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12th Foreign Investment Negative List

12th Foreign Investment Negative List

As a booming business-oriented country, the Philippines offer a wild array of investment areas and activities for not just exclusive Filipino nationals, but also foreign investors to indulge. 

 

Perusing the 1987 Constitution of the Philippines, the right to reserve explicit investment areas around the country is given to Filipino citizens – furthermore, in harmony with the former 11th Foreign Investment Negative List (FINL) of 2018 following the obligations set forth by Republic Act. No. 7042, Executive Order No. 175 was promulgated ordering the replacement of the 11th FINL to the 12th FINL.

 

The Execution from the 11th to the 12th

Mandated by law, the 12th FINL follows the salient objective to cover investment areas or activities open or reserved to either foreign investors and/or exclusive Filipino citizens. Amendments conducted from the 11th FINL were then absorbed to follow the now 12th FINL, in concordance with R.A. 7042, also known as the Foreign Investments Act (FIA), the Retail Liberation Act (RTLA) and the Public Service Act (PSA) of the Philippines.

 

These amendments strike monumental liberation to the barriers affecting foreign investment in our country, and correspondingly forming a business in the Philippines, as these measurements are designed to attract global market investors – to wit, to improve the nation’s healthy competition market to successfully and efficiently serve consumer interest. This paves way towards economic innovation as this dives into the competitive nature of foreign markets.

 

         Tackled by the 12th Foreign Investment Negative List,  the prominent features of its promulgation focus on the recent amendments to the Retail Liberalization Act (RTLA), the Foreign Investments Act (FIA), and the Public Service Act (PSA) of the Philippines – which will be mentioned below:

 

Retail Liberation Act (RTLA) Amendments

  • Pursuant to its amendments, the 12th FINL now allows full foreign ownership of retail trade enterprises with US$ 500,000 (P25,000,000) uniform minimum paid-up capitals. Its change to the minimum capitalization requirement further allows investors to seek areas and activities with extended liberty – as the bar for its minimum standard of capital is lowered. Provided, the foreigner must provide a certificate of reciprocity allowing Filipinos to engage in retail in their country under similar circumstances. 

 

Foreign Investments Act (FIA) Amendments

  • As a general rule, micro and small domestic market enterprises with less than US$ 200,000 paid-in capital are explicitly reserved for Filipino Citizens. Pursuant to its amendments, the 12th FINL now allows micro and small domestic market enterprises with a reduced paid-in capital of US$ 100,000 provided that:

 

    • they involve advance technology as determined by the Department of Science and Technology (DOST);
    • are endorsed as startup or startup enablers by the lead host agencies, scilicet the Department of Trade and Industry (DTI), Department of Information and Communications Technology (DICT) or DOST, pursuant to RA. No. 11337, also known as the Innovative Startup Act of the Philippines;
    • majority of their direct employees are Filipinos, but in no case shall it be less than fifteen (15);

 

Before, the qualification for the reduced capital specifically states at least 50 direct Filipino employees only – now, the amendment paves way to mellow out the strict foreign equity restrictions, in consonance to attaching safeguards to sudden threats that might affect our national industries. If you fall under this circumstance, you may consider forming your business where you can fully own despite being a foreigner. 

 

Public Service Act Amendments (PSA)

  • Pursuant to its amendments, the 12th FINL now redefines public utility as services that manages and controls its operations for public use:
    • Distribution of electricity;
    • Transmission of electricity;
    • Petroleum and petroleum products pipeline transmission systems;
    • Water pipelines distribution systems and wastewater pipeline systems;
    • Seaports;
    • Public utility vehicles

 

Redefining its limitation further signifies and strengthens the 40% equity rule of foreign ownership of public utilities provided by our 1987 Constitution. Hence, the 40% equity rule does not apply to those services not listed above (i.e. telecommunications, tollways and even airlines) – giving the right to foreign nationals to claim full ownership.

 

Department of National Defense (DND) Clearance

Additionally, the 12th FINL provides the removal of the DND clearance asked upon manufacture, repair, storage, and/or distribution of products. Before such an amendment was executed, the aforementioned service activities were subject to the 40% equity rule  – where now, its limitation goes beyond the 40%, allowing foreign investors full participation with regards to these activities presented.

 

Ready to start your business in the Philippines? Learn more about forming a business in this country’s promising economy by calling FilePino at 1.806.553.6552 (USA) or +63.917.892.2337 (Philippines).