RA 11595: FURTHER EASING THE WAY FOR FOREIGN RETAIL ENTERPRISES IN THE PHILIPPINES

01 February 2022

Republic Act No. 11595 (“RA 11595”), entitled “An Act Amending Republic Act No. 8762, otherwise known as the Retail Trade Liberalization Act of 2000 (RTLA), by lowering the paid-up capital requirement for foreign retail enterprises and other purposes” was signed into law by Philippine President Rodrigo Duterte on 10 December 2021. It became effective on 21 January 2022 after its publication in the Official Gazette on 6 January 2022.

RA 11595 aims to further simplify and ease the requirements for entry and continuance of foreign retail shops or enterprises in the Philippines. The Act is passed into law at a time when the Philippine economy is affected by the global COVID-19 pandemic. The Philippine Department of Finance considers it important for bringing investment and creating more jobs within the Philippines especially needed for the country’s recovery “from the pandemic-induced global health and financial crises”.

Simplified Requirements

A salient feature of the Act is the reduction of the requirements for foreigners to engage in the retail business in the Philippines.

Previously, under RTLA, the pre-qualification capital for retail enterprises is classified into four (4) categories. Under Category A, retailers with minimum paid up capital of US$ 25 Million are exclusive to Filipinos. Under Categories B and C, foreigners may wholly own retail enterprises provided they have a minimum paid-up capital of US$ 2.5 Million. And under Category D, foreign enterprises specializing in high-end or luxury products must have at least a paid-up capital of US$ 7.5 Million.

RA 11595 removed the categories, and instead set a single minimum paid-up capital and a minimum investment per store amount, and retained the reciprocity condition.

Currently, the requirements are as follows:

a) the foreign retailer shall have a minimum paid-up capital of PhP 25 million, which must be maintained at all times;

b) the foreign retailer’s country of origin does not prohibit the entry of Filipino retailers; and

c) if the foreign retailers is engaged in retail trade through more than one (1) physical store, the minimum investment per store must be at least PhP 10 million; provide that this will not apply to foreign investors and retailers who are legitimately engaged in retail trade and were not required to comply with the minimum investment per store at the time of effectivity of RA 11595.

“Minimum investment per store” includes the value of the gross assets, tangible or intangible, including but not limited to buildings, leaseholds, furniture, equipment, inventory, and common use investments and facilities.

The minimum paid-up capital shall be reviewed every three (3) years from the effectivity date of RA 11595 by the DTI, SEC and NEDA, and each will report its recommendation to the Congress.

With the requirements simplified, a Certificate of Prequalification from the Board of Investments is no longer needed.

Removal of Requirement of Public Offering of Shares

Foreign retailers are no longer required to offer their shares to the public. RA 11595 deleted the requirement that all foreign retailers with minimum paid-up capital of US$2.5 Million (under Categories B and C) with ownership of more than 80% of equity shall offer a minimum of 30% of their equity to the public through any stock exchange in the Philippine within eight (8) years from their start of operations.

Preferential Use of Filipino Labor and Products 

On the matter of labor, RA 11595 promotes the preferential use of Filipino labor by now categorically requiring that employment of foreign nationals by foreign retailers shall comply with the Philippine Labor Code on the determination of non-availability of a competent, able and willing Filipino citizen before engaging the services of a foreign national.

RA 11595 also encourages foreign retailers to have stock inventory of products made in the Philippines.

Retention of Prohibition on Certain Retailing Activities

RA 11595 retained the prohibition on foreign retailers to engage in certain retailing activities outside their accredited stores through the use of mobile or rolling stores or carts, the use of sales representatives, door-to-door selling, restaurants and sari-sari stores and such other similar retailing activities.

Clarified Responsibilities by Government Agencies

RA 11595 clarified that the SEC shall be responsible for the monitoring and regulation of foreign retailers established as partnerships, associations, and corporations, and the DTI shall be responsible for those that are single proprietorships.

Reduced Penalties

RA 11595 also reduced the penalties for violation of its provisions. Penalty of  imprisonment is currently four (4) years to six (6) years from the previous six (6) years and one (1) day to eight (8) years, and fine is now PhP 1 Million to PhP 5 Million from the previous PhP1 Million to PhP20 Million.

RA 11595 carried over the provision from RTLA on the persons liable for the penalties for violation of the law. For partnerships, associations and corporations, the penalty shall still be imposed upon the partners, president, directors, general manager, and other officers responsible for the violation. In case the offender is a public officer or employee, his/her penalty shall additionally include dismissal and permanent disqualification from public office. If the offender is not a Filipino citizen, he/she will be deported immediately after the service of sentence.

As of date, the implementing rules and regulations of RA 11595 are yet to be crafted and issued by the DTI, in coordination with the SEC.

RA 11595 continues to allow foreigners the right to property and privilege to engage in retail businesses within the Philippines with further eased conditions, while it carries on the State policy under RTLA to promote the Filipinos’ consumer welfare, stimulate economic growth and enable Philippine goods and services to become globally competitive. It is therefore important for foreign retailers to know the new requirements to exercise such right and privilege granted to them, the related changes in the procedures that the responsible government agencies will implement, as well as the effects on their existing government certifications and/or contracts, if any.

At present, the amendments by RA 11595 seem to take into account the realities of the current times and bring about an opportunity for both the Filipinos and foreign retailers to recover and rebuild together.

This article is for general information only and is not intended nor should be construed as a substitute for legal advice on any specific matter. A professional legal advice is still necessary to an actual or particular issue.

 

References:

An Act Amending Republic Act No. 8762, otherwise known as the Retail Trade Liberalization Act of 2000 (RTLA), Republic Act No. 11595 (signed into law on 10 December 2021). A Copy of the law is available at https://mirror.officialgazette.gov.ph/2021/12/10/republic-act-no-11595/ (Last accessed on 25 January 2022).

An Act Liberalizing the Retail Trade Business, Repealing for the Purpose Republic Act No.1180, As Amended, and for Other Purposes [RETAIL TRADE LIBERALIZATION ACT OF 2000], Republic Act No. 8762 (signed into law on 7 March 2000).

Dominguez thanks President Duterte, Congress for amended Retail Trade Liberalization Act, available athttps://www.dof.gov.ph/dominguez-thanks-president-duterte-congress-for-amended-retail-trade-liberalization-act/ (Last accessed on 25 January 2022).

Representatives Gerardo S. Espina, Orlando Fua, Jr., et. al. vs. Hon. Ronaldo Zamora, Jr. (Executive Secretary), Hon. Mar Roxas (Secretary Of Trade And Industry), et.al., G.R. No. 143855, 21 September 2010.