Attitude toward Foreign Direct Investment
The Philippines actively seeks foreign investment to promote economic development, and has conducted road shows in the United States encouraging U.S. firms to invest. The Philippine investment landscape has noteworthy advantages, such as its free trade zones, including zones administered by the Philippine Economic Zone Authority (PEZA) (http://www.peza.gov.ph/), and its large, educated, English-speaking, relatively low-cost Filipino workforce. Philippine law treats foreign investors the same as their domestic counterparts, except in sectors reserved for Filipinos by the Philippine Constitution and Foreign Investment Act (detailed below). However, inadequate public investment in infrastructure and lack of transparency hinder foreign investment. Philippine regulatory regimes remain ambiguous in many sectors of the economy, and corruption is a significant problem. A complex, sometimes corrupt, and slow judicial system is also a major disincentive to investment.
Other Investment Policy Reviews
The World Trade Organization conducted a Trade Policy Review of the Philippines in March 2012. It is available at: https://www.wto.org/english/tratop_e/tpr_e/tpr_e.htm.
Laws/Regulations on Foreign Direct Investment
The Board of Investments (BOI) (http://www.boi.gov.ph/) regulates and promotes investment into the Philippines. The Investment Priorities Plan (IPP), administered by the BOI, identifies preferred economic activities, which are approved every three years by the President. Government agencies are encouraged to adopt policies and implement programs consistent with the IPP.
The 1991 Philippine Foreign Investment Act (FIA) requires the publishing of the Foreign Investment Negative List (FINL), which outlines sectors in which foreign investment is restricted. The FINL consists of two parts. Part A details sectors in which foreign equity participation is restricted by the Philippine Constitution or laws. Part B lists areas in which foreign ownership is limited for reasons of national security, defense, public health, morals, and/or the protection of small and medium enterprises (SMEs). The current FINL was published in May 2015.
The 1995 Special Economic Zone Act allows PEZA to regulate and promote investments in export-oriented manufacturing and service facilities inside special economic zones, including grants of fiscal and non-fiscal incentives.
Further information about investing in the Philippines is available at http://investphilippines.gov.ph/.
Numerous agencies regulate business registration in the Philippines. Sole proprietorships must register with the Bureau of Trade Regulation and Consumer Protection (BTRCP) in the Department of Trade and Industry (DTI) (http://www.dti.gov.ph/), while corporations or partnerships must register with the Securities and Exchange Commission (SEC) (http://www.sec.gov.ph/). Other permits and licenses are issued by different agencies, making business registration cumbersome. It takes an average of 29 days to start a business in Quezon City in Metro Manila, according to 2016 World Bank’s Ease of Doing Business.
Various Philippine laws promote development and assistance to micro-, small- and medium-sized enterprises (MSMEs). Republic Act No. 9501 defines MSMEs according to total asset value: micro – 3 million pesos or less (USD 67,000); small – above 3 million to 15 million pesos USD 335,000); medium – above 15 million. MSMEs whose capital is at least 60 percent Filipino-owned are entitled to special services such as a streamlined business registration process, credit financing, shared service facilities (i.e. machineries/equipment), and capacity building programs.
The Philippines’ Investment Priorities Plan (IPP) enumerates investment sectors entitled to incentives. The 2014-2016 IPP seeks to increase investments in infrastructure, agriculture, education, and health. The IPP list includes: manufacturing (e.g. motor vehicles, shipbuilding, aerospace, etc.), agribusiness and fisheries; services (e.g. creative industries, integrated circuit design, charging stations for e-vehicles, etc.); public infrastructure and logistics (airports, seaports, transport, etc.); Public-Private Partnership (PPP) projects; energy (development of energy sources, power generation plants, and ancillary services); low-cost housing; and hospitals. The BOI reviews projects and then determines incentives.
The PPP program aims to spur private-sector participation in government development projects, specifically in infrastructure. The Build-Operate-Transfer (BOT) law provides the legal framework for the program, and a Public Private Partnership (PPP) Center (http://ppp.gov.ph/) works to promote transparency and oversee project development and approval. The PPP Center has been slow to award contracts. As of April 2016, only 12 out of 51 proposed PPP projects have been awarded, with 16 contracts out for bid. In 2015, the U.S. Department of Commerce and the Philippine National Economic Development Authority (NEDA) (http://www.neda.gov.ph) signed a Memorandum of Cooperation on infrastructure collaboration in which potential U.S. investors will receive notification and information about forthcoming PPP infrastructure projects. For more information, see http://www.ita.doc.gov/infrastructure/.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreigners are prohibited from fully owning land under the 1987 Constitution, although the 1993 Investors’ Lease Act allows foreign investors to lease a contiguous parcel of up to 1,000 hectares for 50 years, renewable one time for 25 additional years. The 2003 Dual-Citizenship Act allows dual citizens full rights to possess land. Still, ownership deeds continue to be difficult to establish, and the court system is slow to resolve land disputes.
The FINL bans foreign ownership in the following areas: mass media (except recording); small-scale mining; private security; marine resources, including the small-scale utilization of natural resources in rivers, lakes, and lagoons; and the manufacture of firecrackers and pyrotechnic devices. Only Philippine citizens can practice the following professions: law, pharmacy, radiologic and x-ray technology, criminology and forestry. In theory, foreigners may practice professions not prohibited under FINL provided their country allows the same reciprocal rights to Philippine citizens. In practice, however, language exams, onerous registration processes, and other barriers prevent this from taking place.
Other areas that carry varying foreign ownership ceilings include: private radio communications networks (20%); private employee recruitment (25 percent); contracts for the construction and repair of locally funded public works (25 percent); advertising agencies (30 percent); natural resource exploration, development, and utilization (40 percent, with exceptions); educational institutions (40 percent); operation and management of public utilities (40 percent); operation of commercial deep sea fishing vessels (40 percent); Philippine government procurement contracts (40 percent for supply of goods and commodities); construction of locally funded public works (25 percent with some exceptions); adjustment companies (40 percent); operations of Build-Operate-Transfer (BOT) projects in public utilities (40 percent); ownership of private lands (40 percent); rice and corn processing (40 percent, with some exceptions); and financing companies and investment houses (60 percent).
For reasons of national security, defense and public health, the Philippines limits foreign ownership to 40 percent in the following industries: manufacturing of explosives, firearms, military hardware, and massage clinics.
Retail trade enterprises with capital of less than USD2.5 million, or less than USD250,000 for retailers of luxury goods, are reserved for Filipinos. Foreign investors are prohibited from owning stock in lending, financing, or investment companies unless the investor’s home country affords the same reciprocal rights to Filipino investors. Foreign ownership is capped at 60 percent for enterprises engaged in financing and securities underwriting, which are regulated by the SEC.
A law signed on July 2014 liberalized the entry of foreign banks into the Philippine market. If they can meet certain requirements, foreign banks are allowed to establish branches or own up to 100 percent of the voting stock of locally incorporated subsidiaries. However, a foreign bank that seeks to establish branches in the Philippines cannot open more than six branch offices each. The law also stipulates that a minimum 60 percent of the total assets of the Philippine banking system should, at all times, remain controlled by majority Philippine-owned banks. Ownership caps apply to foreign non-bank investors, whose aggregate share should not exceed 40 percent of the total voting stock in a domestic commercial bank and 60 percent of the voting stock in a thrift/rural bank. The 2007 Lending Company Regulation Act requires majority Philippine ownership for credit enterprises that do not clearly fall under the scope of existing laws.
The Philippine Government’s privatization program is managed by the Privatization Management Office (http://www.pmo.gov.ph/) under the Department of Finance (http://www.dof.gov.ph/). The privatization of government assets has to undergo a public bidding process. Apart from restrictions in the FINL, there are no regulations that discriminate against foreign buyers and the bidding process appears to be transparent.
Screening of FDI
Corporations or partnerships wishing to invest in the Philippines must register with the SEC, while sole proprietorships must register with DTI. A foreign enterprise seeking incentives under the Omnibus Investments Code must apply for registration with the BOI, while export-oriented manufacturing and service enterprises within economic zones must register with PEZA or another authorized economic zone administrator (see Section 16 – Foreign Trade Zones). In addition, foreign investors must register with the Central Bank (http://www.bsp.gov.ph) if the foreign exchange for repatriation of capital and remittance of earnings will be sourced from authorized agent banks or their affiliate foreign exchange corporations.
The Philippine competition law was enacted in July 2015, but the implementing rules and regulations were still being drafted as of April 2016. The law establishes a Philippine Competition Commission (PCC), an independent body mandated to resolve complaints on issues such as price fixing and bid rigging, and to stop mergers that would restrict competition. The Department of Justice (http://www.doj.gov.ph/) is responsible for the prosecution of criminal offenses involving violations of competition laws. Former National Economic and Development Authority Chairman Arsenio Balisacan will head the PCC.