What Law Governs Foreign Investments in the Philippines?

Republic Act (RA) 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. Under this law, foreign investors are allowed to invest one hundred percent (100%) equity in companies engaged in almost all types of business activities subject to certain restrictions as prescribed in the Foreign Investments Negative List, which is a shortlist of investment areas or activities which may be opened to foreign investors and/or reserved to Filipino nationals.

The Foreign Investments Act clearly require that the minimum capital is Two Hundred Thousand US Dollars (USD200,000) if the activity to be engaged in:

1. Is not included in the Foreign Investments Negative List;
2. Is more than forty percent (40%) foreign-owned; and
3. Will cater to the domestic market.

The capital may be lowered to One Hundred Thousand US Dollars (USD100,000) if activity involves advance technology or the company employs at least fifty (50) direct employees.

A foreign company that exports at least sixty percent (60%) of its output, or a trader that purchases products domestically and will export at least sixty percent (60%) of its purchases, the required capital is only Five Thousand Pesos (Php5,000).

A corporation wherein at least sixty percent (60%) Filipino - forty percent (40%) foreign-owned and will cater to the domestic market, their paid up capital can be less than Two Hundred Thousand US Dollars (USD200,000).

Equal Investment Rights for Former Filipino Nationals
While most areas of businesses have limits for foreign investors, Section 9 of the amended Foreign Investments Act of 1991 lists the following 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 Foreign Investments Negative List, meaning 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 Foreign Investments Negative List that are reserved for Filipino citizens under the Constitution.

Former natural born Filipino have also been given the right to be transferees of private land up to a maximum of five thousand (5,000) square meters in the case of urban land or three (3) hectares in the case of rural land to be used for business or other purposes.