Policy purpose and liberalization mandate
- The State’s policy is to promote consumer welfare by attracting and welcoming productive investments that bring down prices, create more jobs, promote tourism, assist small manufacturers, stimulate economic growth, and make Philippine goods and services globally competitive through liberalization of retail trade (Section 2).
- Section 2 liberalizes the Philippine retail industry to encourage Filipino and foreign investors to build an efficient and competitive retail trade sector.
- The liberalization is intended to empower the Filipino consumer through lower prices, higher quality goods, better services, and wider choices (Section 2).
Core definitions and retail trade scope
- “Retail Trade” means any act, occupation, or calling of habitually selling direct to the general public merchandise, commodities, or goods for consumption (Section 3).
- The retail restrictions in this Act do not apply to manufacturer/processor/laborer/worker sales to the general public of the products he produces if his capital **does not exceed One hundred thousand pesos (P100,000) (Section 3).
- Section 3 excludes from the law’s retail restrictions sales by a farmer or agriculturist selling the products of his farm.
- Section 3 excludes from the retail restrictions restaurant operations by a hotel owner or inn-keeper, irrespective of capital, provided the restaurant is incidental to the hotel business.
- Section 3 excludes sales limited only to products manufactured, processed, or assembled by a manufacturer through a single outlet, irrespective of capitalization.
- “High-end or luxury goods” means goods not necessary for life maintenance with demand generated largely by higher income groups, including (but not limited to) jewelry, branded or designer clothing and footwear, wearing apparel, leisure and sporting goods, electronics, and other personal effects (Section 3).
Citizenship and eligibility rules
- A natural-born citizen who has lost Philippine citizenship but resides in the Philippines must be granted the same rights as Filipino citizens for purposes of this Act (Section 4).
- Foreign retail participation is governed through foreign equity participation categories for retail enterprises organized under Philippine law (Section 5).
Foreign equity participation categories (ownership limits)
- Foreign-owned partnerships, associations, and corporations formed under Philippine law may engage in or invest in retail trade only upon registration with the Securities and Exchange Commission (SEC) and the Department of Trade and Industry (DTI); foreign-owned single proprietorships register with DTI (Section 5).
- Category A: Enterprises with paid-up capital less than the equivalent of US$2,500,000 must be reserved exclusively for Filipino citizens and corporations wholly owned by Filipino citizens (Section 5).
- Category B: Enterprises with paid-up capital at least US$2,500,000 but less than US$7,500,000 may be wholly owned by foreigners, except that for the first two (2) years after effectivity, foreign participation is limited to not more than sixty percent (60%) of total equity (Section 5).
- Category C: Enterprises with paid-up capital of US$7,500,000 or more may be wholly owned by foreigners (Section 5).
- For Categories B and C, investments for establishing a store must not be less than the equivalent in Philippine pesos of US$830,000 (Section 5).
- Foreign investors must maintain in the Philippines the full amount of the prescribed minimum capital unless they notify the SEC and DTI of intention to repatriate capital and cease operations in the Philippines (Section 5).
- The SEC monitors the actual use in Philippine operations of the inwardly remitted minimum capital requirement (Section 5).
- Failure to maintain the full amount of prescribed minimum capital before notification to the SEC and DTI subjects the foreign investor to penalties or restrictions on future trading activities/business in the Philippines (Section 5).
- Foreign retail stores must secure a certification from the Bangko Sentral ng Pilipinas (BSP) and the DTI verifying inward remittance of the minimum required capital investment (Section 5).
- Category D: Enterprises specializing in high-end or luxury products with paid-up capital of the equivalent of US$250,000 per store may be wholly owned by foreigners (Section 5).
Acquisition of local retail shares by foreigners
- Foreign investors acquiring shares from existing retail stores—whether or not publicly listed—may do so only when the stores’ net worth exceeds the peso equivalent of US$2,500,000 (Section 6).
- Within the first two (2) years from effectivity, foreign investors may purchase up to a maximum of sixty percent (60%) of the equity of such stores (Section 6).
- After the first two (2) years, foreign investors may acquire the remaining equity percentage consistent with allowable foreign participation under the Act’s equity categories (Section 6).
Public offering requirement for high foreign ownership
- Retail trade enterprises under Categories B and C where foreign ownership exceeds eighty percent (80%) must offer a minimum of thirty percent (30%) of equity to the public through any stock exchange in the Philippines (Section 7).
- The public offering must be done within eight (8) years from their start of operations (Section 7).
Qualifications for foreign retailers (eligibility)
- No foreign retailer may engage in retail trade in the Philippines unless it meets all required qualifications (Section 8).
- For Categories B and C, the parent corporation must have at least US$200,000,000 net worth; for Category D, the parent must have at least US$50,000,000 net worth (Section 8).
- The foreign retailer must have five (5) retailing branches or franchises in operation anywhere around the world, unless it has at least one (1) store capitalized at a minimum of US$25,000,000 (Section 8).
- The foreign retailer must have a five (5)-year track record in retailing (Section 8).
- Only nationals from, or juridical entities formed or incorporated in, countries that allow the entry of Filipino retailers may engage in retail trade in the Philippines (Section 8).
- The DTI is authorized to pre-qualify foreign retailers, subject to the Act’s provisions, before they may conduct business in the Philippines (Section 8).
- The DTI must keep a record of qualified foreign retailers who may, upon compliance with law, establish retail stores in the Philippines (Section 8).
- DTI must ensure the foreign investor’s parent retail trading company complies with the capitalization and track record requirements under Section 8 (Section 8).
- The Inter-Agency Committee on Tariff and Related Matters of the National Economic and Development Authority (NEDA) Board must formulate and regularly update a list of foreign retailers of high-end or luxury goods and render an annual report to Congress (Section 8).
Locally manufactured product promotion quota
- For ten (10) years after the Act’s effectivity, foreign retailers in Categories B and C must make available in the Philippines at least thirty percent (30%) of the aggregate cost of the stock inventory (Section 9).
- For the same ten (10) year period, foreign retailers in Category D must make available in the Philippines at least ten percent (10%) of the aggregate cost of the stock inventory (Section 9).
Prohibited activities for qualified foreign retailers
- Qualified foreign retailers may not engage in certain retailing activities outside their accredited stores using mobile or rolling stores or carts, using sales representatives, door-to-door selling, operating restaurants and sari-sari stores, or other similar retailing activities (Section 10).
- DTI must formulate a detailed list of prohibited activities to be applied thereafter (Section 10).
Administration, implementation rules, and monitoring
- Monitoring and regulation of foreign sole proprietorships, partnerships, associations, or corporations allowed to engage in retail trade is the responsibility of the DTI, including resolution of conflicts (Section 11).
- The DTI, in coordination with the SEC, NEDA, and BSP, must formulate and issue the implementing rules and regulations needed to implement the Act within ninety (90) days after approval (Section 11).
Criminal penalties and consequences
- Any person who violates any provision of the Act is punished by imprisonment of not less than six (6) years and one (1) day but not more than eight (8) years, and by a fine of not less than One million pesos (P1,000,000) but not more than Twenty million pesos (P20,000,000) (Section 12).
- For associations, partnerships, or corporations, the penalty is imposed upon its partners, president, directors, managers, and other officers responsible for the violation (Section 12).
- If the offender is not a citizen of the Philippines, the offender must be deported immediately after service of sentence (Section 12).
- If the offender is a Filipino public officer or employee, the officer or employee suffers dismissal and permanent disqualification from public office in addition to the prescribed penalty (Section 12).
Repeal, separability, and effectiveness
- Republic Act No. 1180, as amended, is repealed (Section 13).
- Republic Act No. 3018, as amended, and all other laws, executive orders, rules and regulations, or parts thereof inconsistent with the Act are repealed or modified accordingly (Section 13).
- If any provision of the Act is held unconstitutional, the remaining provisions continue in force and effect (Section 14).