11th Foreign Investment Negative List: Easing of foreign ownership restrictions

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Republic Act (“RA”) No. 7042, otherwise known as the “Foreign Investments Act of 1991” (“FIA”), mandates the formulation of a Regular Foreign Investment Negative List (“FINL”), covering investment areas or activities which are open to foreign investors and/or reserved to Filipino nationals. The FINL has three component lists: (a) List A – foreign ownership is limited by mandate of the Constitution and specific laws; (b) List B – foreign ownership is limited for reasons of security, defense, risk to health and morals, and protection of small and medium scale enterprises; and (3) List C – areas of investment in which existing enterprises already serve adequately the needs of the economy and the consumers, and do not require further foreign investments.

President Rodrigo R. Duterte signed Executive Order No. 65, promulgating the 11th FINL last 29 October 2018. The 11th FINL replaced the 10th FINL issued in May 2015. Considering that the Philippines appears to be one of the most restrictive countries in terms of foreign direct investments, the 11th FINL was expected to lift or ease foreign restriction on certain investment areas or activities in order to boost foreign investments in the country.

Under the 11th FINL, 100% foreign equity ownership is allowed in the following areas or activities:

  1. Internet business, which, however, is limited to internet access providers that merely serve as carriers for transmitting messages, rather than being the creator of messages/information (DOJ Opinion No. 40, s. 1998); (1)
  2. Teaching in higher education levels (RA No. 8282), provided the subject being taught is not a professional subject (i.e., included in a government board or bar examination);
  3. Wellness centers – as an exception to the 40% foreign equity limitation imposed on sauna and steam bathhouses, massage clinics and other like activities regulated by law because of risks posed to public health and morals (RA No. 7042, as amended by RA No. 8179);
  4. Training centers for short-term high-level skills development that do not form part of the formal education system as defined in Sec. 20 of B.P. Blg. 232 (i.e. the hierarchically structured and chronologically graded learning organized and provided by the formal school system);
  5. Adjustment companies, which was previously subject to 40% foreign equity limitation (PD 612, as amended by RA No. 10607 and RA No. 10881);
  6. Lending companies, which was previously subject to 49% foreign equity limitation (RA No. 9474, as amended by RA No. 10881);
  7. Financing companies, which was previously subject to 60% foreign equity limitation (RA 5980, as amended by RA No. 8556 and RA No. 10881); and
  8. Investment Houses, which was previously subject to 60% foreign equity limitation (PD 129, as amended by RA No. 8366 and RA No. 10881).

Moreover, the 11th FINL now allows up to 40% foreign equity in contracts for the construction and repair of locally-funded public works (Sec. 1, CA No. 541, Letter of Instruction No. 630), except: (a) infrastructure/development projects covered in RA No. 7718; and (b) projects which are foreign-funded or assisted and required to undergo international competitive bidding. Only up to 25% foreign equity was allowed in the said investment area/activity under the 10th FINL.

Likewise, up to 40% foreign equity is now allowed in private radio communications network (Art. XII, Sec. 11 of the 1987 Constitution), from the previous up to only 20% allowable foreign equity.

The 11th FINL also expands the list of professions that foreigners are allowed to practice in the Philippines. For instance, pharmacy and forestry, which were previously reserved to Filipinos, may now be practiced by foreigners in the Philippines, subject to reciprocity. Moreover, corporate practice is now allowed in aeronautical engineering, agricultural and biosystems engineering, forestry, and social work, subject to the requirements and conditions under the pertinent professional regulatory law.

Prepared: December 2018

(1) In answering the question on whether the Internet business constitues mass media, the Department of Justice opined that “the internet access provider merely serves as carrier for transmitting messages. It does not create messages/information nor transmit the messages/information to the general public, as mass media do, and the publication of the messages/information or stories carried by the Internet and transmitted to the computer owner, thru the access privider, is decided by the sender or the inter-linked networks” (Department of Justice Opinion No. 40, s. 1998)