. Manufacture, repair, storage and/or distribution of
products requiring Department of National Defense
(DND) clearance;
a. Guns and ammunition for warfare
b. Military ordnance and parts thereof (e.g.,
torpedoes, depth charges, bombs, grenades, missiles)
c. Gunnery, bombing and fire control systems and
components
d. Guided missiles/missile systems and components
e. Tactical aircraft (fixed and rotary -winged), parts
and components thereof
f. Space vehicles and component systems
g. Combat vessels (air. land and naval) and auxiliaries
h. Weapons repair and maintenance equipment
i. Military communications equipment
j. Night vision equipment
k. Stimulated coherent radiation devices, components and
accessories
l. Armament training devices
m. Others as may be determined by the Secretary of the
DND
3. Manufacture and distribution of dangerous drugs
4. Sauna and steam bathhouses, massage clinics and other
like activities regulated by law because of risks posed to
public health and morals
5. All forms of gambling, e.g. race track operation
6. Domestic market enterprises with paid-in equity capital
of less than the equivalent of US$200,000
7. 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
32
 For Acquisition to be valid:
(a) it must be a private land; and
(b) the foreign equity in the corporation must
not exceed forty percent (40%)
 Foreign corporations can acquire other
immovable or real properties such as
buildings and other improvements on the
land, including condominium units (up to
40%)
33
a. Acquisition through hereditary succession;

b. Purchase by a former natural-born Filipino citizen pursuant to the Dual Citizenship

Law which states that a former Filipino re-acquiring Filipino Citizenship shall be deemed
not to have lost Philippine citizenship, thus enabling them to enjoy all the rights and
privileges of a Filipino;
c. If a former natural-born Filipino who has becomes a naturalized citizen of another
state opts not to re-acquire Filipino citizenship according to the Dual Citizenship Act, he
may nonetheless own land but limited to: (BP 185 and RA 8179)
i. For residential use:
1. Up to 1,000 square meters of residential land
2. Up to 1 hectare of agricultural land

ii. For business or commercial use

1. Up to 5,000 square meters of urban land
2. Up to 3 hectares of rural land

d. Purchase of not more than 40% interest in a condominium project; and

e. Ownership through Filipinos who are married to aliens who retain their Filipino
citizenship
34
 R.A. No. 7652, entitled “Investor’s Lease Act”,
lease agreements may be entered into with
Filipino landowners.
 Lease period is 50 years, renewable once for
another 25 years (maximum 75 years)
 For tourism projects, the lease shall be limited to
projects with an investment of not less than
US$5M, 70% of which shall be infused in said
project within 3 years from signing of the lease
contract.

35
 Types of businesses where former natural-born Filipinos can enjoy
the same investment rights as a Philippine citizen
1. Cooperatives
2. Rural banks
3. Thrift banks and private development banks
4. Financing companies
 Former natural born Filipinos can also engage in activities under
List B of the FINL.This means that their investments shall be
treated as Filipino or will be considered as forming part of Filipino
investments in activities closed or limited to foreign participation.
 The equal investment rights of former Filipino nationals do not
extend to activities under List A of FINL which are reserved for
Filipino citizens under the Constitution.

36
37