Foreign investors looking to invest in the Philippines are well advised to consider the Twelfth Regular FINL, as the list reflects the Philippine government's encouragement of foreign investment by liberalizing foreign investment policies in key sectors. Industries previously subject to foreign equity restrictions or stringent foreign investment requirements have been liberalized by recent legal developments to key industries, e.g., telecommunications, retail trade, domestic market enterprises. 

• Foreign investors may establish wholly owned operations or invest in Philippine entities engaged in these liberalized activities, and exercise a greater amount of control over the operations and profits of said entities.
• Foreign investors with existing investments in the Philippines may expand their control and share in the profits over their respective investments to take advantage of the relaxed foreign investment restrictions.

We can advise and assist foreign investors that are looking into entry or expanding investments into the Philippines in the liberalized sectors, such as through establishing an entity in the Philippines, acquisitions or investments in an existing entity. We can also advise and assist with restructuring of existing investments to take advantage of the liberalized framework.

In depth

• The FINL is a list of investment areas that are subject to foreign equity restrictions in the Philippines.
• List A enumerates the areas of activities that are subject to foreign equity restrictions under the Constitution and specific laws. List B contains areas of activity that are restricted for reasons of security, defense, risk to health and morals, and protection of small- and medium-scale enterprises. The Twelfth Regular FINL provides for key amendments to Lists A and B, as follows:
• List A
  • The foreign equity restriction on the operation of public utilities shall be limited to 'public utilities' as defined under Commonwealth Act No. 146, as amended by Republic Act 11659 ("Amended PSA"). 
    Under the Amended PSA, only the following services are considered 'public utilities' and subject to the 40% foreign ownership limitation under the Constitution: (a) distribution and transmission of electricity; (b) petroleum and petroleum products pipeline transmission systems; (c) water pipeline distribution systems; (d) wastewater and sewerage pipeline systems; (e) seaports; and (f) public utility vehicles. Corporations engaged in activities that were previously considered as public utilities, such as telecommunications, are no longer considered as public utilities.¹
  • The foreign equity restriction on retail trade in the Philippines will apply only to enterprises with paid-up capital of PHP 25 million under Republic Act No. 11595, instead of the previous paid-up capital requirements of USD 2.5 million (approximately PHP 135 million). 
  • Corporate practice of profession that is subject to foreign equity restriction is limited to architecture.
• List B
  • The foreign equity restriction applicable to the manufacture, repair, storage, and/or distribution of products requiring Department of National Defense clearance is removed.
  • The foreign equity restriction on domestic market enterprises applies to micro or small domestic market enterprises with paid-in equity of less than the equivalent of USD 200,000. Under the previous FINL, this foreign equity restriction applied to all domestic enterprises with paid-in equity of less than the equivalent of USD 200,000.
  • As an exception to the USD 200,000 paid-in equity requirement for domestic market enterprises in general, the foreign equity restriction on micro or small domestic market enterprises that (i) involve advanced technology; (ii) are endorsed as start-ups or start-up enablers by the Department of Trade and Industry, Department of Information and Communications Technology, and Department of Science and Technology; or (iii) have Filipinos as majority of their direct employees (but not less than 15 Filipino employees) will apply only if such enterprises have paid-in equity of less than the equivalent of USD 100,000.

1 The Amended PSA classifies certain public services as 'critical infrastructure,' which is defined as "any public service which owns, uses, or operates systems and assets, whether physical or virtual, so vital to the Republic of the Philippines that the incapacity or destruction of such systems or assets would have a detrimental impact on national security, including telecommunications and other such vital services as may be declared by the President of the Philippines." Foreign investments in critical infrastructure are subject to a separate framework for regulation under the Amended PSA. For more information, please refer to our client alert on the Amended PSA at the following link: [https://insightplus.bakermckenzie.com/bm/dispute-resolution/philippines-president-approves-law-removing-foreign-equity-restrictions-on-public-service-companies].

Please contact QTInfoDesk@quisumbingtorres.com for inquiries.

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