A Breakdown of Changes to the Foreign Investments Act
By Ramon Vaughn Dy on March 10, 2022
Republic Act (RA) 11647, which amended the Foreign Investments Act of 1991, was finally signed into law last March 2. It introduced some significant changes aimed at easing restrictions on foreign investments to help stimulate economic growth amid the continued impact of the Covid-19 pandemic
The influx of foreign investments plays a major contributing factor in the country’s economic growth. As stated in RA 7042, the “Foreign Investments Act of 1991” (FIA), it is the policy of the state to attract, promote and welcome productive investments in activities that significantly contribute to national industrialization and socioeconomic development to the extent that foreign investment is allowed by the Constitution and relevant laws.
The FIA states the general rule that there are no restrictions on the extent of foreign ownership of export enterprises (i.e. those that consistently export at least 60 percent of their products or services). In domestic market enterprises (i.e. those that produce goods for sale or render services to the local market entirely or export less than 60 percent of their products or services), foreigners can invest as much as 100-percent equity except in areas in the Foreign Investment Negative List, which enumerates the business activities subject to nationality requirements or restrictions as provided in the Constitution, existing laws and governmental policy.
RA 11647 provides that, except as otherwise set under RA 8762 or the “Retail Trade Liberalization Act” and other relevant laws, “micro and small domestic market enterprises” with a paid-up capital requirement of $200,000 are still reserved for Philippine nationals. The same paid-up capital threshold was provided prior to the amendment, only the term used then was “small- and medium-sized domestic market enterprises.”
Philippine nationals are generally defined to include citizens of the Philippines, a domestic partnership or association wholly owned by citizens of the Philippines or a corporation organized under the laws of the Philippines of which at least 60 percent of the capital stock outstanding and entitled to vote is owned and held by citizens of the country.
It is worthy to note that RA 11647 encourages the development of advanced technologies and pushes for the establishment of startups or startup enablers pursuant to the “Innovative Startup Act” (RA 11337) by applying the latter’s lower capitalization requirement of $100,000.
In addition to this, the previous requirement of employing at least 50 direct employees to be eligible for the $100,000 capitalization requirement has now been amended. The law now provides that enterprises eligible for the lower capitalization rule are only required to have a majority of their direct employees be Filipinos, but in no case shall the number of Filipino employees be less than 15. An understudy or skills development program is also imposed upon domestic enterprises enjoying the lower capitalization requirement in order to ensure the transfer of technology or skills to Filipinos.
Other amendments introduced by RA 11647 include the creation of the Inter-agency Investment Promotion Coordination Committee (IIPCC), which is mandated to develop a comprehensive and strategic Foreign Investment Promotion and Marketing Plan (FIPMP) for the next five years and 10 years.
The plan should be based on competitive advantages, natural resources, skill and educational development, traditional linkages and international market potential, and be fully consistent with the strategic investment priorities plan under Title XIII of the National Internal Revenue Code.
The IIPPC is also empowered to review foreign investments involving military-related industries, cyber infrastructure, pipeline transportations or other activities that may threaten territorial integrity and the safety, security and well-being of Filipinos. The IIPCC will consult local chambers of commerce and business groups in coming up with the FIPMP.
Other amendments include mandating the creation of a database for the FIPMP to be accessible to local enterprises that may be capable and willing to partner with potential investors. The Department of Education, Commission on Higher Education, Technical Education and Skills Development Authority, Department of Labor and Employment, Professional Regulations Commission and other training agencies involved in education are also mandated to develop a curriculum and exert training efforts to address FIPMP manpower requirements.
Foreign investments undoubtedly will continue to be a driving force in developing the economy and in promoting domestic market innovation. The FIA amendments introduced by RA 11647 will operate to ease the entry of foreign investments into the country. With the creation of the FIPMP, they will also encourage the development of a good marketing plan to attract investments. We have made progress.
Ramon Vaughn F. Dy 3rd is a graduate of the Ateneo de Manila University-School of Law and a legal assistant at Mata-Perez, Tamayo and Francisco (MTF Counsel).