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The foreign investments climate in the Philippines is governed primarily by Republic Act 7042 (R.A. 7042), also known as the Foreign Investments Act (FIA) of 1991.

Key Features of the FIA

  • opens domestic market to 100% foreign investment and introduces concept of a negative list
  • restrictions to foreign ownership limited only to sectors covered by existing law or identified under the most current Foreign Investment Negative List (FINL)
  • allows 100% foreign ownership of business activities not covered in the FINL but without incentives
  • redefines "export enterprise" to refer to any company that exports at least 60% of its production

Under the FIA, foreign investors may invest 100% equity in companies engaged in almost all types of business activities subject to certain restrictions as prescribed in the FINL, which is a shortlist of investment areas or activities that may be reserved exclusively for Filipino nationals or opened to limited ownership by foreign investors.

Classifications of the Foreign Investment Negative List (FINL)

The Foreign Investment Negative List (FINL) comes in two parts, namely:

  • List A - which consists of areas or activities reserved to Filipino nationals where foreign equity participation in any domestic or export enterprise engaged in any activity listed therein shall be limited to a maximum of 40% as prescribed in the Philippine Constitution or other specific laws.
  • List B - which consists of areas or activities where foreign ownership is limited pursuant to law, such as defense or law enforcement-related activites, activities that have negative implications on public health and morals, and small and medium-scale enterprises (paid-in equity capital of less than equivalent to US$500,000).

Other aspects of the FIA

The FIA also requires that capital should at least be the equivalent of US$200,000 if the enterprise is:

  • not included in the FINL
  • more than 40% foreign-owned and will cater mainly to the domestic market

The capital requirement may be lowered to the equivalent of US$100,000 if the investment activity involves advanced technology or if the company employs at least 50 direct employees.

The required paid-in capital of US$200,000 mentioned above is not applicable if the foreign-owned company will export at least 60% of its output, or a trader that purchases products domestically will export at least 60% of its purchases.

If the company's equity structure is 60% Filipino-owned and 40% foreign-owned and will cater to the domestic market, required paid-in capital can be less than US$200,000.