Amendments to the Foreign Investment Act ease foreign investment restrictions in the Philippines

Aris L. Gulapa
Aris L. Gulapa

April 5, 2022

Amendments to the Foreign Investment Act ease foreign investment restrictions in the Philippines

Congress is now actively legislating reforms of the country’s foreign economic and investment policies to invite more foreign direct investments. The key goal is to promote the country as a desirable foreign investment area. Republic Act No. (RA) 11647, which was signed into law by President Rodrigo Duterte on March 2, 2022., introduced significant amendments to R.A. 7042, otherwise known as the Foreign Investment Act of 1991, as amended (FIA). This particular development in FIA is seen to promote the entry of more foreign capital and growth in the innovative technology-driven businesses in the country.

RA 11647 introduced the following salient amendments to FIA:

1. Foreign Investment in Domestic Market Enterprises

Domestic market enterprises are those businesses whose products and services are catered to the domestic market. Presently, under R.A. 11647, foreign investors are given more alternative ways to fully own a micro and small domestic market enterprise in the Philippines. This can be done if the business’ paid up capital is either: (1) at least USD 200,000; or (2) at least USD100,000, which in addition to capitalization, the business must meet any of the following conditions: a) involve an advanced technology as determined by the Department of Science and Technology; or b) an endorsed startup or startup enabler under the Innovative Startup Act (R.A. No. 11337); or c) employ at least ten (10) direct employees, the majority of which must be Filipinos. (Sec. 8(b), R.A. No. 11647)

Outside the above conditions, a foreign national can only own up to 40% equity in a micro or small enterprise in the Philippines. Further, registration of these foreign investments must be with either the Securities and Exchange Commission for corporations or partnerships, or with the Department of Trade and Industry (DTI) for sole proprietorships.

2. Creation of the Inter-Agency Investment Promotion Coordination Committee (IIPCC)

Along with the amended restrictions on foreign ownership is the mandate of developing the Foreign Investment Promotion and Marketing Plan (FIPMP), which lays down the comprehensive medium- and long-term strategic investment promotion campaign of the country. (Sec. 4-B, R.A. No. 11647)

R.A. No. 11647 also creates the IIPCC which is an integrated body chaired by the DTI Secretary and composed of 8 representatives from other pertinent government agencies and 4 from the private sector. (Sec. 4, R.A. No. 11647) It shall ensure coordination with all investment promotion agencies ensuring alignment to the FIPMP strategy and campaign to position the Philippines as a desirable investment area.

The IIPCC is mandated to cascade the plans under the FIPMP to the public through an online portal and to create an online directory of ready local business partners open for matching with foreign investments.

3. Review of Strategic Industries

As a mechanism to prevent threats to national security, foreign investments involving military-related industries, cyber infrastructure, pipeline transportation, or such activities which may threaten territorial integrity and security of Filipinos, may be reviewed upon the President’s order. This is especially so when such enterprise is made by a foreign government-owned or controlled entity, or located in areas critical to national security. (Sec. 16, R.A. No. 11647)

4. Anti-Graft Practices in Foreign Investment Promotions

To uphold integrity and accountability in public service, R.A. No. 11647 also provides that any government official or employee involved in investment promotions, who commits any punishable act under R.A. No. 3019 or the Anti-Graft and Corrupt Practices Act, shall be penalized under it accordingly. In addition, a fine of not less than PHP2,000,000 but not more than PHP5,000,000 shall be imposed. (Sec. 17, R.A. No. 11647)

5. Non-Applicability of the FIA restrictions to specific industries

That said, the amended FIA remains not applicable to specific investment areas governed by other special laws like banks, which are governed by the General Banking Act and other relevant banking laws; the retail business, which is covered by the Retail Trade Liberalization Act of 2000, recently amended by R.A. No. 11595 lowering the paid-up capital requirement for foreign retail enterprises; the public utilities, which are governed by the Public Service Act, also recently amended by R.A. No 11659 allowing 100% foreign ownership in specific public services; and practice of professions covered by specific laws. (Sec. 18, R.A. No. 11647)

Since the Philippines has ever since ranked high in terms of restrictiveness of its foreign investment regime, the above amendments to the FIA are seen by economic experts as welcome developments in liberalizing the country’s foreign investment policies to expand the country’s livelihood opportunities and to enhance the economic value of Filipino products.

Click here to read the full text of R.A. 11647.