Philippines

Bureau of Economic and Business Affairs
Report
June 29, 2017

This is the basic text view. SWITCH NOW to the new, more interactive format.


Executive SummaryShare    

The Philippines is becoming a more attractive destination for foreign direct investment (FDI). The country’s middle class is growing, and Filipinos quickly spend disposable income in a fairly stable political environment, helping gross domestic product soar to an average growth of 6.1 percent over the last six years. According to central bank data, FDI inflows reached a record growth of U.S. $7.9 billion in 2016, a 40.7 percent increase from 2015. The majority of investments went into finance and insurance; arts, entertainment and recreation; manufacturing, real estate, and construction. The Business Process Outsourcing (BPO) and tourism sectors have experienced growth in recent years.

The Philippines has improved its overall investment climate. The Philippines’ sovereign credit ratings remain investment grade, due to the country’s robust economic performance, continued fiscal and debt consolidation, and improved governance. Still, improvement is needed. The Philippines lags behind most of the ten Association of Southeast Asian Nations (ASEAN) in attracting FDI (the Philippines was ranked 9 of 10 ASEAN countries on FDI as a percentage of GDP in 2015). Foreign ownership limitations in many sectors of the economy pose a significant constraint. Poor infrastructure, including high power costs and slow broadband connections, regulatory inconsistency, and corruption are major disincentives to investors. The Philippines’ complex, slow, and sometimes corrupt judicial system inhibits the timely and fair resolution of commercial disputes. Investors describe the business registration process as slow and burdensome, although there are signs of improvement. Traffic in major cities and port congestion remain a regular cost of business.

Investors report the Philippine bureaucracy can be difficult and opaque. However the business environment is notably better within the special economic zones, particularly those available for export businesses operated by the Philippine Economic Zone Authority (PEZA), known for its regulatory transparency, no red-tape policy, and “one-stop shop” services for investors. The Duterte Administration’s 10-Point Socioeconomic Agenda seeks to address these constraints by increasing the country’s competitiveness and ease of doing business. The administration also wants to relax constitutional restrictions on foreign ownership to attract foreign direct investment. Many investors are hopeful President Rodrigo Duterte’s relatively large political capital can help effect these changes.

Table 1

Measure

Year

Index/Rank

Website Address

TI Corruption Perceptions Index

2016

101 of 175

http://www.transparency.org/
research/cpi/overview

World Bank’s Doing Business Report “Ease of Doing Business”

2016

99 of 190

doingbusiness.org/rankings

Global Innovation Index

2016

74 of 128

globalinnovationindex.org/
content/page/data-analysis

U.S. FDI in Partner Country ($M USD, Stock Positions)

2015

USD 4.7 billion

http://www.bea.gov/
international/factsheet/

World Bank GNI Per Capita

2015

USD 3,550

http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign InvestmentShare    

Policies Toward Foreign Direct Investment

The Philippines actively seeks foreign investment to generate employment and promote economic development. The Board of Investments (BOI) and PEZA are the lead agencies that provide incentives and special investment packages to investors. Noteworthy advantages of the Philippine investment landscape include free trade zones, including PEZA zones, and the 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 (see details under Limits on Foreign Control section). Additional information regarding investment policies and incentives are available on the BOI website and the PEZA website.

However, restrictions on foreign ownership, inadequate public investment in infrastructure, and lack of transparency hinder foreign investment. The Philippines’ regulatory regime remains ambiguous in many sectors of the economy, and corruption is a significant problem. Large conglomerates, including San Miguel, Ayala and SM, dominate the economic sphere.

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.

The 1991 Philippine Foreign Investment Act (FIA) requires publishing the Foreign Investment Negative List (FINL), which outlines sectors in which foreign investment is restricted. An update to the FINL is due in 2017. The FINL bans foreign ownership in the following investment activities: mass media (except recording); small-scale mining; private security; marine resources, including the small-scale use 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, radiology 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.

The Philippines limits foreign ownership to 40 percent in the following industries: manufacturing of explosives, firearms, military hardware, and massage clinics. Other areas that carry varying foreign ownership ceilings include: private radio communications networks (20 percent); private employee recruitment firms (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); operations of Build-Operate-Transfer (BOT) projects in public utilities (40 percent); ownership of private lands (40 percent); and rice and corn processing (40 percent, with some exceptions).

A law signed in July 2016 liberalized foreign ownership restrictions that used to apply to financing companies, investment houses, insurance adjustment firms, and enterprises covered under the 2007 Lending Company Regulation Act (i.e., credit granting entities that do not clearly fall under the scope of existing laws).

Retail trade enterprises with capital of less than USD $2.5 million, or less than USD $250,000 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 banks are allowed to establish branches or own up to 100 percent of the voting stock of locally incorporated subsidiaries if they can meet certain requirements. However, a foreign bank that seeks to establish branches in the Philippines cannot open more than six branch offices. 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.

Other Investment Policy Reviews

The Organisation for Economic Co-operation and Development (OECD) conducted an Investment Policy Review of the Philippines in 2016. The review is available online at the OECD website.

Business Facilitation

Stakeholders describe business registration in the Philippines as cumbersome due to multiple agencies involved in the business registration process. It takes an average of 28 days to start a business in Quezon City, Metro Manila, according to 2017 World Bank’s Ease of Doing Business report.

Sole proprietorships must register with the Bureau of Trade Regulation and Consumer Protection (BTRCP) in the Department of Trade and Industry (DTI), while corporations or partnerships must register with the Securities and Exchange Commission (SEC). In addition, city and municipal governments require businesses located within its jurisdiction to have its “business/mayor permits” renewed every year. Meanwhile, foreign investors must register with Bankgo Sentral Philippines (BSP), the central bank, 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 Business Registry (PBR) website facilitates integrated online business registrations involving various business permit-issuing agencies. However, stakeholders report the website is oftentimes unreliable and applicants are still compelled to go in person to government offices to register their businesses.

Outward Investment

There are generally no restrictions on outward investments by Philippine residents, although, foreign exchange purchases from banks and foreign exchange subsidiaries or affiliates above USD $60 million per investor, or per fund per year, require prior approval from the central bank.

2. Bilateral Investment Agreements and Taxation TreatiesShare    

The Philippines has neither a bilateral investment nor a free trade agreement with the United States. The Philippines has signed bilateral investment agreements with 39 countries: Argentina, Australia, Austria, Bangladesh, Belgium-Luxembourg Economic Union, Cambodia, Canada, Chile, China, Czech Republic, Denmark, Finland, France, Germany, India, Indonesia, Iran, Italy, Kuwait, Mongolia, Myanmar, Netherlands, Pakistan, Portugal, Republic of Korea, Romania, Russian Federation, Saudi Arabia, Spain, Sweden, Switzerland, Syria, Taiwan, Thailand, Turkey, United Kingdom, and Vietnam.

The Philippines is a member of four ASEAN free trade agreements, including an investment chapter with trading partners Australia, New Zealand, Republic of Korea, and China. It also has an investment agreement with Japan under the Japan-Philippines Economic Partnership Agreement, and with Iceland, Liechtenstein, Norway and Switzerland under the Philippines-European Free Trade Association (EFTA) Free Trade Agreement.

The Philippines has a tax treaty with the United States to avoid double taxation and provide procedures for resolving interpretative disputes and tax enforcement in both countries. The treaty encourages bilateral trade and investment by allowing the exchange of capital, goods, and services under clearly defined tax rules and, in some cases, preferential tax rates or tax exemptions.

U.S. recipients of royalty income qualify for preferential tax rates (currently 10 percent) under the most favored nation clause of the United States-Philippines tax treaty. A preferential tax treaty rate of 15 percent applies to dividends and interest income. The Supreme Court ruled in 2013 that securing a tax treaty relief ruling from the Bureau of Internal Revenue (BIR) is not a legal requirement to qualify for preferential treatment and tax treaty rates; however, based on experience, tax experts generally still advise filing a tax treaty relief application to avoid potential challenges or controversies. Taxpayers find the documentation requirements for tax treaty relief applications burdensome. The volume of tax treaty relief applications has resulted in processing delays, with most applications reportedly pending for over a year. Inconsistent taxation rulings are also a concern.

The BIR rules and regulations for tax accounting have not been fully harmonized with the Philippine Financial Reporting Standards. The BIR requires taxpayers to maintain records reconciling figures presented in financial statements and income tax returns. Additional information regarding BIR regulations is available on the BIR website.

3. Legal RegimeShare    

Transparency of the Regulatory System

Proposed Philippine laws must undergo public comment and review. Government agencies are required to craft implementing rules and regulations (IRRs) through public consultation meetings within the government and with private sector representatives after laws are passed. New regulations must be published in newspapers or in the government’s official gazette, available online, before taking effect. The Freedom of Information Law (FOI), enacted in July 2016, mandates full public disclosure and transparency of government operations. The public may request copies of official records through the FOI online.

In general, stakeholders report regulatory enforcement in the Philippines is weak, inconsistent, and unpredictable. Many U.S. investors describe business registration, customs, immigration, and visa procedures as burdensome and frustrating. Regulatory agencies are generally not statutorily independent, but are attached to cabinet departments or the Office of the President and, therefore, subject to political pressure.

International Regulatory Considerations

The Philippines continues to work on implementing its regulatory reforms under the ASEAN Economic Community (AEC). An anti-trust act and the Customs Modernization and Tariff Act (CMTA) became law in 2015 and 2016, respectively. The Philippines has not yet fulfilled other regulatory reforms under AEC, particularly failing to implement a National Single Window for customs.

The Philippines is a member of the World Trade Organization (WTO).

Legal System and Judicial Independence

The Philippines has a mixed legal system of civil, common, Islamic, and customary laws, along with commercial and contractual laws.

The Philippine judicial system is a separate and largely independent branch of the government, made up of the Supreme Court and lower courts. The Supreme Court is the highest court and the sole constitutional body, with more information available on the court’s website. The lower courts consist of (a) trial courts with limited jurisdictions (i.e. Municipal Trial Courts, Metropolitan Trial Courts, etc.); (b) Regional Trial Courts (RTCs); (c) Shari’ah District Courts (Muslim courts); and (d) Court of Appeals (appellate courts). Special courts include the “Sandiganbayan” (anti-graft court for public officials) and the Court of Tax Appeals. Several RTCs have been designated as Special Commercial Courts (SCC) to hear intellectual property (IP) cases, with four SCCs authorized to issue writs of search and seizure on IP violations, enforceable nationwide.

Foreign investors describe the inefficiency and uncertainty of the judicial system as a significant disincentive to investment. Many investors decline to file dispute cases in court because of slow and complex litigation processes and corruption among some personnel. The courts are not considered impartial or fair. Stakeholders also report an inexperienced judiciary when confronted with complex issues such as technology, science, and intellectual property cases. The Philippines ranked 136 out of 190 economies and 11 among 25 economies from East Asia and the Pacific in the World Bank’s 2017 Ease of Doing Business report in terms of enforcing contracts.

Laws and Regulations on Foreign Direct Investment

The Board of Investments (BOI) regulates and promotes investment into the Philippines. The Investment Priorities Plan (IPP), administered by the BOI, identifies preferred economic activities approved 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, and 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 FINL is due to be updated in 2017.

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 the “Invest Philippines” website and at the BOI website.

Competition and Anti-Trust Laws

The Philippine competition law enacted in July 2015 established the Philippine Competition Commission (PCC), an independent body mandated to resolve complaints on issues such as price fixing and bid rigging, and stop mergers that would restrict competition. More information is available on the PCC website. The Department of Justice (http://www.doj.gov.ph/) prosecutes criminal offenses involving violations of competition laws.

Expropriation and Compensation

Philippine law allows expropriation of private property for public use or in the interest of national welfare or defense in return for fair market value compensation. In the event of expropriation, foreign investors have the right to receive compensation in the currency in which the investment was originally made and to remit it at the equivalent exchange rate. However, the process of agreeing on a mutually acceptable price can be protracted in Philippine courts. There are no recent cases of expropriation involving U.S. companies in the Philippines.

The Philippines passed a law that facilitates the acquisition of right-of-way sites for national government infrastructure projects in March 2016. The law outlines procedures in providing “just compensation” to owners of expropriated real properties to expedite implementation of government infrastructure programs.

Dispute Settlement

ICSID Convention and New York Convention

The Philippines is a member of the International Center for the Settlement of Investment Disputes (ICSID) and has adopted the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, or the “New York Convention.”

Investor-State Dispute Settlement

The Philippines is signatory to various bilateral investment treaties that recognize international arbitration of investment disputes. Since 2002, the Philippine government has been a respondent to five investment dispute cases filed before ICSID. Details of cases involving the Philippines are available on the ICSID website.

International Commercial Arbitration and Foreign Courts

Investment disputes can take years to resolve due to systemic problems in the Philippine courts. Lack of resources, understaffing, and corruption make the already complex court processes protracted and expensive. Several laws on alternative dispute resolution (ADR) mechanisms (i.e., arbitration, mediation, negotiation, and conciliation) have been approved to decongest the court’s clogged dockets. Public-Private Partnership (PPP) infrastructure contracts are required to include ADR provisions to make resolving disputes less expensive and time-consuming.

A separate action must be filed for foreign judgments to be recognized or enforced under Philippine law. Philippine law does not recognize or enforce foreign judgments that run counter to existing laws, particularly those relating to public order, public policy, and goods customs. Foreign arbitral awards are enforceable upon application in writing to the regional trial court with jurisdiction. The petition may be filed any time after receipt of the award.

Bankruptcy Regulations

The 2010 Philippine bankruptcy and insolvency law provides a predictable framework for the rehabilitation and liquidation of distressed companies. Rehabilitation may be initiated by debtors or creditors under court-supervised, pre-negotiated, or out-of-court proceedings. The law sets the conditions for voluntary (debtor-initiated) and involuntary (creditor-initiated) liquidation. It also recognizes cross-border insolvency proceedings in accordance with the United Nations Conference on Trade and Development (UNCTAD) Model Law on Cross-Border Insolvency, allowing courts to recognize proceedings in a foreign jurisdiction involving a foreign entity with assets in the Philippines. Regional trial courts designated by the Supreme Court have jurisdiction over insolvency and bankruptcy cases. The Philippines ranked 56 out of 190 economies and 7 among 25 economies from East Asia and the Pacific in the World Bank’s 2017 Ease of Doing Business report in terms of resolving insolvency and bankruptcy cases.

4. Industrial PoliciesShare    

Investment Incentives

The Philippines’ Investment Priorities Plan (IPP) enumerates investment activities entitled to incentives facilitated by the Board of Investments (BOI) such as an income tax holiday. Non-fiscal incentives include: employment of foreign nationals; simplified customs procedures; importation of consigned equipment; and operation of a bonded manufacturing warehouse.

The latest IPP, updated in 2017, provides incentives to: manufacturing (e.g. agro-processing, modular housing components, machinery, and equipment), agriculture, fishery and forestry; creative industries/knowledge-based services (e.g. IT-Business Process Management services for the domestic market, repair/maintenance of aircraft, telecommunications, etc.); healthcare (e.g. hospitals and drug rehabilitation centers); housing; infrastructure and logistics (e.g. airports, seaports and PPP projects); energy (development of energy sources, power generation plants, and ancillary services); innovation drivers (e.g. fabrication laboratories); and environment (e.g. climate change-related projects). Details of the 2017 IPP are on the BOI website.

BOI-registered enterprises which locate in less-developed areas are entitled to “pioneer” incentives and can deduct 100 percent of the cost of necessary infrastructure work and labor expenses from its taxable income. Pioneer status can be granted to enterprises producing new products or using new methods, goods deemed highly essential to the country’s agricultural self-sufficiency program, or goods utilizing non-conventional fuel sources. Furthermore, an enterprise with more than 40 percent foreign equity that exports at least 70 percent of its production may be entitled to incentives even if the activity is not listed in the IPP. Export-oriented firms with at least 50 percent of their revenues derived from exports may register for additional incentives under the 1994 Export Development Act.

Philippine law also provides incentives for multinational enterprises to establish regional or area headquarters in the Philippines. Multinational entities that establish regional warehouses for the supply of spare parts, manufactured components, or raw materials for foreign markets also enjoy incentives on imports that are re-exported, including exemption from customs duties, internal revenue taxes, and local taxes.

Foreign Trade Zones/Free Ports/Trade Facilitation

Businesses enjoy preferential tax treatment when located in export processing zones, free trade zones, and certain industrial estates, collectively known as economic zones, or “ecozones.” Businesses located in ecozones are considered outside customs territory and are allowed to import capital equipment and raw material free of customs duties, taxes, and other import restrictions. Goods imported into ecozones may be stored, repacked, mixed, or otherwise manipulated without being subject to import duties and are exempt from the Selective Preshipment Advance Classification Scheme. While some ecozones are designated as both export processing zones and free trade zones, individual businesses within them are only permitted to receive incentives under a single category.

Philippine Economic Zone Authority (PEZA)

PEZA operates 358 ecozones as of October 2016, primarily in the manufacturing, IT, tourism, medical tourism, logistics/warehousing, and agro-industrial sectors. PEZA manages four government-owned export-processing zones (Mactan, Baguio, Cavite, and Pampanga) and administers incentives to enterprises in other privately owned and operated ecozones. Any person, partnership, corporation, or business organization, regardless of nationality, control and/or ownership, may register as an export, IT, tourism, medical tourism, or agro-industrial enterprise with PEZA, provided the enterprise physically locates its activity inside any of the ecozones. PEZA administrators have earned a reputation for maintaining a clear and predictable investment environment within the zones of their authority.

Bases Conversion Development Authority (BCDA) and Subic Bay Metropolitan Authority (SBMA)

The ecozones located inside former U.S. military bases were established under the 1992 Bases Conversion and Development Act. The BCDA (http://www.bcda.gov.ph/) operates the Clark Freeport Zone (Angeles City, Pampanga), the John Hay Special Economic Zone (Baguio), the Poro Point Freeport Zone (La Union), and the Bataan Technology Park (Morong, Bataan). The SBMA operates the Subic Bay Freeport Zone (Subic Bay, Zambales). Clark and Subic have their own international airports, power plants, telecommunications networks, housing complexes, and tourist facilities. These ecozones offer comparable incentives to PEZA. Enterprises already receiving incentives under the BCDA law are disqualified to receive incentives and benefits offered by other laws.

Other Zones

The Phividec Industrial Estate (Misamis Oriental Province, Mindanao) is governed by the Phividec Industrial Authority (PIA) (http://www.piamo.gov.ph/pia/), a government-owned and controlled corporation. Other ecozones are the Zamboanga City Economic Zone and Freeport (Zamboanga City, Mindanao) (http://www.zfa.gov.ph/) and the Cagayan Special Economic Zone and Freeport (Santa Ana, Cagayan Province) (http://ceza.gov.ph/). The Regional Economic Zone Authority (Cotabato City, Mindanao) (http://reza.armm.gov.ph/) is operated by the Autonomous Region in Muslim Mindanao (ARMM). The incentives available to investors in these zones are similar to PEZA incentives but administered independently. In addition to offering export incentives, the Cagayan Economic Zone Authority (CEZA) is authorized to grant gaming licenses.

Performance and Data Localization Requirements

The BOI imposes a higher export performance requirement on foreign-owned enterprises (70 percent of production) than on Philippine-owned companies (50 percent of production) when providing incentives under the IPP.

In general, only Filipino citizens are allowed to practice licensed professions but companies registered with the BOI and PEZA may employ foreign nationals in supervisory, technical, or advisory positions for five years from the date of registration (possibly extendable upon request). Top positions and elective officers of majority foreign-owned BOI-registered enterprises (i.e., president, general manager, and treasurer, or their equivalents) are exempt from the limitation. Foreigners intending to work locally must secure an Alien Employment Permit from the Department of Labor and Employment (DOLE), renewable every year or co-terminus with the duration of employment (which in no case shall exceed five years). The BOI and PEZA can help facilitate a special investor’s resident visa with multiple entry privileges and extend visa facilitation assistance to foreign nationals, their spouses, and dependents.

The Philippines has no data localization law and does not impose restrictions on cross-border data transfers. Sensitive personal information is protected under the 2012 Data Privacy Act, which provides penalties for unauthorized processing and improper disposal of data even if processed outside the Philippines.

5. Protection of Property RightsShare    

Real Property

The Philippines recognizes and protects property rights, but implementation of these laws is weak and fragmented. The Land Registration Authority and the Register of Deeds, which facilitates the registration and transfer of property titles, are responsible for land administration, with more information available on their website. Processes for property registration is tedious and costly. Multiple agencies are involved in property administration, which results in overlapping procedures for land valuation and titling processes. Record management is weak due to a lack of funds and trained personnel. Corruption is also prevalent among land administration personnel and the court system is slow to resolve land disputes. The Philippines ranked 112 out of 190 economies in terms of ease of property registration in the World Bank’s 2017 Ease of Doing Business report.

Intellectual Property Rights

The Philippines is not listed on the United States Trade Representative’s (USTR) Special 301 Watch List, nor is it mentioned in the 2016 Notorious Markets Report. The country has a solid intellectual property rights (IPR) regime in place, although implementation and enforcement are inconsistent. The total estimated value of seized counterfeit goods increased from USD $44.5 million in 2015 to USD $144.9 million in 2016. U.S. rights holders continue to report concerns about the availability of counterfeit items such as software, medicines, and clothing, as well as judicial inexperience in IPR enforcement.

The Intellectual Property (IP) Code provides the legal framework for IPR protection, particularly in the key areas of patents, trademarks, and copyrights. The Intellectual Property Office (IPOPHL) is the implementing agency of the IP Code, with more information available on their website. The Philippines generally has strong patent and trademark laws. IPOPHL’s IP Enforcement Office (IEO) reviews IPR-related complaints and conducts visits to establishments reportedly engaged in IPR-related violations. Stakeholders report the IEO has been effective in streamlining the process of filing complaints, coordinating among enforcement agencies, and reducing possibilities for corrupt officers to request bribes.

Enforcement actions, however, are often not followed by successful prosecutions. IP infringement is not considered a major crime in the Philippines and takes a lower priority in court proceedings. Many stakeholders opt for out-of-court settlements (such as ADR) rather than filing a lawsuit that may take years to resolve in the unpredictable Philippine courts. IPOPHL has jurisdiction to resolve certain disputes concerning alleged infringement and licensing through its Arbitration and Mediation Center.

For additional information about treaty obligations and points of contact at the local IP offices, see WIPO’s country profiles at http://www.wipo.int/directory/en/.

Resources for Rights Holders

Contact at Mission:

Brian Breuhaus, Economic Officer
Economic Section, U.S. Embassy Manila
Telephone: (+632) 301.2000
Email: ManilaEcon@state.gov

A list of local lawyers can be found here on the U.S. Embassy’s website.

6. Financial SectorShare    

Capital Markets and Portfolio Investment

The Philippines supports the entry of foreign portfolio investments, including into local and foreign-issued equities listed on the Philippine Stock Exchange (PSE). Investments in publicly listed companies are subject to foreign ownership restrictions specified in the Constitution and other laws. Non-residents are allowed to issue bonds/notes on similar instruments in the domestic market with prior approval from the central bank.

There are generally no restrictions on outward portfolio investments by Philippine residents, defined to include non-Filipino citizens who have been residing in the country for at least one year, foreign-controlled entities organized under Philippine laws, and branches, subsidiaries, or affiliates of foreign enterprises organized under foreign laws operating in the country. However, foreign exchange purchases from banks and their foreign exchange corporation subsidiaries or affiliates above USD $60 million or its equivalent in the other foreign currencies per investor per year, or per fund per year for qualified investors, require prior central bank approval.

The central bank does not restrict payments and transfers for current transactions, subject to the submission of a duly accomplished foreign exchange purchase application form if the foreign exchange to be purchased does not exceed central bank-specified thresholds. Purchases above the thresholds are subject to the submission of minimum documentary requirements but do not require prior central bank approval.

Although growing, the Philippine stock market (with only about 265 listed firms) lags behind many of its neighbors in size, product offerings, and trading activity. The securities market is growing but remains dominated by government bills and bonds. Hostile takeovers are uncommon because most companies’ shares are not publicly listed and controlling interest tends to remain with a small group of parties. Cross-ownership and interlocking directorates among listed companies also decrease the likelihood of hostile takeovers.

Credit is generally granted on market terms and foreign firms are able to obtain credit from the domestic market. However, some laws require financial institutions to set aside loans for preferred sectors (e.g. agriculture, agrarian reform, and MSMEs). To help promote lending at competitive rates to MSMEs, a government-controlled corporation manages a centralized credit information system that collects and disseminates information about the track record of borrowers and the credit activities of entities in the financial system.

Money and Banking System

The banking system is stable. The central bank has pursued regulatory reforms promoting good governance and aligning/adapting risk management regulations and the risk-based capital framework with international standards. Capital adequacy ratios are well above the 8 percent international standard and the central bank’s 10 percent regulatory requirement. The non-performing loan ratio was at 1.9 percent as of end-2016. There is ample liquidity, with the liquid assets-to-deposits ratio estimated at 50.7 percent. Commercial banks constitute more than 90 percent of the total assets of the Philippine banking industry. The five largest commercial banks represented about 59.4 percent of the total resources of the commercial banking sector as of 2016. Twenty of the more than 40 commercial banks operating in the country are foreign branches, including three U.S. banks (Citibank, Bank of America, and JP Morgan Chase). Citibank has the largest presence among the foreign bank branches and currently ranks 11th overall in terms of assets.

Foreign residents and non-residents may open foreign and local currency bank accounts. Although non-residents may open local currency deposit accounts, they are limited to the funding sources specified under central bank regulations. Non-residents’ foreign currency accounts cannot be funded from foreign exchange purchases from banks and banks’ subsidiary/affiliate foreign exchange corporations.

Foreign Exchange and Remittances

Foreign Exchange

Bangko Sentral Pilipinas (BSP), the central bank has actively pursued reforms since the 1990s to liberalize and simplify foreign exchange regulations. As a general rule, the central bank allows residents and non-residents to purchase foreign exchange from banks, banks’ subsidiary/affiliate foreign exchange corporations, and other non-bank entities operating as foreign exchange dealers and/or money changers and remittance agents to fund legitimate foreign exchange obligations, subject to provision of information and/or documents on the underlying obligations. No mandatory foreign exchange surrender requirement is imposed on exporters, overseas workers’ incomes, or other foreign currency earners; these foreign exchange receipts may be sold for pesos or retained in local and/or offshore foreign currency accounts. The central bank follows a market-determined exchange rate policy, with scope for intervention to smooth excessive foreign exchange volatility.

Remittance Policies

Overseas remittances, which officially totaled USD $26.9 billion in 2016, remain a vital part of the Philippine economy, with levels consistently equivalent to between eight and ten percent of the country’s Gross Domestic Product (GDP). Registration of foreign direct and portfolio investments with the central bank or custodian banks is optional unless the foreign exchange to repatriate capital and remit associated earnings from an investment will be sourced from banks and/or banks’ subsidiary/affiliate foreign exchange corporations. The central bank requires proof of inward remittance of foreign exchange and evidence that the funds/assets have been received by the local investee/beneficiary or seller/issuer of the investment instruments. Duly registered investments are entitled to full and immediate repatriation of capital and remittance of dividends, profits, and earnings.

The Financial Action Task Force (FATF) removed the Philippines from its “gray list” of countries with strategic deficiencies in countering money laundering and the financing of terrorism in 2013, but continues to urge regulation of the country’s growing casino industry for anti-money laundering/terrorism financing purposes. FATF is closely monitoring progress of pending legislation seeking to include casinos as covered institutions; a high profile international money laundering case in February 2016 heightened the urgency of amending the laws. Government officials expressed confidence that legislation will pass on or before July 2017; otherwise, the Philippines risks reverting to the FATF “gray list” by the October 2017 FATF plenary. Although not a systemic issue, some local banks and money service businesses were affected by the “de-risking” phenomenon reported by various jurisdictions in recent years, driven in part by risk aversion of foreign banks due to anti-money laundering/terrorism financing compliance costs.

Sovereign Wealth Funds

The Philippines does not have sovereign wealth funds.

7. State-Owned EnterprisesShare    

State-owned enterprises, known in the Philippines as government-owned and controlled corporations (GOCC), are predominant in the power, transport, infrastructure, communications, land and water resources, social services, housing, and support services sectors. There were 144 operational GOCCs as of April 2016 (a list is available on the COCC website). The Philippine government derives substantial revenues from GOCCs, which are required to remit at least 50 percent of their annual net earnings (e.g. cash, stock or property dividends) to the national government.

Private and state-owned enterprises generally compete equally, with some clear exceptions. The National Food Authority first allowed the private sector to import rice in 2002. The Government Service Insurance System (GSIS) is the only agency, with limited exceptions, allowed to provide coverage for the government’s insurance risks and interests, including those in BOT projects and privatized government corporations. Since the national government acts as the main guarantor of loans, stakeholders report GOCCs often have an advantage in getting financing from government financial institutions and some private banks. Most GOCCs are not statutorily independent, but attached to cabinet departments, and, therefore, subject to political interference.

OECD Guidelines on Corporate Governance of SOEs

The Philippines is not an OECD member country. The 2011 GOCC Governance Act was enacted to address problems experienced by GOCCs, including poor financial performance, weak governance structures, and unauthorized allowances. The law allows unrestricted access to GOCC account books and requires strict compliance with accounting and financial disclosure standards; establishes the power to privatize, abolish, or restructure GOCCs without legislative action; and sets performance standards and limits on compensation and allowances. The law also created the GOCC Commission on Governance (GCG) to formulate and implement GOCC policies. GOCC Board Members are limited to one-year terms, subject to reappointment based on a performance rating set by the GCG, with final approval by the President of the Philippines.

Privatization Program

The Philippine Government’s privatization program is managed by the Privatization Management Office (PMO) under the Department of Finance. The privatization of government assets undergoes a public bidding process. Apart from restrictions in the FINL, no regulations discriminate against foreign buyers and the bidding process appears to be transparent. Additional information is available on both the PMO website and that of the Department of Finance.

8. Responsible Business ConductShare    

Responsible Business Conduct (RBC) is regularly practiced in the Philippines, although no domestic laws require it. The Philippine Tax Code provides RBC-related incentives to corporations, such as tax exemptions and deductions. Various non-government organizations and business associations also promote RBC. The Philippine Business for Social Progress (PBSP) is the largest corporate-led social development foundation involved in advocating corporate citizenship practice in the Philippines. U.S. companies report strong and favorable responses to RBC programs among employees and within local communities.

OECD Guidelines for Multinational Enterprises

The Philippines is not an OECD member country. The Philippine government strongly supports RBC practices among the business community but has not yet endorsed the OECD Guidelines for Multinational Enterprises to stakeholders.

9. CorruptionShare    

Corruption is a pervasive and long-standing problem in both the public and private sectors. The country’s ranking in Transparency International’s Corruption Perceptions Index declined from 95 in 2015 to 101 in 2016 of 176 countries worldwide. The World Economic Forum’s 2016-2017 Global Competitiveness Report ranked corruption as among the top problematic factors for doing business in the Philippines. The Bureau of Customs is widely seen to be of particular concern with regard to corruption.

The Philippine Development Plan 2017-2022 outlines strategies to reduce corruption by streamlining government transactions, modernizing regulatory processes, and establishing mechanisms for citizens to report complaints. In October 2016, President Rodrigo Duterte signed an executive order establishing a “citizens’ complaint hotline” and “complaint center” for the public to directly report corruption in government agencies. The Office of the President oversees the center, which can be reached by the hotline, text services (SMS) and social media.

The Philippine Revised Penal Code, the Anti-Graft and Corrupt Practices Act, and the Code of Ethical Conduct for Public Officials all aim to combat corruption and related anti-competitive business practices. The Office of the Ombudsman investigates and prosecutes cases of alleged graft and corruption involving public officials, with more information available on their website. Cases against high-ranking officials are brought before the special anti-corruption court, the “Sandiganbayan,” while cases against low-ranking officials are filed before regional trial courts.

The Office of the President can directly investigate and hear administrative cases involving presidential appointees in the executive branch and government-owned and controlled corporations. Soliciting, accepting, and/or offering/giving a bribe are criminal offenses punishable by imprisonment, a fine, and/or disqualification from public office or business dealings with the government. Government anti-corruption agencies routinely investigate public officials, but convictions by courts are limited, often appealed, and convictions can be overturned.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

The Philippines ratified the United Nations Convention against Corruption in 2003. It is not a signatory to the OECD Convention on Combating Bribery.

Resources to Report Corruption

Contact at government agency:

Office of the Ombudsman
Ombudsman Building, Agham Road, North Triangle, Diliman
Quezon City, Philippines 1101
Hotline: (+632) 9262.662
Telephone: (+632) 479.7300
Email: pab@ombudsman.gov.ph / http://www.ombudsman.gov.ph/

Contact Center ng Bayan
Text: (+639) 08881.6565
Call: 1-6565*
>Website: contactcenterngbayan.gov.ph<

10. Political and Security EnvironmentShare    

Terrorist groups and criminal gangs operate in some regions. The Department of State publishes a consular information sheet and advises all Americans living in or visiting the Philippines to review the information periodically. A travel warning is in place for those U.S. citizens contemplating travel to the Philippines.

The Philippines’ most significant human rights problems were killings allegedly undertaken by vigilantes, security forces, and insurgents; cases of apparent governmental disregard for human rights and due process; and a weak and overburdened criminal justice system notable for slow court procedures, weak prosecutions, and poor cooperation between police and investigators.

President Rodrigo Duterte was elected in the May 2016 national election. The first nine months of his administration focused on a nationwide campaign, led primarily by the Philippine National Police (PNP), to eliminate illegal narcotics. The ongoing operation received worldwide attention for its harsh tactics, which resulted in the killing of more than 2,500 drug suspects by police, with another 4,500 or more killed by suspected vigilantes, but the campaign remained popular among Philippine voters.

The New People’s Army (NPA), the insurgent militarized arm of the Communist Party of the Philippines, is responsible in some parts of the country, mostly southern Mindanao, for civil disturbances through assassinations of public officials, sporadic attacks on military and police forces, bombings, and attacks on infrastructure, such as power generators and telecommunications towers. The NPA relies on extortionist “revolutionary taxes” from local and some foreign businesses to fund its operations.

Terrorist groups, including the Abu Sayyaf Group (ASG), Jema’ah Islamiyah (JI), the Islamic State in the Philippines (ISP), and a Moro Islamic Liberation Front (MILF) splinter group called the Bangsamoro Islamic Freedom Fighters (BIFF), periodically attack civilian targets in Mindanao, kidnap civilians – including foreigners – for ransom, and engage in armed skirmishes with government security forces. These groups have mostly carried out their activities in the western and central regions of Mindanao, including the Sulu Archipelago and the Sulu Sea. They are also capable of operating in some areas outside Sulu, as evidenced by the 2015 kidnapping of four hostages from Samal Island, just outside Davao City.

11. Labor Policies and PracticesShare    

Managers of U.S.-based companies in the Philippines report that local labor costs are relatively low and workers are highly motivated, with generally strong English language skills. In 2016, the Philippine labor force reached 43.2 million workers, with an employment rate of 94.5 percent and an unemployment rate of 5.5 percent. These figures include employment in the informal sector and do not capture the substantial rates of underemployment in the country. Youths between the ages of 15 and 24 made up nearly 50 percent of the unemployed. More than half of all employment was in the services sector, with 26.9 percent in agriculture and 17.5 percent in industry.

Compensation packages in the Philippines tend to be comparable with those in neighboring countries. Regional Wage and Productivity Boards meet periodically in each of the country’s 16 administrative regions to determine minimum wages. The non-agricultural daily minimum wage in Metro Manila is approximately USD $9.77, although some private sector workers receive less. Most regions set their minimum wage significantly lower than Metro Manila. Violation of minimum wage standards is common, especially non-payment of social security contributions, bonuses, and overtime. Philippine law also provides for a comprehensive set of occupational safety and health standards. The Department of Labor and Employment (DOLE) has responsibility for safety inspection, but a shortage of inspectors has made enforcement difficult.

The Philippines Constitution enshrines the right of workers to form and join trade unions. The trend among firms using temporary contract labor to lower employment costs continues despite government efforts to regulate the practice. The DOLE Secretary has the authority to end strikes and mandate a settlement between parties in cases involving national interest. In 2013, DOLE amended its rules concerning disputes, specifying industries vital to national interest: hospitals, the electric power industry, water supply services (excluding small bottle suppliers), air traffic control, and other industries as recommended by the National Tripartite Industrial Peace Council (NTIPC). Economic zones often offer on-site labor centers to assist investors with recruitment. Although labor laws apply equally to economic zones, unions have noted some difficulty organizing inside the zones.

The Philippines is signatory to all International Labor Organization (ILO) core conventions, but has faced challenges with enforcement. Unions allege that companies or local officials use illegal tactics to prevent workers from organizing. The quasi-judicial National Labor Relations Commission reviews allegations of intimidation and discrimination in connection with union activities. Meanwhile, the NTIPC monitors the application of international labor standards.

Reports of forced labor in the Philippines continue, particularly in connection with human trafficking in the commercial sex, domestic service, agriculture, and fishing industries.

12. OPIC and Other Investment Insurance ProgramsShare    

The Overseas Private Investment Corporation (OPIC) provides debt financing, political risk insurance, and private equity capital to support U.S. investors and their investments. It does so under a bilateral agreement with the Philippines.

OPIC can provide debt financing in the form of direct loans and loan guarantees of up to USD $250 million per project for business investments with U.S. private sector participation in the Philippines. OPIC’s political risk insurance for currency inconvertibility, expropriation, and political violence is also available for U.S investments including equity, loans and loan guarantees, technical assistance, leases, and consigned inventory or equipment. In addition, OPIC supports three private equity funds eligible to invest in projects in the Philippines. In all cases, OPIC support is available only where sufficient or appropriate investment support is unavailable from local or other private sector financial institutions.

Past OPIC programs in the Philippines include projects with the National Power Corporation (NAPOCOR), the Asia Foundation for economic development activities, a cloud-based technology program for the local cargo and courier industry.

13. Foreign Direct Investment and Foreign Portfolio Investment StatisticsShare    

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

 

Host Country Statistical source*

USG or international statistical source

USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other

Economic Data

Year

Amount

Year

Amount

 

Host Country Gross Domestic Product (GDP) ($M USD)

2016

$288,998

2015

$292,451

www.worldbank.org/en/country

Foreign Direct Investment

Host Country Statistical source*

USG or international statistical source

USG or international Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other

U.S. FDI in partner country ($M USD, stock positions)

2015

N/A

2015

$4,724

BEA data available at http://bea.gov/international/direct_investment_
multinational_companies_comprehensive_data.htm

Host country’s FDI in the United States ($M USD, stock positions)

2015

N/A

2015

$1,178

https://www.bea.gov/international/
factsheet/factsheet.cfm?Area=623

Total inbound stock of FDI as % host GDP

2015

19.8%

2015

11.4%

N/A

*Host Country Statistical Sources:
Philippine Statistical Authority (http://psa.gov.ph/nap-press-release/data-charts)
Bangko Sentral ng Pilipinas (http://www.bsp.gov.ph/statistics/efs_ext2.asp#FCDU)


Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data

From Top Five Sources/To Top Five Destinations (US Dollars, Millions)

Inward Direct Investment

Outward Direct Investment

Total Inward

33,478

100%

Total Outward

6,324

100%

Japan

7,699

23%

China, P.R.: Mainland

1,121

18%

Netherlands

5,158

15%

China, P.R.: Hong Kong

997

16%

United States

4,616

14%

Cayman Islands

855

13.5%

Singapore

3,260

10%

British Virgin Islands

848

13.4%

Switzerland

2,592

8%

United States

707

11%

"0" reflects amounts rounded to +/- USD 500,000.

The Philippine central bank does not publish or post inward and outward FDI stock broken down by country. Total stock figures are reported under the “International Investment Position” data that the central bank publishes and submits to the IMF’s Dissemination Standards Bulletin Board (DSBB) using BPM6 concept. As of 2015, inward direct investment (i.e. liabilities) is USD $58,793 million, while outward direct investment (i.e. assets) is USD $41,187 million.


Table 4: Sources of Portfolio Investment

Portfolio Investment Assets

Top Five Partners (Millions, US Dollars)

Total

Equity Securities

Total Debt Securities

All Countries

10,677

100%

All Countries

698

100%

All Countries

9,979

100%

United States

4,573

43%

United States

375

54%

United States

4,378

44%

Indonesia

2,173

20%

Luxembourg

166

24%

Indonesia

2,173

22%

China, P.R.: Mainland

657

6%

China P.R.: Hong Kong

55

8%

China, P.R.: Mainland

651

6.5%

Cayman Islands

348

3.2%

Ireland

36

5%

Cayman Islands

381

4%

China P.R.: Hong Kong

335

3.1%

Netherlands

12

2%

China P.R.: Hong Kong

280

3%

The Philippine central bank disaggregates data into equity and debt securities but does not publish or post the stock of portfolio investments assets broken down by country. Total foreign portfolio investment stock figures are reported under the “International Investment Position” data that the central bank publishes and submits to the IMF’s Dissemination Standards Bulletin Board (DSBB) using BPM6 concept. As of 2015, outward portfolio investments (i.e. assets) are USD $13,326 million, of which USD $755 million is in equity securities and USD $12,481 million is in debt securities.

14. Contact for More InformationShare    

Brian Breuhaus
Economic Officer
U.S. Embassy Manila
1201 Roxas Boulevard, Manila, Philippines
Telephone: (+632) 301.2000
Email: ManilaEcon@state.gov