NEDA IRR of RA 7042 as amended by RA 8179

Purpose and coverage rules

The Act (as implemented by these rules) covers restrictions pertaining to foreign equity participation only (Rule III, Section 1).
All other regulations governing foreign investments remain in force (Rule III, Section 1).
Foreign investment monitoring is assigned to SEC or BTRCP, depending on the applicant (Rule III, Section 2).
The Act covers all investment areas or areas of economic activity except banking and other financial institutions governed and regulated by the General Banking Act and other laws under the supervision of the Central Bank (CB) (Rule II, Section 1).

Core definitions for investors and entities

“Act” refers to Republic Act No. 7042, entitled “An Act to Promote Foreign Investments, Prescribed the Procedures for Registering Enterprises Doing Business in the Philippines, and for other Purposes,” also known as the Foreign Investments Act of 1991, as amended (Rule I, Section 1(a)).
“Philippine national” includes Filipino citizens and qualifying Philippine-owned entities, including corporations with at least sixty percent (60%) Filipino-owned capital stock entitled to vote, with further governance conditions for cases involving SEC-registered enterprises (Rule I, Section 1(b)).
“Foreign corporation” means a corporation formed or existing under laws other than those of the Philippines (Rule I, Section 1(c)).
“Investment” means equity participation in an enterprise organized under Philippine laws, including original and additional investments; ownership of bonds/debentures/notes/evidences of indebtedness does not qualify as investment (Rule I, Section 1(d)).
“Foreign investment” means equity investment by a non-Philippine national; foreign ownership determination includes that peso investments by non-Philippine nationals are considered; repatriation is limited to foreign exchange and/or other assets actually transferred to the Philippines and duly registered with the Central Bank, and profits derived therefrom (Rule I, Section 1(e)).
“Doing Business” includes specified continuing commercial activities and management/control participation, and includes a list of acts not deemed “doing business” for the Philippines (Rule I, Section 1(f)).
“Export enterprise” is an enterprise exporting sixty percent (60%) or more of output (manufacturing/processing/service including tourism) or a trader whose purchases exported are sixty percent (60%) or more (Rule I, Section 1(g)).
“Exports” covers export volume or Philippine port F.O.B. peso value using enumerated commercial documents, including constructive export situations for specified sales without actual exportation; sales for household/personal use to Filipinos abroad and certain overseas Filipinos under an internal export program paid in convertible foreign currency inwardly remitted through the Philippine banking system are also considered exports (Rule I, Section 1(h)).
“Export ratio” is computed differently depending on whether the export enterprise is manufacturing/processing, service-oriented, or merchandise trading, including the relevant enumerated bases and foreign-currency/peso-funded documentation rules (Rule I, Section 1(j)).
“Domestic market enterprise” means an enterprise producing for sale or rendering service or otherwise engaging in business in the Philippines (Rule I, Section 1(k)).
“Joint Venture” means two or more entities where at least one must be a Philippine national, combining property/money/efforts/skills/knowledge to carry out a single business enterprise for profit, duly registered with the SEC as a corporation or partnership (Rule I, Section 1(l)).
“Substantial Partner” means an individual or firm owning enough shares for at least one (1) seat on the board (or any partner in a partnership) (Rule I, Section 1(m)).
“Dangerous Drugs” follows the classifications under Republic Act No. 6425 as prohibited or regulated drugs (Rule I, Section 1(n)).
“Advanced Technology” is technology at a higher degree than what is domestically available and needed for development of certain industries, introduced through foreign investment and linked to appropriateness and adaptability for eventual transfer and applicability (Rule I, Section 1(o)).
“Paid-in Equity Capital” means total paid-in investment in a business in corporation/partnership/proprietorship, whether in cash or property; also includes inward remittance or assigned capital for foreign corporations (Rule I, Section 1(p)).
“Foreign Investment Negative List (FINL)” is the list of activities where foreign ownership is limited to a maximum of forty percent (40%) for corporations and to a specified “capital” limit for partnerships (Rule I, Section 1(q)).
“NEDA Board” refers to the body constituted under Executive Order No. 230, and “NEDA” refers to the NEDA Secretariat constituted under Executive Order No. 230 (Rule I, Section 1(r)-(s)).
“SEC” means the Securities and Exchange Commission; “BTRCP” means the Bureau of Trade Regulation and Consumer Protection as represented by provincial offices of DTI; “BOI” means the Board of Investments; and “Technology Transfer Board” refers to the Bureau of Patents, Trademarks and Technology Transfer (Rule I, Section 1(t)-(w)).
“Former natural born Filipinos” covers former citizens who lost Philippine citizenship and meet stated birthplace/election categories (Rule I, Section 1(x)).
“Transferee of private land” refers to a person to whom private land ownership rights are transferred through voluntary or involuntary sale, devise or donation; involuntary sales include tax delinquency sales, foreclosures, and executions (Rule I, Section 1(y)).
“Direct employees” are Filipino personnel hired under control and supervision of the applicant investor/employer in production/services; excludes personnel hired as casual/seasonal/learner/apprentice and employees of subcontractors and fixed-term employees (Rule I, Section 1(z)).
“Start of commercial operations” means the date the enterprise begins commercial production/commercial harvest for agriculture, begins catering/servicing clients on a commercial basis for services, or makes the initial export shipment in commercial quantity for export traders or initial service performance for service exporters, supported by appropriate documents (Rule I, Section 1(aa)).

Non-Philippine national registration process

Non-Philippine nationals may do business or invest in a domestic enterprise up to one hundred percent (100%) of capital provided the investment is in (1) domestic market enterprises in areas outside the FINL, or (2) export enterprises whose products/services do not fall within Lists A and B of the FINL, except defense-related activities may be approved pursuant to Section 8(b)(1) of the Act (Rule IV, Section 1(a)).
Non-Philippine nationals engaging in more than one investment area where one or more is in the FINL may be registered under the Act, but they are not allowed to engage in the investment areas in the FINL (Rule IV, Section 1(b)).
For existing enterprises that are non-Philippine nationals at the Act’s effectivity and intend to increase foreign equity participation beyond previously authorized by the SEC, increases are governed by the Rule IV, Section 1(a) qualifications; increases are allowed only if the existing investment area is not in the FINL, and for multiple areas only if none is in the FINL (Rule IV, Section 1(c)).
Existing foreign corporations are allowed to increase capital even if their existing investment area is in the FINL (Rule IV, Section 1(c)).
Transfer of ownership from one foreign company to another is allowed even if the enterprise is engaged in an area in the FINL as long as the percentage share of foreign equity is preserved (Rule IV, Section 1(c)).
Applications for registration are filed with the SEC for foreign corporations and non-Philippine-national domestic corporations/partnerships; for single proprietorships for Metro Manila, with BTRCP/DTI-National Capital Region; and in provinces, with SEC extension offices for corporations/partnerships and provincial DTI offices for sole proprietorships (Rule IV, Section 2(a)).
Documents are pre-processed to assist investors in completeness; applications are officially accepted only upon submission of complete documents to SEC or BTRCP (Rule IV, Section 2(b)(a)).
Clearance decisions are made by the involved agencies within fifteen (15) working days for DND/PNP clearances for defense-related activities and for DOST for investments involving advanced technology (Rule IV, Section 2(b)(a)).
The SEC or BTRCP must act within fifteen (15) working days from official acceptance; otherwise the application is automatically approved if not acted upon within the period for a cause not attributable to the applicant (Rule IV, Section 2(c)).
The SEC issues a Certificate of Registration for domestic corporations/partnerships or the license to do business for foreign corporations after fulfillment of SEC requirements and favorable evaluation; disapproval must be communicated in writing with reasons (Rule IV, Section 3(d)).
A reasonable application fee determined by the SEC is collected for each applicant; a similar “reasonable application fee” determined by the BTRCP is collected for each applicant in BTRCP registration (Rule IV, Sections 3(c) and 4(c)).

Registration requirements and special documents

For a new domestic corporation or partnership, SEC submission includes: Articles of Incorporation/Partnership; Name Verification Slip; Bank Certificate of Deposit; ACR/ICR, SIRV (Special Investors Resident Visa), Visa #13 of alien subscribers; and Proof of Inward Remittance for non-resident aliens (Rule IV, Section 3(a)(a)(1)).
For a foreign corporation, SEC submission includes: Name verification slip; a certified board resolution authorizing establishment in the Philippines, designating a resident agent for service of summons/legal processes on behalf of the foreign corporation, and stipulating SEC’s receipt of summons/processs as if made at home office in absence of the agent/cessation of business; financial statements for the immediately preceding year certified by an independent CPA of the home country; certified copies of Articles of Incorporation/Partnership with English translation if in a foreign language; and proof of inward remittance (bank certificate of inward remittance or credit advices) (Rule IV, Section 3(a)(a)(2)).
For a foreign representative office, the amount remitted initially must be at least US$30,000 (Rule IV, Section 3(a)(a)(2)).
Documents executed abroad must be authenticated by the Philippine Embassy or Consular Office (Rule IV, Section 3(a)(a)(2) and Rule IV, Section 4(a)).
If paid-in equity/capital is in kind, additional requirements must be submitted to SEC under existing rules and regulations (Rule IV, Section 3(a)(a)(2)).
For enterprises wishing to engage in defense-related activities, the investor must submit clearance from DND or PNP (Rule IV, Section 3(b)(a)(1)).
For small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent of US$200,000 but not less than the equivalent of US$100,000, a DOST certificate that the investment involves advanced technology is required, or a DOLE Regional Office certificate that the enterprise has issued an undertaking to employ at least 50 direct employees is required (Rule IV, Section 3(b)(a)(2)).
DOLE through Regional Offices validates and monitors compliance with the 50 direct employees undertaking within six (6) months from the start of commercial operations; non-satisfaction is reported to SEC, which causes the investor to satisfy the appropriate higher investment requirement, with penalty for failure to satisfy the undertaking (Rule IV, Section 3(b)(a)(2)).
For former natural born Filipinos seeking to engage in investment areas allowed to them, SEC requires: specified birth certificate proof (local civil registrar/NSO certification or foreign birth certificate showing Filipino parenthood/citizenship and/or proof of not having lost citizenship); additional documentation for those born before 17 January 1973 of Filipino mothers including sworn election statement, oath of allegiance and identification certificate issued by the Bureau of Immigration; and, where birth record is lost/destroyed or not registered, specified replacement and affidavits by two (2) disinterested persons (Rule IV, Section 3(b)(a)(3)).
For BTRCP registration of sole proprietorships, BTRCP Form No. 17 and accompanying documents must be submitted, with foreign documents authenticated through the Philippine Embassy/Consular Office (Rule IV, Section 4(a)).

Joint venture transitory registration option

During the transitory period, a non-Philippine national applicant with an investment in an existing joint venture where the applicant or majority shareholder is a substantial partner may be registered in the same line of business proposed for domestic market activities if Filipino partners representing the majority of Filipino equity certify under oath that they are not capable and willing to make the needed investment (Rule IV, Section 5(a)).
If Filipino partners are willing and able to make the needed investment, SEC shall not register the applicant; the joint venture partners may agree on expansion instead, and the partners must place the balance of agreed investment shares within six (6) months from the date of agreement (Rule IV, Section 5(b)).
Filipino partners are not compelled to make additional investment for proposed expansion if it results in a higher Filipino equity share (Rule IV, Section 5(b)).
If Filipino partners fail to infuse capital within six (6) months, SEC or BTRCP allows registration of the non-Philippine national applicant as a separate enterprise under the Act (Rule IV, Section 5(b)).

Central Bank registration for remittances

Enterprises seeking to remit foreign exchange abroad for remittance of profits and dividends and capital repatriation, in connection with foreign investments under the Act, are deemed registered with the Central Bank after SEC or BTRCP registration.
Central Bank registration requires observance of CB rules and regulations for procedures covering registration of foreign investments (Rule V, Section 1).

Export enterprise foreign investment and reporting

Foreign equity participation in export enterprises is allowed up to one hundred percent (100%) if the products and services do not fall within Lists A and B of the FINL (Rule VI, Section 1).
Export enterprises are deemed registered with the BOI upon registration with the SEC or BTRCP (Rule VI, Section 2(a)).
If export enterprises seek incentives under EO 226, they must apply for registration with BOI and comply with EO 226 rules and regulations (Rule VI, Section 2(b)).
Within ten (10) working days from issuance of the certificate of registration, SEC or BTRCP must transmit to BOI copies of the Certificate of Registration and the accomplished application form (Rule VI, Section 2(c)).
Export enterprises must submit a duly accomplished form to BOI within six (6) months after the end of each taxable year (Rule VI, Section 3(a)).
Failure to submit required reports within the prescribed period, including fraudulent reports, authorizes SEC or BTRCP to impose appropriate sanctions under Rule XVII, Section 1 (Rule VI, Section 3(a)).
BOI determines compliance with the export requirement upon receipt of reports (Rule VI, Section 4(a)).
If the enterprise fails to comply with the export requirement, BOI advises SEC or BTRCP, and SEC or BTRCP orders the firm to immediately increase its export to at least sixty percent (60%) of total sales (Rule VI, Section 4(a)).
If the enterprise fails to comply with the SEC or BTRCP order without justifiable reason, the enterprise is penalized under Rule XVIII, Section 1; BOI, in consultation with SEC and BTRCP, issues guidelines (Rule VI, Section 4(a)).

Domestic market enterprises: status change

Foreign equity participation in domestic market enterprises is allowed up to one hundred percent (100%) unless prohibited or limited by existing laws or the FINL (Rule VII, Section 1).
A domestic market enterprise may change its status to an export enterprise at any time by notifying SEC or BTRCP (Rule VII, Section 2(a)).
The export-status change application must follow Rule VI, Section 2, and must be supported by relevant reports evidencing that the enterprise has exported sixty percent (60%) or more of its output (Rule VII, Section 2(a)).
The new export enterprise becomes subject to export reportorial requirements and monitoring for compliance with export requirements under Rule VI, Sections 3 and 4 (Rule VII, Section 2(a)).

Regular Foreign Investment Negative List (FINL)

The Regular FINL has two component lists, List A and List B, which reserve areas of economic activities to Philippine nationals (Rule VIII, Section 1).
NEDA formulates the Regular FINL following processes and criteria under Section 8 of the Act and Rules IX and X (Rule VIII, Section 2).
NEDA submits the proposed Regular FINL to the President for approval and promulgation.
NEDA submits the first Regular FINL and subsequent proposed Regular FINLs to the President at least forty five (45) days before the scheduled date of publication (Rule VIII, Section 3).
The first Regular FINL is published not later than sixty (60) days before the end of the transitory period; subsequent Negative Lists are published not later than fifteen (15) days before the end of the effectivity of the current Negative List (Rule VIII, Section 4(a)).
The first Regular FINL becomes effective immediately at the end of the transitory period.
Subsequent Regular FINLs become effective fifteen (15) days after publication in a newspaper of general circulation in the Philippines.
Each Regular FINL remains in force for two (2) years from its effectivity except for List A (Rule VIII, Section 5(a)).
Each Regular FINL applies only to new foreign investments and does not affect existing foreign investments at the time of its publication (Rule VIII, Section 6).

FINL List A and List B rules

List A consists of areas reserved to Philippine nationals where foreign equity participation in any domestic or export enterprise engaged in activities listed therein is limited to a maximum of forty percent (40%) under the Constitution and specific laws (Rule IX, Section 1(a)).
NEDA enumerates activities reserved to Philippine nationals by the Constitution and other specific laws (Rule IX, Section 1(b)).
Amendments to List A may be made by NEDA anytime to reflect changes made by law regarding foreign equity limits in specific areas (Rule IX, Section 2(a)).
List B consists of: activities where foreign ownership is limited requiring prior clearance and authorization from DND or PNP to engage in specified weapons/explosives/pyrotechnics manufacturing, repair, storage and/or distribution, subject to an export-output authorization arrangement; activities with negative implications on public health and morals including manufacture and distribution of dangerous drugs and certain forms of gambling and related services; and small and medium-sized domestic market enterprises with paid-in equity capital less than US$200,000 (or equivalent), with an exception allowing a minimum paid-in capital of US$100,000 for SMEs involving advanced technology or with an undertaking to employ at least fifty (50) direct employees (Rule X, Section 1(a)-(c)).
For List B (a) and (b), determination is based on recommendations of DND/PNP or relevant agencies, endorsed by NEDA or on NEDA’s recommendation motu proprio, and approved and promulgated by the President; List B is submitted for Presidential action together with List A (Rule X, Section 2(a)).
Enterprises covered by List B (c) are automatically reserved to Philippine nationals (Rule X, Section 2(b)).
Amendments to List B are made only after two (2) years, based on similar recommendations/endorsements, and are approved and promulgated by the President, submitted together with List A (Rule X, Section 3(a)).

Investment rights: former natural born Filipinos

Former natural born citizens of the Philippines have the same investment rights as Philippine citizens in cooperatives under RA 6938, rural banks under RA 7353, thrift banks and private development banks under RA 7906, financing companies under RA 5980, and activities listed under List B, including defense-related activities if specifically authorized by the Secretary of National Defense (Rule XI, Section 1).

Private land ownership: area limits and use

A natural born citizen who has lost Philippine citizenship and has legal capacity to enter contracts under Philippine laws may be a transferee of private land up to 5,000 square meters for urban land or three (3) hectares for rural land to be used for business or other purposes (Rule XII, Section 1).
If both spouses qualify, one of them may avail of the privilege; if both avail, the total area acquired must not exceed the maximum limits (Rule XII, Section 2).
A transferee who already owns urban or rural land for business or other purposes may acquire additional urban or rural land so long as total land owned remains within the maximum areas allowed (Rule XII, Section 3).
A transferee may acquire not more than two (2) lots located in different municipalities or cities anywhere in the Philippines, with total area limits remaining within 5,000 square meters (urban) or three (3) hectares (rural).
A transferee who already acquired urban land is disqualified from acquiring rural land and vice versa; however, if the transferee disposed of urban land, the transferee may acquire rural land and vice versa, provided it is used for business or other purposes (Rule XII, Section 4).
Land acquired under the Act must be primarily, directly and actually used by the transferee for business or commercial activities in agriculture, industry and services, including leasing, but excluding buying and selling.
The transferee must use land to engage in activities not included in the Negative List or in areas where investment rights were granted under the Act (Rule XII, Section 5).
Register of Deeds must register the land in the transferee’s name using a process involving certification of business registration issued by BTRCP/DTI and an affidavit that the land will be used for business purposes (Rule XII, Section 6(a)).
BP 185 and its implementing rules and regulations are adopted where applicable through a Circular to be issued by the Land Registration Authority, and Register of Deeds must ensure legal limits are observed (Rule XII, Section 6(b)-(c)).

Transitory periods and FINL transition

Prior to effectivity of these implementing rules, Book II of EO 226 and its implementing rules govern registration of foreign investments without incentives (Rule XIII, Section 1).
A transitory period of thirty-six (36) months runs after issuance of these implementing rules to implement the Act (Rule XIII, Section 2).
During the transitory period, the Transitory FINL under Rule XIV, Section 1 takes effect (Rule XIII, Section 3).
The Transitory FINL includes Lists A, B, and C, with List A consisting of constitutional and specific-law foreign ownership-limited areas.
Transitory List B includes: specified firearms/ammunition/armored vests/lethal weapons/military ordinance/explosives/pyrotechnics activities subject to DND/PNP licensing and continuing regulation, with possible specific authorization by DND or PNP to non-Philippine nationals for a substantial export percentage; activities regulated due to public health and morals including dangerous drugs and specified gambling/sauna/steam/massage clinics; SMEs with paid-in equity capital less than the equivalent of US$500,000 unless advanced technology as determined by DOST; and export enterprises utilizing raw materials from depleting natural resources with paid-in equity capital less than the equivalent of US$500,000 (Rule XIV, Section 1(b)).
Transitory List C includes: import and wholesale not integrated with production/manufacture; services requiring a license/specific authorization and continuing regulation by national government agencies other than BOI and SEC, where these were restricted to Philippine nationals under existing administrative regulations and practice, with a prohibition on later administrative expansion of nationality restrictions beyond effectivity unless through legislation or inclusion in the regular Negative List; and certain enterprises majority-owned by non-Philippine nationals with subsisting and operatively in-force technology transfer and/or brand name licensing agreements with Philippine nationals, where licensing agreements were duly registered with BPTTT and/or CB as of Act effectivity, including specified categories of licensing/know-how/franchise agreements, and an expired-licensing deemed operatively in force rule (Rule XIV, Section 1(c)).
NEDA enumerates areas covered in the Transitory FINL in consultation with relevant agencies; the Transitory FINL is published in full at the same time as, or prior to, publication of these implementing rules; Transitory List C areas are reserved to Philippine nationals during the transitory period, and later inclusion into the regular Negative List requires NEDA determination using List C formulation procedures and criteria (Rule XIV, Sections 1 and 2).

Options for BOI-registered enterprises under transition

Existing enterprises with certificates of authority under Book II of EO 226, Book II of PD 1789, and RA 5455, and with activities included in the Transitory FINL or subsequent Negative List, may continue the same activities under the same terms and conditions in their certificates of registration (Rule XV, Section 1).
Enterprises previously authorized under Book II of EO 226, Book II of PD 1789, and RA 5455 whose activities are not in the Transitory FINL or subsequent Negative Lists may opt to be governed by the Act; upon opting and surrender of certificates of authority to BOI, they are considered automatically registered with SEC, and SEC issues a new certificate of authority upon advice of BOI (Rule XV, Section 1).
Existing enterprises with more than forty percent (40%) foreign equity that availed incentives under BOI investment incentives laws may opt to be governed by the Act.
In that case, these enterprises surrender certificates of registration, and this is deemed an express waiver of the privilege