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Arellano University School of Law

Investments Law
1:00 3:00 PM Sunday

Investments Law
Case Study on Foreign Investments and Acquisition of Lands by Foreigners I. Situation
A group of naturalized US citizens (formerly natural born Filipino citizens) wanted to engage in a business in the Philippines. They are also interested in acquiring land for the business start-up. As investment counselor, what advice can you give them?

II.

Findings

1. Before engaging in any business, a decision needs to be made on the type of business entity to set up. Answer: There are several types of business enterprises an investor can choose from in establishing operations in the Philippines. Below are the possible options for consideration:

Single Proprietorship - a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business. The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. Both the assets and debts of the business are for the account of the proprietor. A sole proprietor may use a trade name or business name other than his or her legal name.

Partnership - Under the Civil Code of the Philippines, a partnership is treated as juridical person, having a separate legal personality from that of its members. Partnerships may either be general partnerships, where the partners have unlimited liability for the debts and obligation of the partnership, or limited partnerships, where one or more general partners have unlimited liability and the limited partners have

liability only up to the amount of their capital contributions. It consists of two or more partners. A partnership with more than three thousand pesos (3,000.00) capital must register with Securities and Exchange Commission (SEC). Corporation - Corporations are juridical persons established under the Corporation Code and regulated by the Securities and Exchange Commission with a personality separate and distinct from that of its stockholders. The liability of the shareholders of a corporation is limited to the amount of their share capital. It consists of at least five (5) to fifteen (15) incorporators each of whom must hold at least one share and must be registered with the Securities and Exchange Commission (SEC). Minimum paid up capital: five thousand pesos (5,000.00). A corporation can either be stock or non-stock company regardless of nationality. Such company, if 60% Filipino-40% foreign-owned, is considered a Filipino corporation; If more than 40% foreign-owned, it is considered a foreign-owned corporation. Branch Office - A Branch office is a foreign corporation organized and existing under foreign laws that carries out business activities of the head office and derives income from the host country. It is required to put up a minimum paid in capital of US$200,000.00, which can be reduced to US$100,000.00 if (a) activity involves advanced technology, or (b) company employs at least 50 direct employees; registration with the SEC is mandatory. Representative Office - A Representative Office is foreign corporation organized and existing under foreign laws. It does not derive income from the host country and is fully subsidized by its head office. It deals directly with clients of the parent company as it undertakes such activities as information dissemination, acts as a communication center and promotes company products, as well as quality control of products for export. It is required to have a minimum inward remittance in the amount of US$30,000.00 to cover its operating expenses and must be registered with SEC.

Regional Headquarters/Regional Operating Headquarters - Under RA 8756, any multinational company may establish an RHQ or ROHQ as long as they are existing under laws other than the Philippines, with branches, affiliates and subsidiaries in the Asia Pacific Region and other foreign markets.

2. Can a foreign investor be allowed to invest up to 100% of its capital in a domestic enterprise? Answer: YES! As provided in Sec 7 of RA 7042 as amended by RA 8179, foreign investors are allowed to invest 100% in a domestic enterprise under the following conditions: a. Investments are made in areas listed under the Foreign Investments Act (FIA) except those marked in the Regular Foreign Investment Negative List (FINL) prohibited/limited by the Constitution; b. If the investor has a paid-up capital of at least US$200,000.00, which may be trimmed down to US$100,000 provided the venture introduces cutting-edge technology or employs at least 50 direct personnel; c. If product/service being engaged is earmarked for exports. or

3. What is Foreign Investment Negative List? Answer: The FINL is a shortlist of investment areas or activities which may be opened to foreign investors and/or reserved to Filipino nationals. The Foreign Investments Negative Lists (FINL) is classified as follows:

1. List A - consists of areas of activities reserved to Philippine nationals where foreign equity participation in any domestic or export enterprise engaged in any activity listed therein shall be limited to a maximum of forty percent (40%) as prescribed by the Constitution and other specific laws.

2. List B - consists of areas of activities where foreign ownership is limited pursuant to law such as defense or law enforcement-related activities, which have negative implications on public health and morals, and small and medium-scale enterprises.

4. What is the capital requirement? Answer: The FIA clearly states that if the activity to be engaged in: is not included in the FINL, is more than 40% foreign-owned, and will cater to the domestic market, the capital required is at least two hundred thousand dollars (US$200,000.00). The capital may be lowered to one hundred thousand dollars (US$100,000.00), if activity involves advance technology, or the company employs at least 50 direct employees.

If the foreign company will export at least 60% of its output, or a trader that purchases products domestically will export at least 60% of its purchases, the required capital is only Php5,000.00. If the company is at least 60% Filipino-40% foreign-owned and will cater to the domestic market, paid-in capital of the corporation can be less than US$200,000.00.

5. What are the basic rights and guarantees given for the safety of foreign investments? Answer: All investors and enterprises are entitled to the basic rights and guarantees provided in the Philippine Constitution, such as the right to repatriation of investments, remittance of earnings, foreign loans and contracts, freedom from expropriation and non-requisition of investment.

6. How does a company remit its profits and dividends and repatriate capital abroad? Answer: Enterprises may remit profits and dividends or repatriate its capital abroad thru remittances with the Bangko Sentral ng Pilipinas (BSP) after registration with the SEC or BTRCP.

For this purpose, BSP rules and regulations covering procedures for registration of foreign investments are observed.

7. As an investor, what visa can be issued to me?


Answer: All investors and enterprises are entitled to the basic rights and guarantees provided in the

Philippine Constitution, such as the right to repatriation of investments, remittance of earnings, foreign loans and contracts, freedom from expropriation and non-requisition of investment.

a.

Special Investor Resident Visa (SIRV) The SIRV entitles the holder to reside in the Philippines for an indefinite period as long as his investment continues to operate. The SIRV is issued in coordination with the BOI and the Bureau of Immigration.

b.

Special Resident Retiree Visa (SRRV) The SRRV is issued by the Philippine Retirement Authority (PRA). Its primary role is to promote and grant the SRRVs to would-be retirees, and to offer a range of services, benefits, and comfort that would make their stay worthwhile.

c.

Entry Visa Foreign nationals come to the Philippines for reasons of business, pleasure or health with a temporary visitor's visa. This visa allows them to stay for a period of 59 days, extendable for a maximum of one year. Visitors who may wish to extend their stay must register with the Bureau of Immigration or with the office of the municipal or city treasurer in areas outside Manila. Executive Order No. 408 allows for foreign nationals, except those of specifically restricted nationalities, to stay in the Philippines for up to 21 days without a visa.

d.

Work Permits In general, a foreign national seeking employment in the Philippines, whether resident or non-resident, needs to an Alien Employment Permit (AEP) from the Department of Labor and Employment (DOLE).

e. Treaty Traders Visa (applicable only to Japanese, Germans and Americans)


This visa is issued to abovementioned nationalities based on certain criteria.

8. What are the investment rights of a former natural born Filipino? Answer: The Foreign Investments Act (FIA) recognizes the rights of former natural born Filipinos. They are granted same investment rights as Filipino citizens in activities such as cooperatives, thrifts banks and private development banks, rural banks and financing companies.

Former natural born Filipinos can also engage in activities under List B of the FINL. This means that their investments shall be treated as Filipino or will be considered as forming part of Filipino investments in activities closed or limited to foreign participation. The equal investment rights of former Filipino nationals do not extend to activities under List A of FINL which are reserved for Filipino citizens under the Constitution.

9. Can a former natural born Filipino own private land? Answer: Under Section 10 of RA 7042 (known as the Foreign Investment Act of 1991) as amended by RA 8179, any natural born citizen who has lost his citizenship, and who has legal capacity to enter into a contract under Philippine laws may be a transferee of a private land to be used by him for business or other purposes up to a maximum area of five thousand (5,000) square meters in the case of urban land or three (3) hectares in the case of rural land.

In the case of married couples, one of them may avail of the privilege herein granted, provided, that if both shall avail of the same, the total area acquired shall not exceed the maximum herein fixed. In the case the transferee already owns urban or rural land for business or other purposes, he shall still be entitled to be a transferee of additional urban or rural land for business or other

purposes which when added to those already owned by him shall not exceed the maximum areas herein authorized.

III.

Summary
With the enactment of Republic Act 7042 as amended by RA 8179, also known as the Foreign

Investments Act of 1991, the entry of foreign investments into the country has been liberalized. This has materialized the state policy as declared in Section 2 of said Act of encouraging foreign investments to expand livelihood and employment opportunities for Filipinos; enhance economic value of farm products; promote the welfare of Filipino consumers; expand the scope, quality and volume of exports and their access to foreign markets; and/or transfer relevant technologies in agriculture, industry and support services.