Legal basis and covered predecessor law
- Republic Act No. 8179 amends Republic Act No. 7042, the “Foreign Investments Act of 1991.”
- Section 8 of Republic Act No. 8179 repeals or modifies Sections 9 and 10 of Republic Act No. 7042 and their references, as modified by Sections 4 and 5 of Republic Act No. 8179.
- Section 3 of Republic Act No. 8179 amends Section 8 of Republic Act No. 7042 and includes rules on how foreign investment negative lists are replaced and become effective.
- Section 9 of Republic Act No. 8179 repeals or modifies inconsistent laws, rules, and regulations to the extent of the inconsistency.
Policy and purpose of liberalization
- Republic Act No. 8179 furthers liberalization of foreign investments by amending key definitions, ownership limits, and the structure and update process of the Foreign Investment Negative List under Section 8 of Republic Act No. 7042.
- Republic Act No. 8179 also secures investment rights of former natural-born Filipinos through new Section 9 and natural-born citizens who lost Philippine citizenship through new Section 10.
Definitions: “Philippine national” expanded
- Section 1 of Republic Act No. 8179 amends Section 3(a) of Republic Act No. 7042 to define “Philippine national” to include a citizen of the Philippines, or a domestic partnership or association wholly owned by citizens of the Philippines, or a Philippine corporation with at least sixty percent (60%) of capital stock outstanding and entitled to vote owned by citizens of the Philippines.
- A corporation organized abroad and registered to do business in the Philippines under the Corporation Code is also a Philippine national if one hundred percent (100%) of its outstanding and voting capital stock is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund accrues to Philippine nationals.
- The definition further requires that where a corporation and its non-Filipino stockholders own stocks in an SEC-registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of both corporations must be owned and held by citizens of the Philippines, and at least sixty percent (60%) of the members of the Board of Directors of each of both corporations must be citizens of the Philippines.
Foreign ownership in domestic market enterprises
- Section 2 of Republic Act No. 8179 amends Section 7(a) of Republic Act No. 7042 to allow non-Philippine nationals to own up to one hundred percent (100%) of domestic market enterprises.
- The full ownership privilege is subject to constitutional or legal limits, including limitations in the Foreign Investment Negative List under Section 8 of Republic Act No. 7042 as amended.
Foreign Investment Negative List framework
- Section 3 of Republic Act No. 8179 amends Section 8 of Republic Act No. 7042 to create a Foreign Investment Negative List with two (2) component lists: List A and List B.
- List A enumerates areas of activity reserved to Philippine nationals by mandate of the Constitution and specific laws.
- List B contains areas of activities and enterprises regulated pursuant to law, including:
- Defense-related activities requiring prior clearance and authorization from the Department of National Defense (DND), including manufacture, repair, storage and/or distribution of firearms, ammunition, lethal weapons, military ordnance, explosives, pyrotechnics, and similar materials—unless the Secretary of National Defense specifically authorizes manufacturing or repair by a non-Philippine national with a substantial export component; and
- Activities with implications on public health and morals, including manufacture and distribution of dangerous drugs, all forms of gambling, and specified entertainment or related services: nightclubs, bars, beer houses, dance halls, sauna and steam bathhouses, and massage clinics.
- Small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent of Two hundred thousand US dollars (US$200,000) are reserved to Philippine nationals, but the reservation is modified by two exceptions:
- If the enterprises involve advanced technology as determined by the Department of Science and Technology, then non-Philippine nationals are allowed a minimum paid-in capital of One hundred thousand US dollars (US$100,000).
- If the enterprises employ at least fifty (50) direct employees, then non-Philippine nationals are allowed a minimum paid-in capital of One hundred thousand US dollars (US$100,000).
- Amendments to List B are made through recommendation and approval rules:
- Amendments to List B may be made upon recommendation of the Secretary of National Defense or the Secretary of Health, or the Secretary of Education, Culture and Sports with indorsement by the NEDA, or upon motu proprio recommendation of NEDA, approved by the President, and promulgated by a Presidential Proclamation.
- The Transitory Foreign Investment Negative List established in Section 15 of Republic Act No. 7042 is replaced at the end of the transitory period by the first Regular Negative List formulated and recommended by NEDA using the criteria and process in Sections 8 and 9 of Republic Act No. 7042.
- The first Regular Negative List must be published not later than sixty (60) days before the end of the transitory period and becomes immediately effective at the end of the transitory period.
- Subsequent Foreign Investment Negative Lists become effective fifteen (15) days after publication in a newspaper of general circulation in the Philippines.
- Each Foreign Investment Negative List operates prospectively and does not affect foreign investment existing on the date of its publication.
- Amendments to List B after promulgation and publication of the first Regular Foreign Investment Negative List at the end of the transitory period cannot be made more often than once every two (2) years.
Investment rights: former natural-born Filipinos
- Section 4 inserts Section 9 into Republic Act No. 7042 and grants former natural born citizens of the Philippines the same investment rights as Philippine citizens in:
- Cooperatives under Republic Act No. 6938;
- Rural Banks under Republic Act No. 7353;
- Thrift Banks and Private Development Banks under Republic Act No. 7906; and
- Financing Companies under Republic Act No. 5980.
- The rights for former natural-born Filipinos do not extend to activities reserved by the Constitution, including:
- The exercise of profession;
- Defense-related activities under Section 8(b) of Republic Act No. 7042, unless specifically authorized by the Secretary of National Defense; and
- Activities covered by Republic Act No. 1180 (Retail Trade Act), Republic Act No. 5487 (Security Agency Act), Republic Act No. 7076 (Small Scale Mining Act), Republic Act No. 3018 as amended (Rice and Corn Industry Act), and P.D. 449 (Cockpits Operation and Management).
Land acquisition rights: natural-born citizens
- Section 5 inserts Section 10 into Republic Act No. 7042 and permits a natural born citizen who has lost Philippine citizenship and has the legal capacity to enter into a contract under Philippine laws to be a transferee of private land up to specified maximum areas.
- The maximum land areas are five thousand (5,000) square meters for urban land or three (3) hectares for rural land to be used by the transferee for business or other purposes.
- For married couples, one spouse may avail of the privilege, and if both avail of the privilege, their total acquired area must not exceed the maximum areas fixed.
- If the transferee already owns urban or rural land for business or other purposes, the transferee remains entitled to acquire additional urban or rural land so long as the combined total area does not exceed the applicable maximum areas.
- A transferee under this section may acquire not more than two (2) lots, each situated in different municipalities or cities anywhere in the Philippines.
- The total land area across those lots must not exceed five thousand (5,000) square meters for urban land or three (3) hectares for rural land for use by the transferee for business or other purposes.
- A transferee who has already acquired urban land is disqualified from acquiring rural land, and a transferee who has already acquired rural land is disqualified from acquiring urban land.
Information campaign and implementing rules
- Section 6 requires the National Economic and Development Authority (NEDA), in consultation with the Board of Investments, the Department of Trade and Industry, and the Securities and Exchange Commission, to prepare and issue a primer and other information campaign materials regarding the Foreign Investments Act and the amendments introduced.
- Section 6 requires copies of the materials to be furnished to all Philippine embassies, consulates, and other diplomatic offices abroad, and disseminated to Filipino nationals, former natural-born Filipino citizens, and foreign investors within sixty (60) days after effectivity.
- Section 7 directs NEDA to make the necessary amendments to the implementing rules and regulations of Republic Act No. 7042 to reflect the changes embodied in Republic Act No. 8179.
Repeals, separability, and inconsistency clause
- Section 8 repeals or modifies Sections 9 and 10 of Republic Act No. 7042 and all references thereto in that law accordingly, and repeals or modifies all laws, rules, and regulations, or parts thereof, inconsistent with Republic Act No. 8179.
- Section 9 establishes a separability rule stating that if any part or section of Republic Act No. 8179 is declared unconstitutional for any reason, the declaration does not affect the other parts or sections.