Republic Act No. 7042 or the Foreign Investments Act (“FIA”) liberalized the entry of foreign investments to the Philippines.
Nationalized and Partially Nationalized Industries are listed on the Negative List. The Negative List is divided into two lists: List A lists industries where foreign ownership is limited by the Constitution and specific law, and List B lists industries where foreign ownership is limited for reasons of security, defense, risk to health and morals and protection of small- and medium-scale enterprises.
The Ninth Negative List, promulgated on 29 October 2012, provides as follows:
LIST A: FOREIGN OWNERSHIP IS LIMITED BY MANDATE OF THE CONSTITUTION AND SPECIFIC LAWS
I. Nationalized Industries (No Foreign Equity)
1. Mass media except recording (Art. XVI, Sec. 11 of the Constitution; Presidential Memorandum dated 04 May 1994)
2. Practice of all professions (Art. XII, Sec. 14 of the Constitution, Sec. 1 of Republic Act (RA) 5181) Example: Engineering, Law, Medicine
3. Retail trade enterprises with paid-up capital of less than US$2,500,000, except, that full foreign participation is allowed for retail trade enterprises: (a) with paid-up capital of US$2,500,000 or more provided that investments for establishing a store is not less than US$830,000; or (b) specializing in high end or luxury products, provided that the paid-up capital per store is not less than US$250,000 (Sec. 5 of RA 8762)
4. Cooperatives (Ch. III, Art. 26 of RA 6938)
5. Private security agencies (Sec. 4 of RA 5487)
6. Small-scale mining (Sec. 3 of RA 7076)
7. Utilization of marine resources in archipelagic waters, territorial sea, and exclusive economic zone as well as small-scale utilization of natural resources in rivers, lakes, bays, and lagoons (Art. XII, Sec. 2 of the Constitution)
8. Ownership, operation and management of cockpits (Sec. 5 of PD 449)
9. Manufacture, repair, stockpiling and/or distribution of nuclear weapons (Art. II, Sec. 8 of the Constitution), or biological, chemical and radiological weapons and anti-personnel mines (various treaties to which the Philippines is a signatory and conventions supported by the Philippines)
10. Manufacture of firecrackers and other pyrotechnic devices (Sec. 5 of RA 7183)
II. Partially Nationalized Industries (Limited Foreign Equity)
Up to Twenty Percent (20%) Foreign Equity
11. Private radio communications network (RA 3846)
Up to Twenty-Five Percent (25%) Foreign Equity
12. Private recruitment, whether for local or overseas employment (Art. 27 of PD 442)
13. Contracts for the construction and repair of locally-funded public works (Sec. 1 of Commonwealth Act No. 541, Letter of Instruction No. 630) except:
a. Infrastructure/development projects covered in RA 7718; and
b. Projects which are foreign funded or assisted and required to undergo international competitive bidding (Sec. 2 (a) of RA 7718).
14. Contracts for the construction of defense-related structures (Sec. 1 of CA 541)
Up to Thirty Percent (30%) Foreign Equity
15. Advertising (Art. XVI, Sec. 11 of the Constitution)
Up to Forty Percent (40%) Foreign Equity
16. Exploration, development and utilization of natural resources, except, that full foreign participation is allowed through financial or technical assistance agreement with the President (Art. XII, Sec. 2 of the Constitution) – this includes mining
17. Ownership of private lands (Art. XII, Sec. 7 of the Constitution; Ch. 5, Sec. 22 of CA 141; Sec. 4 of RA 9182)
18. Operation and management of public utilities (Art. XII, Sec. 11 of the Constitution; Sec. 16 of CA 146) – such as (but not limited to) the following:
a. Telecommunications
b. domestic public transportation
c. logistics
d. operation of toll roads
e. transmission and distribution of electricity
19. Ownership/establishment and administration of educational institutions (Art. XIV, Sec. 4 of the Constitution)
20. Culture, production, milling, processing, trading except retailing, of rice and corn and acquiring, by barter, purchase or otherwise, rice and corn and the by-products thereof (Sec. 5 of PD 194), except, that full foreign participation is allowed provided that within the 30-year period from start of operation, the foreign investor shall divest a minimum of 60 percent of their equity to Filipino citizens (Sec. 5 of PD 194; NFA Council Resolution No. 193 s. 1998)
21. Contracts for the supply of materials, goods and commodities to government-owned or controlled corporation, company, agency or municipal corporation (Sec. 1 of RA 5183)
22. Project proponent and facility operator of a Build-Operate-Transfer Project requiring a public utilities franchise (Art. XII, Sec. 11 of the Constitution; Sec. 2 (a) of RA 7718)
23. Operation of deep sea commercial fishing vessels (Sec. 27 of RA 8550)
24. Adjustment companies (Sec. 323 of PD 612 as amended by PD 1814)
25. Ownership of condominium units where the common areas in the condominium project are co-owned by the owners of the separate units or owned by a corporation (Sec. 5 of RA 4726)
Up to Forty-Nine Percent (49%) Foreign Equity
26. Lending companies (Sec. 6 of RA 9474)
Up to Sixty Percent (60%) Foreign Equity
27. Financing companies regulated by the SEC (Sec. 6 of RA 5980 as amended by RA 8556), provided that, no foreign national may be allowed to own stock in lending companies, financing companies or investment houses unless the country of which he is a national accords the same reciprocal rights to Filipinos (Sec. 6 of RA 9474; Sec. 6 of RA 5980 as amended by RA 8556)
28. Investment houses regulated by the SEC (Sec. 5 of PD 129 as amended by RA 8366), provided that, no foreign national may be allowed to own stock in lending companies, financing companies or investment houses unless the country of which he is a national accords the same reciprocal rights to Filipinos (Sec. 6 of RA 9474; PD 129 as amended by RA 8366)
LIST B: FOREIGN OWNERSHIP IS LIMITED FOR REASONS OF SECURITY, DEFENSE, RISK TO HEALTH AND MORALS AND PROTECTION OF SMALL- AND MEDIUM-SCALE ENTERPRISES
Up to Forty Percent (40%) Foreign Equity
1. Manufacture, repair, storage, and/or distribution of products and/or ingredients requiring Philippine National Police (PNP) clearance:
a. Firearms (handguns to shotguns), parts of firearms and ammunition therefore, instruments or implements used or intended to be used in the manufacture of firearms
b. Gunpowder
c. Dynamite
d. Blasting supplies
e. Ingredients used in making explosives:
i. Chlorates of potassium and sodium
ii. Nitrates of ammonium, potassium, sodium barium, copper (11), lead (11), calcium and cuprite
iii. Nitric acid
iv. Nitrocellulose
v. Perchlorates of ammonium, potassium and sodium
vi. Dinitrocellulose
vii. Glycerol
viii. Amorphous phosphorus
ix. Hydrogen peroxide
x. Strontium nitrate powder
xi. Toluene
f. Telescopic sights, sniper scope and other similar devices
However, the manufacture or repair of these items may be authorized by the Chief of the PNP to non-Philippine nationals; Provided that a substantial percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership allowed shall be specified in the said authority/clearance (RA 7042 as amended by RA 8179)
2. Manufacture, repair, storage and/or distribution of products requiring Department of National Defense (DND) clearance:
a. Guns and ammunition for warfare
b. Military ordinance and parts thereof (e.g., torpedoes, depth charges, bombs, grenades, missiles)
c. Gunnery, bombing and fire control systems and components
d. Guided missiles/missile systems and components
e. Tactical aircraft (fixed and rotary-winged), parts and components thereof
f. Space vehicles and component systems
g. Combat vessels (air, land and naval) and auxiliaries
h. Weapons repair and maintenance equipment
i. Military communications equipment
j. Night vision equipment
k. Stimulated coherent radiation devices, components and accessories
l. Armament training devices
m. Others as may be determined by the Secretary of the DND
However, the manufacture or repair of these items may be authorized by the Secretary of National Defense to non-Philippine nationals; Provided that a substantial percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership allowed shall be specified in the said authority/clearance (RA 7042 as amended by RA 8179).
3. Manufacture and distribution of dangerous drugs (RA 7042 as amended by RA 8179)
4. Sauna and steam bathhouses, massage clinics and other like activities regulated by law because of risks posed to public health and morals (RA 7042 as amended by RA 8179)
5. All forms of gambling (including casinos), except those covered by investment agreements with PAGCOR pursuant to RA 9487 (RA 7042 as amended by RA 8179)
6. Domestic market enterprises with paid-in equity capital of less than the equivalent of US$200,000 (RA 7042 as amended by RA 8179)
7. Domestic market enterprises which involve advanced technology or employ at least fifty (50) direct employees with paid-in equity capital of less than the equivalent of US$100,000 (RA 7042 as amended by RA 8179)
OTHER INDUSTRIES WITH LIMITED FOREIGN OWNERSHIP ALLOWED
Up to Forty Percent (40%) Foreign Equity
1. Exploration, development and utilization of renewable energy resources and actual operation of renewable energy systems or facilities (Section 19, B. of Rule 6, Part IV of Department of Energy Circular No. DC2009-05-0008)
2. Foreign individuals and non-bank corporations can only own up to 40% of the voting stock of a domestic bank (Section 11, GBL) while foreign banks can own up to 60% of the voting stock of only one domestic bank (Section 2, Republic Act No. 7721 or An Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines and for Other Purposes)
In connection with the Negative List, the distinction must be made between an Export Enterprise and a Domestic Market Enterprise.
An Export Enterprise is (i) a manufacturer, processor or service enterprise that exports 60% or more of its output, or (b) a trader that purchases products domestically and exports 60% or more of such purchases. On the other hand, a Domestic Market Enterprise is (i) an enterprise that produces goods for sale, or renders service or otherwise engages in any business in the Philippines, or (ii) an enterprise that exports less than 60% of its output.
As a general rule, there are no restrictions on extent of foreign ownership of Export Enterprises. In Domestic Market Enterprises, foreigners can invest as much as 100% equity except in areas included in the Negative List. Note that a foreign entity may own more than 40% of a Domestic Market Enterprise only if the paid-in capital of the enterprise is at least US$200,000.00. This minimum is reduced to US$100,000.00 if the Domestic Market enterprise involves advanced technology or employs at least 50 employees.