Philippines Liberalizes Investments for Foreign Investors

Apr 2022

The Philippines expects more investments to come in soon after the government has enacted several important laws that will amend restrictions and free up more investment incentives for foreign investors. The laws that were enacted at the beginning of 2022 include amendments to the Foreign Investment Act (FIA), Public Services Act (PSA), and the Retail Trade Liberalization Act (RTLA).

Retail Trade Liberalization Act (RTLA)

RTLA was signed into law on 10 December 2021. It basically lowers the paid-up capital requirement for foreign retail enterprises. Other notable salient features of the RTLA are found in:

Foreign Investments Act (FIA)

FIA was signed into law on 2 March 2022. It allows foreign investors to set up 100 percent ownership of domestic enterprises, including all micro, small and medium-sized enterprises (MSMEs) with a minimum paid-in capital of USD 100,000 provided that the below conditions are met:

  1. Utilize advanced technology (to be determined by the Department of Science and Technology);
  2. Are endorsed as startup enablers or as a startup in accordance with the Innovative Startup Act; or
  3. The company hires no less than 15 Filipino employees, a reduction from the previous requirement of 50.

An Inter-Agency Investment Promotion Coordination Committee (IIPCC) will also be established to integrate all the promotion and facilitation efforts to encourage foreign investments. However, the Philippine President has the power to order the IIPCC to review foreign investments that may threaten the safety, security, and well-being of Filipinos and therefore has the power to suspend, prohibit, or limit foreign investments. Foreign businesses employing foreign nationals and are enjoying fiscal incentives must also create an understudy or skills development program that benefits Filipino workers.

Public Services Act (PSA)

PSA was signed into law on 21 March 2022. The newly amended PSA opens up investments in “public utility” to foreign investors. The term “public utility” which was vaguely defined in the old Commonwealth Act No. 146 (an 86 year old law from which the PSA derived) and commonly interchangeable with “public service” is now clearly defined and narrowed down in the new PSA as a public service that operates, manages or controls for public use any of the following:

  1. Distribution of electricity
  2. Transmission of electricity petroleum
  3. Petroleum product pipeline transmission systems
  4. Water pipeline distribution systems and wastewater pipeline systems, including sewerage pipeline systems
  5. Seaports
  6. Public utility vehicles

Concessionaires, joint ventures, and other similar entities that wholly operate, manage or control these sectors for public use are also considered public utilities. The above-mentioned “public utilities” are subject to a 40-60 rule wherein entities in these sectors should be at least 60% owned by Filipinos.

Whereas, under the amended PSA, the telecommunications, railways, expressways, airports, and shipping industries will now be considered public services, allowing up to 100% foreign ownership in these sectors.

(Sources: Inquirer; Philippine News Agency)

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