Legal basis and amendments to RA 7042
- Republic Act No. 8179 amends Republic Act No. 7042, the “Foreign Investments Act of 1991.”
- Section 1 amends Section 3(a) of Republic Act No. 7042 by expanding and refining the definition of “Philippine national.”
- Section 2 amends Section 7(a) of Republic Act No. 7042 by adjusting the rule on foreign ownership in domestic market enterprises.
- Section 3 amends Section 8 of Republic Act No. 7042 by revising the Foreign Investment Negative List framework.
- Section 4 inserts Section 9 into Republic Act No. 7042 on investment rights of former natural-born Filipinos.
- Section 5 inserts Section 10 into Republic Act No. 7042 on other rights of natural-born citizens under Article XII, Section 8 of the Constitution.
- Section 8 repeals or modifies Sections 9 and 10 of Republic Act No. 7042 and all references thereto, in accordance with the new provisions in Republic Act No. 8179.
Core policy: liberalization subject to limits
- Republic Act No. 8179 further liberalizes foreign investments by amending Republic Act No. 7042 (Section 1, Section 2, Section 3).
- Section 2 allows non-Philippine nationals to own up to one hundred percent (100%) of domestic market enterprises, subject to constitutional, legal, and negative list limitations (Section 7(a) as amended).
- Section 3 maintains a structured set of restrictions through the Foreign Investment Negative List, with a process for updates and prospective operation (Section 8).
- Section 4 and Section 5 preserve certain investment privileges tied to natural-born citizenship and former natural-born status while excluding Constitution-reserved activities and specified regulated sectors.
Definitions: “Philippine national”
- Section 1 amends Section 3(a) of Republic Act No. 7042 to define “Philippine national”.
- A Philippine national includes a citizen of the Philippines.
- A Philippine national includes a domestic partnership or association wholly owned by citizens of the Philippines.
- A Philippine national includes a corporation organized under Philippine laws in which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines.
- A Philippine national includes a corporation organized abroad and registered as doing business in the Philippines under the Corporation Code, where one hundred percent (100%) of the capital stock outstanding and entitled to vote 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 will accrue to the benefit of Philippine nationals.
- A corporation is considered a Philippine national only if, when a corporation and its non-Filipino stockholders own stocks in an SEC-registered enterprise, then:
- at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of both corporations is 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 are citizens of the Philippines (Section 1 proviso).
Foreign ownership and negative list
- Section 7(a) as amended provides that non-Philippine nationals may own up to one hundred percent (100%) of domestic market enterprises, unless foreign ownership is prohibited or limited by:
- the Constitution and existing law, or
- the Foreign Investment Negative List under Section 8 (Section 2).
- The Foreign Investment Negative List under Section 8 has two (2) component lists: List A and List B (Section 3).
- List A enumerates areas of activities reserved to Philippine nationals by mandate of the Constitution and specific laws (Section 8(a) as amended).
- List B contains areas regulated pursuant to law, including:
- Defense-related activities requiring prior clearance and authorization from the Department of National Defense (DND) to engage, such as manufacturing, 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 activity with a substantial export component to a non-Philippine national; and
- activities with implications on public health and morals, including manufacture and distribution of dangerous drugs, all forms of gambling, and specified entertainment/operations such as nightclubs, bars, beer houses, dance halls, sauna and steam bathhouses, and massage clinics (Section 8(b)(1) and (2) as amended).
- Small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent of US$200,000 are reserved to Philippine nationals, except that a minimum paid-in capital of US$100,000 shall be allowed to non-Philippine nationals if:
- they involve advanced technology determined by the Department of Science and Technology, or
- they employ at least fifty (50) direct employees (Section 8 as amended).
- Amendments to List B may be made by:
- recommendation of the Secretary of National Defense; or
- recommendation of the Secretary of Health or the Secretary of Education, Culture and Sports, indorsed by the NEDA; or
- recommendation motu proprio of NEDA, approved by the President;
- such amendments are promulgated by Presidential Proclamation (Section 8 as amended).
- 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, following the process and criteria in Sections 8 and 9 of Republic Act No. 7042 (Section 8 as amended).
- The first Regular Negative Lists must be published not later than sixty (60) days before the end of the transitory period, and they become immediately effective at the end of the transitory period (Section 8 as amended).
- Subsequent Foreign Investment Negative Lists become effective fifteen (15) days after publication in a newspaper of general circulation in the Philippines (Section 8 as amended).
- Each Foreign Investment Negative List is prospective in operation and does not affect foreign investment existing on the date of its publication (Section 8 as amended).
- Amendments to List B after promulgation and publication of the first Regular Foreign Investment Negative List at the end of the transitory period may not be made more often than once every two (2) years (Section 8 as amended).
Investment rights: former natural-born Filipinos
- Section 9 provides that former natural-born citizens of the Philippines have the same investment rights of a Philippine citizen 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 (Section 4).
- The investment rights granted under Section 9 do not extend to activities reserved by the Constitution, including:
- (1) the exercise of profession;
- (2) defense-related activities under Section 8(b) unless specifically authorized by the Secretary of National Defense; and
- (3) 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) (Section 4).
Investment rights: lost Philippine citizenship
- Section 10 allows any 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 for business or other purposes (Section 5).
- The transferee may acquire private land up to a maximum area of:
- five thousand (5,000) square meters for urban land, or
- three (3) hectares for rural land (Section 10 first paragraph).
- In the case of married couples, one of them may avail of the privilege; if both avail, the total area acquired must not exceed the maximum fixed for the applicable categories (Section 10 second paragraph).
- 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, provided the combined total does not exceed the maximum areas authorized (Section 10 third paragraph).
- A transferee may acquire not more than two (2) lots, situated in different municipalities or cities anywhere in the Philippines, subject to total land area limits of:
- five thousand (5,000) square meters for urban land, or
- three (3) hectares for rural land (Section 10 fourth paragraph).
- A transferee who already acquired urban land is disqualified from acquiring rural land, and vice versa (Section 10 fifth paragraph).
Information campaign and implementing rules
- Section 6 directs 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 about the Foreign Investments Act and the amendments introduced by Republic Act No. 8179.
- Section 6 requires furnishing copies of the materials to Philippine embassies, consulates and other diplomatic offices abroad and disseminating them to Filipino nationals, former natural-born Filipino citizens, and foreign investors.
- The dissemination and furnishing must be done within sixty (60) days after effectivity (Section 6).
- Section 7 directs NEDA to make the necessary amendments to the implementing rules and regulations of Republic Act No. 7042 to reflect changes embodied in Republic Act No. 8179.
Repeals, separability, and effect
- Section 8 repeals or modifies Sections 9 and 10 of Republic Act No. 7042 and all references thereto, consistent with the new sections inserted by Republic Act No. 8179.
- Section 8 repeals or modifies all other laws, rules and regulations and/or parts thereof inconsistent with Republic Act No. 8179.
- Section 9 provides separability: if any part or section of Republic Act No. 8179 is declared unconstitutional for any reason, the declaration does not affect other parts or sections.
- Section 10 fixes effectivity at fifteen (15) days after publication in two (2) newspapers of general circulation in the Philippines.