QuestionsQuestions (NEDA IMPLEMENTING RULES AND REGULATIONS OF RA 7042)
A Philippine national includes certain Filipino citizens/wholly Filipino-owned entities and other qualified arrangements where the required 60% ownership and beneficial ownership (with voting rights) are held by Philippine citizens or nationals, applying the control test. Those not meeting the qualifications are non-Philippine nationals.
It is determined based on outstanding capital stock (whether fully paid or not) that is generally entitled to vote; mere legal title is insufficient. Full beneficial ownership with appropriate voting rights is essential, and the control test applies. Shares whose voting rights have been assigned/transferred to aliens cannot be considered held by Philippine citizens/nationals.
Investment means equity participation in an enterprise organized under Philippine law, including original and additional investments made directly (e.g., stock subscription) or indirectly (e.g., transfer of equity). Ownership of bonds/debentures/notes or other evidences of indebtedness does not qualify. Also, stock options/warrants are not an investment until exercised and stock is actually acquired.
Foreign investment is an equity investment made by a non-Philippine national. For foreign ownership purposes, peso investments by non-Philippine nationals may be considered, but only foreign investments in the form of foreign exchange and/or other assets actually transferred to the Philippines and duly registered with the Central Bank (CB), and profits derived therefrom, can be repatriated.
Doing business includes soliciting orders, service contracts, opening offices (liaison/branches), appointing representatives/distributors operating under full control, participating in management, and continuous commercial dealings or progressive commercial gain. Not doing business includes mere shareholder investment and related rights, having a nominee director/officer, appointing a representative/distributor who transacts in its own name/account, general advertisements, maintaining goods stock solely for processing by another entity, consignment for export processing, collecting information, and incidental services under an isolated contract (e.g., installing/surcharging machinery not on a continuing basis).
An export enterprise is one where a manufacturer/processor/service (including tourism) exports 60% or more of its output, or a trader purchases domestically and exports 60% or more of such purchases.
Exports include the value/volume based on port FOB peso value of products exported (using invoices, bills of lading, LC, loading certificates, etc.) and the net selling price/value of export services. Constructive exports apply without actual exportation to specific cases such as sales to bonded manufacturing warehouses/EPZ enterprises, supplies from bonded trading warehouses, sales to tax-immunized entities like foreign military bases/diplomatic missions, and certain sales paid via inward remittances under specific programs.
For manufacturing/processing: export ratio is exported volume/value divided by total goods sold volume/value. For service-oriented: export ratio is peso value of services sold to foreigners divided by total earnings/receipts from services from all sources. For trading: export ratio is exported volume/value divided by total volume/value of goods purchased domestically.
For domestic market enterprises: allowed up to 100% unless prohibited/limited by existing laws or the FINL. For export enterprises: allowed up to 100% provided products/services do not fall within Lists A and B of the FINL (with defense-related activities treated as subject to approval under the Act).
Applications are filed with the SEC for foreign corporations and domestic corporations/partnerships that are non-Philippine nationals. For single proprietorships: in Metro Manila, with BTRCP/DTI-NCR; in provinces, possibly with SEC extension offices (for corporations/partnerships) and provincial DTI offices (for sole proprietorships).
Pre-processing assists the investor in determining document completeness. Applications are considered officially accepted only upon submission of complete documents to the SEC or BTRCP.
SEC/BTRCP must act within 15 working days from official acceptance. If not acted upon within said period for a cause not attributable to the applicant, the application is automatically approved.
Defense-related activities require clearance from DND/PNP. Investments involving advanced technology for SMEs with paid-in equity between the specified equivalents may require a DOST certificate. For SMEs with undertakings to employ at least 50 direct employees, a DOLE Regional Office certificate is required, and DOLE validates/monitors compliance.
Existing foreign investments are equity investments made by a non-Philippine national duly registered with the SEC or BTRCP in the form of foreign exchange and/or other assets transferred to the Philippines.
Yes. Existing enterprises can increase foreign equity beyond previously authorized SEC levels under the Act’s qualifications, provided the existing investment area is not in the FINL. If multiple investment areas exist, increases are allowed if none of the investment areas is in the FINL.
Export enterprises must submit reports within six months after each taxable year’s end. If they fail to comply with the export requirement, BOI advises SEC/BTRCP. SEC/BTRCP requires immediate increase of exports to at least 60% of total sales. Failure without justifiable reason results in administrative penalties and potential cancellation depending on violations.
The IRR provides escalating fines depending on whether the enterprise is a partnership/corporation or sole proprietorship. For example, first violation: PHP 100,000 (partnership/corporation) and PHP 50,000 (sole proprietorship), increasing for subsequent violations; subsequent violations may lead to cancellation of the registration for partnership/corporations.
The Regular FINL has two lists (A and B) covering areas reserved to Philippine nationals with limited foreign equity participation, with List A reserved under constitutional/specific legal mandates limiting foreign equity to maximum 40%, and List B covering additional restricted activities (defense/law enforcement-related with DND/PNP clearances, public health/morals concerns like dangerous drugs and gambling, and certain SMEs below paid-in equity thresholds).
List C includes activities reserved to Philippine nationals during the transitory period, such as certain import/wholesale not integrated with production, services requiring licenses/continuing regulation by other agencies restricted to Filipinos by administrative regulation/practice, and enterprises majority-owned by non-Philippine nationals with subsisting technology transfer/brand name licensing agreements with Philippine nationals registered as of effectivity. Its inclusion matters because it restricts foreign ownership until NEDA determines inclusion/removal in the Regular FINL.