The Philippine Congress is currently reviewing amendments to three laws, reducing capitalization requirements for foreign investments in retail trade and removing foreign equity restrictions in the telecommunications sector. The proposed amendments also create an Investment Promotions Council to facilitate and encourage foreign investments in the country, whilst also imposing foreign investment review requirements for certain key industries.
Foreign Investments Act
Amendments to the Foreign Investments Act (“FIA“) provide for review by the Department of National Defense, National Security Council, Department of Foreign Affairs, Department of Interior and Local Government, and other government agencies of foreign investments and transactions that may threaten national security or jeopardize international relations. Agencies will be able to make recommendations, to suspend or otherwise limit a foreign investment, or to transmit the transaction to the President for appropriate action. This is an extension of the foreign investment review regime in the Philippines; at present, proposed foreign investments are subject only to general review by the Securities and Exchange Commission and Department of Trade and Industry for compliance with foreign equity restrictions.
The amendments to the FIA also include a provision that would regulate offshore business entities that conduct business transactions in the Philippines through e-commerce as domestic market enterprises, making such entities subject to the FIA and other relevant tax, corporate, and other laws.
In addition, amendments to the FIA create an Investment Promotions Council (“Council“) to consolidate all promotional and other efforts to encourage foreign investments in the country. The powers and functions of the Council include the establishment of a medium and long-term Investment Priorities Plan coordinating all existing investment development plans and programs under various agencies, and the establishment of a one stop shop to inform and assist foreign investors.
Public Service Act
Proposed amendments to the Public Service Act (“PSA“) will exclude telecommunications from the definition of public utilities, effectively removing telecommunications from the current 40% limit on foreign equity in public utilities imposed by the Philippine Constitution. The amendment is expected to enhance competition in the local telecommunications industry.
The proposed amendments to the PSA also restrict certain types of foreign investments for national security reasons. The amendments prohibit foreign state-owned enterprises from owning capital in public utilities and public services classified as critical infrastructure (i.e. transmission of electricity, distribution of electricity, water pipeline distribution systems and sewerage pipeline systems, telecommunications, and common carriers). The prohibition shall apply only to investments made after the proposed amendments come into effect. The proposed amendments would also impose a system of review by the President or National Security Council of any merger, acquisition or takeover which could result in foreign control of an entity operating a public utility or public service.
Retail Trade Liberalization Act
The latest draft of the proposed amendments to the Retail Trade Liberalization Act (“RTLA“) will significantly reduce the minimum capitalization of a foreign-owned retailer from the current Philippine Peso equivalent of US$2,500,000 to US$300,000. The investment per store requirement will likewise be reduced from US$830,000 to US$150,000. These measures are expected to encourage more foreign retailers to directly own and operate retail stores in the Philippines.
The latest drafts of the proposed amendments to the RTLA expressly cover retail e-commerce, which has been a high growth industry in the Philippines in recent years, and clarify the specific requirements on retail e-commerce platform operators, independent platform e-commerce retailers, as well as on-platform e-commerce retailers. The amendments also clarify certain aspects of online retail activities that are unclear under the current laws, such as the requirement for foreign independent platform e-commerce retailers, foreign on-platform e-commerce retailers, or any other foreign retailer without a physical store in the Philippines to have a fixed place of business in the Philippines such as a place of management, a physical office housing their staff or employees, or a warehouse.