MEMORANDUM

For : FMH/LTC
From : JBO
Date : 12 May 2017
Re : Foreign Equity Restrictions
______________________________________________________________________________
1. The Foreign Investment Act of 1991 (“FIA”), as amended by R.A. 8179, provides the general
rule that in domestic market enterprises, foreigners can invest as much as one hundred
percent (100%) equity, subject to certain conditions and except in areas included in the
Foreign Investment Negative List (“FINL”). The current FINL, which took effect in 2015, is
reported to be reviewed by Congress and the National Economic and Development Authority
in May 2017.1

2. Due to the recent enactment of several laws (i.e. R.A. 10607- the Amended Insurance Code,
which was promulgated on 15 August 2013 - and R.A. 10881 on Lending and Finance
Companies, which lapsed into law on 17 July 2016), equity restrictions in Insurance, Finance,
and Lending industries have been lifted, allowing 100% foreign ownership in these industries.

3. The FIA expressly excluded in its scope Banking and other Financial Institutions regulated by
the General Banking Law (R.A. 8791) and other laws under the supervision of the Central
Bank. Under R.A. 8791, foreign individuals and non-bank corporations may each own or
control up to forty percent (40%) of the outstanding voting stock of a universal, commercial,
or thrift bank, provided that the aggregate foreign-owned voting stock owned by foreign
individuals and non-bank corporations shall not exceed forty percent (40%) of the
outstanding voting stock of the universal or commercial bank, and sixty percent (60%) in case
of thrift banks.

4. On 7 August 2014, R.A. 106412 became effective, allowing the full entry of qualified foreign
banks, which may be 100% foreign-owned, to operate in the Philippines.

5. With respect to the Construction Industry, there are two views- both with legal bases.

On one hand, the Securities and Exchange Commission (SEC) in an Opinion dated 2 October
2014 said that Construction corporations which will cater exclusively to private construction
contracts are domestic market enterprises, and are not subject to limitation on foreign
ownership, provided that it is not engaged in any of the industries indicated in the current
FINL and the minimum capitalization requirement therein is satisfied.

On the other hand, the Amended IRR of R.A. 4566 (Contractor’s License Law) contains a
Filipino- Foreign equity requirement, depending on whether the type of license being applied
for is regular or special. A regular license is reserved and issued to a construction firm, with

1
New Foreign Investment Negative List Due by May, available at
http://www.bworldonline.com/content.php?section=Economy&title=new-foreign-investment-negative-list-due-
by-may&id=137570 (last accessed May 11, 2017). See also Government to Review Foreign Investment Negative List
in May 2017 available at http://www.rappler.com/business/economy-watch/152331-dof-foreign-negative-list-
may-2017 (last accessed May 11, 2017).
2
An Act Allowing the Full Entry of Foreign Banks in the Philippines, amending for the purpose Republic Act No.
7721.

Last updated: 12 May 2017

 at least 60% Filipino equity participation and duly organized and existing under Philippine
laws. (Discussed in detail below)

6. Below is a summary of foreign equity limitations in the following industries: banking,

construction, operation of schools, operation of memorial parks, insurance, finance and
lending.

Industry Foreign Equity Notes/Conditions

Threshold
BANKING
re: foreign individual or a
foreign non-bank corporation as
a stockholder of a Philippine
Bank
UNIVERSAL BANKS Up to 40%3 Aggregate foreign- owned voting stock of
of voting shares foreign individuals and/or foreign non-
bank corporations shall not exceed 40%

COMMERCIAL BANKS Up to 40% Aggregate foreign- owned voting stock of

of voting shares foreign individuals and/or foreign non-
bank corporations shall not exceed 40%

THRIFT BANKS Up to 40% Aggregate foreign- owned voting stock of

of voting shares foreign individuals and/or foreign non-
bank corporations shall not exceed 60%

RURAL BANKS Up to 60% Aggregate foreign- owned voting stock of

of voting shares foreign individuals and/or foreign non-
bank corporations shall not exceed 60%

Additional Notes:

The percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship of all
the stockholders in that bank.

The citizenship of the corporation, which is a stockholder of a bank shall follow the citizenship of the
controlling stockholders of the corporation, irrespective of the place of incorporation. The term
“controlling stockholders” shall refer to stockholders holding more than fifty percent (50%) of the
voting stock of the corporate stockholders of the bank. In case of Rural Banks, a corporate stockholder
thereof shall be deemed Filipino-owned if it is organized under Philippine laws and at least sixty percent
(60%) of its capital is owned by Filipino citizens.

Non-Filipino citizens may become members of the Board of Directors of a bank to the extent of the
foreign participation in the equity of said bank: Provided, that pursuant to Section 23 of the Corporation
Code of the Philippines (BP Blg. 68), a majority of the directors must be residents of the Philippines.

The information above is taken from the 31 October 2015 Manual of Regulations for Banks (MORB), an
authoritative codification of laws and regulations governing the banking industry. The MORB covers
laws promulgated by Congress as well as rules and regulations cumulatively issued as of 31
October 2015.

3
Manual of Regulations for Banks X126.1a.

2
 Industry Foreign Equity Notes/ Conditions
Threshold
BANKING Up to 100%4 3 modes of entry for foreign banks to
re: entry of foreign banks in the operate in the Philippines:
Philippines
1. Acquire up to 100% of the
Governing Law: voting stock of an existing bank;

R.A. 10641 2. Invest in up to 100% of the

An Act Allowing the Full Entry of voting stock of a new banking
Foreign Banks in the Philippines, subsidiary incorporated under
Amending for the Purpose Republic Act
no. 7721
Philippine Laws;

3. Establish branches with full

banking authority.

Conditions:
1. Bank should be established,
reputable, and financially sound;

2. Bank must be widely owned and

publicly-listed in its country of
origin, except if owned and
controlled by its government;

3. Capital Requirements:

For Locally Incorporated Subsidiaries-

minimum capital shall be equal to that
prescribed by the Monetary Board (MB)
for domestic banks of the same
category.

For Foreign Bank Branches

Foreign Bank branches shall
permanently assign capital of an amount
not less than the minimum capital
required for domestic banks of the same
category. The permanently assigned
capital shall be inwardly remitted and
converted into Philippine currency.

The Foreign Bank may open up to five

(5) sub- branches.
Additional Notes:

Non-Philippine banks authorized to do banking business in the Philippines can participate in foreclosure
sales of real properties mortgaged to them and to use enforcement proceedings. Non- Philippine banks
can take possession of mortgaged real properties for a maximum of 5 years, during which time the bank
should take steps to transfer its rights to a Philippine national. In case the bank is unable to transfer its
rights to the real property within the 5-year period, the bank will be penalized ½ of 1% per annum of
the price at which the real property was foreclosed until actual transfer to a Philippine national.

3
 Industry Foreign Equity Notes/ Conditions
Threshold
CONSTRUCTION Up to 100% 100% foreign equity is allowed if the
company5:
Governing Law:
1. Will cater exclusively to private
construction contracts,
R.A. 4566
Contractor’s License Law 2. Is not engaged in any of the
industries found in Foreign
IRR of RA 4566 Investment Negative List
3. Has a paid in capital of more than
FINL US$200,000.00. This amount can
be reduced to US$100,000.00 if
the business would involve
advance technology or employ at
least 50 direct employees.
4. ***will not own land in the
Philippines

However, in order to get a regular

license from the Philippine Contractors
Accreditation Board, the Construction
company should be at least 60%
Filipino-owned. The equity requirement
may be dispensed with if capitalization is
1 Billion pesos6
Additional Notes:

RA 4566 (Contractor’s License Law) does not contain a provision on foreign equity limitation. However, Section
3.1 (a) of the IRR of RA 4566 contains a Filipino- Foreign equity requirement, depending on whether the type of
license being applied for is REGULAR or SPECIAL.

a) REGULAR LICENSE- is reserved and issued to a construction firm, with at least 60% Filipino equity participation
and duly organized and existing under Philippine laws.

b) SPECIAL LICENSE- is issued to a joint venture, consortium, a foreign constructor or a project owner which shall
authorize the licensee to engage only in the construction of a single specific undertaking / project. In case the
licensee is a foreign firm, the license/authorization shall be further subject to condition(s) as may have been
imposed by the proper Philippine government authority in the grant of the privilege for him to so engage in
construction contracting in the Philippines.

The recent amendment of the IRR would allow a domestic corporation, IRRESPECTIVE OF EQUITY OWNESHIP,
with a capitalization of ONE BILLION PESOS to secure a REGULAR LICENSE WITH ANNOTATION and to undertake
certain projects with a required Minimum Contract Value per project.

Project Type Inclusions Minimum Contract Value per project

VERTICAL Buildings such as offices, residential FIVE BILLION PESOS

PROJECTS condominiums, hotels, malls, schools,
warehouses, airport terminals, manufacturing
and assembly facilities , etc.
HORIZONTAL Roads, Expressways, Reclamation, Dams, THREE BILLION PESOS
PROJECTS Seawalls, etc.

4
RA 10641, Section 2.
5
SEC-OGC Opinion No. 14-27 dated 2 October 2014.
6
IRR of R.A. 4566.

4
 Industry Foreign Equity Notes/ Conditions
Threshold
SCHOOLS Up to 40%7 Foreigners are not allowed any control
and administration of educational
institutions, thus are barred from
Foreign equity restriction is
becoming members of the Board of
provided in the Constitution.
Directors/Trustees of educational
institutions.

Congress may require increased Filipino

equity participation in all educational
institutions.

This equity limitation is also contained

in the current FINL.

MEMORIAL PARKS Up to 40% 8 Considering that the business of

operating memorial parks entails the
acquisition and disposition of private
Foreign equity restriction is
lands, the 40 % foreign equity threshold
provided in the Constitution.
provided in the Constitution, the FIA,
FINL, and the Public Land Act applies.

INSURANCE Up to 100% 9 No limit on foreign equity ownership in

a domestic insurer.

Governing Law: Secure license from Insurance

R.A. 10607
Commissioner
Amended Insurance Code of the
Philippines
ADJUSTMENT Up to 100%11 Secure license from Insurance
Commissioner (Sec. 322 of RA 10607)
COMPANIES

Rule on Foreign Equity

participation is contained in R.A.
10881.10

An Act Amending Investment

Restrictions in Specific Laws Governing
Adjustment Companies, Lending
Companies, Financing Companies and
Investment Houses Cited In The
Foreign Investment Negative List And
For Other Purposes

7
PHIL. CONST. art. XIV, Section 4(2) - Educational institutions, other than those established by religious groups and
mission boards, shall be owned solely by citizens of the Philippines or corporations or associations at least sixty per
centum of the capital of which is owned by such citizens. The Congress may, however, require increased Filipino
equity participation in all educational institutions.
8
PHIL. CONST. art. XII, Section 7- Save in cases of hereditary succession, no private lands shall be transferred or
conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain.
9
R.A. 10607.
10
R.A. 10881 Lapsed into Law on 17 July 2016 without the signature of the President.
11
Section 4 of R.A. 10881, amending Section 332 of PD No. 612, as amended by R.A. 10607.

5
 Industry Foreign Equity Notes/ Conditions
Threshold
LENDING COMPANIES Up to 100%12 Where the loan is secured by land, a
foreign- owned lending company, may:
Rule on Foreign Equity
1. bid and take part in any sale of
participation is contained in R.A.
such land as a consequence of
10881.
such mortgage;

2. avail of enforcement
proceedings;

3. take possession; and

4. transfer its rights to qualified

Philippine nationals for a period
not exceeding 5 years from
actual possession.

*** title to said land shall not be

transferred to such lending companies

***investments of a lending company

shall be in accordance with the
provisions of the Constitution.

FINANCING Up to 100%13 1. Organized in the form of stock

corporations
CORPORATIONS
2. CAPITALIZATION:
Rule on Foreign equity
participation is contained in R.A. Location Paid Up Capital
10881. Metro Manila 10 Million Pesos
and first class (minimum)
cities
Other classes of 5 Million Pesos
cities
Municipalities 2.5 Million Pesos

3. Existing Financing Corporations

before the effectivity of this act
shall comply with the
capitalization requirement
within 1 year.

4. SEC may adjust paid up capital

requirements
12
Section 5 of R.A. 10881, amending Section 6 of R.A. 9474, also known as the ‘Lending Company Regulation Act of
2007’.
13
Section 6 of R.A. 10881, amending Section 6 of R.A. 8556, otherwise known as the ‘Financing Company Act of
1998’.

6
 Industry Foreign Equity Notes/ Conditions
Threshold
INVESTMENT HOUSES Up to 100%14
Foreign nationals may become members
of the Board of Directors to the extent of
Rule on Foreign equity
the foreign participation in the equity of
participation is contained in R.A.
said enterprise.
10881.

14
Section 7 of R.A. 10881, amending Section 5 of PD 129 as amended by R.A. 8366, otherwise known as The
Investment Houses Law’.