Under the Republic Act No. 8762 or the ‘Retail Trade Liberalization Act of 2000’, retail trade refers to any act, occupation, or calling of habitually selling direct to the general public merchandise, commodities, or goods for consumption, which does not cover the following:
Sales by a manufacturer, processor, laborer, or worker, to the general public the products manufactured, processed, or products by him if his capital does not exceed P100,000 (approximately $1,900);
Sales by a farmer or agriculturist selling the products of his farm;
Sales in restaurant operations by a hotel owner or innkeeper irrespective of the amount capital: Provided, that the restaurant is incidental to the hotel business; and,
Sales which are limited only to products manufactured, processed or assembled by a manufacturer through a single outlet, irrespective of capitalization.
RA 8762 provides that foreign retailers were classified into four categories, each with its own minimum paid-capital requirements. These are:
Category A – reserved for Filipinos and must have a minimum paid-up capital of US$2.5 million;
Category B – foreign enterprises must have a minimum paid-up capital of at least US$2.5 million, but below US$7 million;
Category C – foreign enterprises must have a minimum paid-up capital of at least US$7 million or more; and
Category D – foreign enterprises specializing in high-end luxury items must have a paid-up capital of at least US$250,000 per store.
On December 10, 2021, President Rodrigo Duterte signed into law Republic Act No. 11595 otherwise known as “An Act Amending Republic Act No. 8762 or the ‘Retail Trade Liberalization Act of 2000,’ by lowering the paid-up capital requirement for foreign retail enterprises, and other purposes.”
Republic Act No. 11595 eases the requirements for foreign retailers to invest in or engage in retail trade in the Philippines, as follows:
Removes Categories for Pre-qualification and Lowers Minimum Paid-up Capital Requirement
RA 11595 removes the categories for pre-qualification under the RTLA and sets a single minimum paid-up capital for all types of foreign-owned retail enterprises.
Under RA 11595, all foreign-owned retail enterprises must have a minimum paid-up capital of at least PHP 25 million (or approximately USD 500,000).
The new minimum paid-up capital requirement is subject to review by the Department of Trade and Industry (DTI), Securities and Exchange Commission (SEC), and the National Economic and Development Authority (NEDA) every three (3) years from the law’s effectivity.
Removes the Requirement for Certificate of Pre-qualification issued by the BOI
RA 11595 removes the requirement for a Certificate of Pre-qualification and compliance with the pre-qualification requirements, such as providing proof of the company’s track record in retailing, which obligates the foreign business to obtain a certification of pre-qualification from the BOI. Under RA 11595, foreign-owned corporations, partnerships, and sole proprietorships may invest in or engage in a retail business, subject to the following:
The foreign retailer shall have a minimum paid-up capital of PhP 25 million
The foreign retailer’s country of origin does not prohibit the entry of Filipino retailers; and
In the case of foreign retailers engaged in retail trade through more than one (1) physical store, the minimum investment per store must be at least PhP 10 million.
The requirement under (c) above is not applicable to foreign investors and foreign retailers who are legitimately engaged in retail trade and were not required to comply with the minimum investment per store at the time of effectivity of RA 11595.
Reduction in Investment Per Store Requirement
RA 11595 lowers the minimum investment per store requirement for foreign-owned retail trade enterprises from USD 830,000 per store to PHP 10 million (or approximately USD 200,000).
Under RA 11595, the “minimum investment per store” covers the gross assets, tangible or intangible, including but not limited to buildings, leaseholds, furniture, equipment, inventory, and common use investments and facilities such as administrative offices, warehouses, preparation or storage facilities. Investments for common use and facilities, as reflected in the financial statements following the accounting standards adopted by the SEC and DTI shall be prorated among the number of stores being served.
Removes Requirement of Public Offering of Shares
Retail enterprises that are foreign-owned are required to offer a minimum of 30 percent equity through any stock exchange in the Philippines, within eight years from the start of their operations. This has now been removed under Republic Act No. 11595, meaning newly established foreign retail enterprises can remain privately owned.
Preferential Use of Filipino labor
Republic Act No. 11595 mandates compliance with the Labor Code of the Philippines on the determination of non-availability of a competent, able, and willing Filipino citizen, that foreign retail enterprises must hire Filipino workers before engaging the services of a foreign national.
Promotion of locally manufactured products
The act encourages foreign retailers to keep a stock inventory of locally manufactured products.
Change of Implementing Agency
Foreign retailers that have established or will establish corporations, associations, or partnerships engaged in retail trade are now subject to the monitoring and regulation by the SEC, instead of the DTI. The DTI will continue to have regulatory authority over foreign retailers that have or will establish sole proprietorships in the Philippines.
RA 11595 reduces the penalties provided in the RTLA for violation of its provisions from imprisonment of six (6) to eight (8) years to four (4) to six (6) years, and a fine from PHP 1 million to PHP 20 million to PHP 1 million to PHP 5 million.
For further understanding and information about the above mentioned law, head over to Filepino for a consultation with the professionals.