31 March 2022
It seems the Philippine legislative and executive branches are on a roll in their mission to further attract foreign investments into the country to accelerate recovery of the economy which was drastically affected by the COVID19 pandemic. After the approval in December 2021 of Republic Act No. (“RA”) 11595 which simplified the requirements for foreigners to engage in the retail business in the Philippines, President Rodrigo Duterte signed on 2 March 2022 Republic Act No. 11647 (“RA 11647”), entitled “An Act Promoting Foreign Investments Amending Thereby Republic Act No. 7042, Otherwise Known as the “Foreign Investments Act of 1991,” As Amended, and for Other Purposes.”
RA 11647 amended the Foreign Investments Act of 1991 (“FIA“) after more than 2 decades from the last amendment. The law was posted in the Official Gazette on 4 March 2022, and became effective on 19 March 2022.
RA 11647 is a testament to the Philippine government’s move to further recognize and implement the benefits and opportunities that the country can gain from the increase in international capital, technology and economic cooperation.
The salient amendments by RA 11647 are:
1. Creation of the Inter-Agency Investment Promotion Coordination Committee (“IIPCC”)
The IIPCC has the role of coordinating with other government agencies (such as training agencies) and the local government units, and integrating all the promotional and facilitation efforts to encourage foreign investments to the Philippines. The Department of Trade and Industry (“DTI”), being the agency that handles foreign investors, will lead the IIPC; while its attached agency, the Board of Investment (“BOI”), is designated as the secretariat and will implement the IIPCC’s policies and resolutions.
The IIPCC is also tasked to formulate a 5-year to 10-year comprehensive and strategic plan or the Foreign Investment Promotion and Marketing Plan, in order to, among others, promote the Philippines as a desirable investment, research and development area.
2. Retention of the registration and reporting conditions
RA 11647 retained the condition that any enterprise seeking to avail of incentives under the Omnibus Investment Code of 1987 must apply for registration with the BOI. Foreign export enterprises are also still required to submit reports to the BOI to ensure it continuously meets the export requirement. Failure to meet the export ratio requirement will result to the SEC or DTI ordering the enterprise to reduce its sales to the domestic market to not more than 40% of its total production. If the foreign export enterprise does not comply with the order, its registration may be cancelled and the corresponding penalties under the amended FIA will be imposed.
Notably, the law also expressly provides, perhaps as a reminder, that export enterprises need to register and comply with the export requirements under Title XIII of the National Internal Revenue Code, as amended, (“NIRC”) in order to avail of the tax incentives or benefits. As of date, the NIRC was most recently amended by RA 11534, otherwise known as “CREATE” law, which took effect on 11 April 2021.
3. Addition of instances for enterprises to be allowed to foreign nationals
RA 11647 was also made to complement the latest amendments lowering the minimum paid-up capital requirement under the Retail Trade Act and recognize the exceptions to the reservation of certain enterprises to Philippine nationals.
This seems to be the highlight of RA 11647. Previously, small and medium domestic market enterprises with paid-in capital less than the equivalent of US$200,000.00 are reserved to Philippine nationals. Foreign nationals however were allowed to have a minimum paid-in capital of US$100,000 under 2 conditions, which are: (1) they involve advanced technology as determined by the Department of Science and Technology; or (2) they employ at least 50 direct employees.
Under RA 11647 now, foreign nationals shall be allowed a minimum paid-in capital of $100,000.00 if:
- they involve advanced technology as determined by the Department of Science and Technology; or
- they are endorsed as startup or startup enablers by the lead host agencies pursuant to the “Innovative Startup Act” (RA 11137); or
- a majority of their direct employees are Filipinos, but in no case shall the number of Filipino employees be less than 15.
Registered foreign enterprises employing foreign nationals and enjoying fiscal incentives are further required to implement an understudy or skills development program to ensure there is transfer of technology or skills to Filipinos. The Department of Labor and Employment shall regularly monitor the compliance with this condition.
4. Mandate for review of strategic industries
RA 11647 also added some protective provisions. It requires the National Security Council and the National Economic and Development Authority (“NEDA”) to review, upon the order of the Philippine President, foreign investments involving military-related industries, cyber infrastructure, pipeline transportation and other strategic industries that are (1) made by foreign government-controlled entity or state-owned entity, other than those that are independent pension funds, sovereign wealth funds and multi-national banks; or (2) located in geographical areas critical to national security.
5. Additional penalties for graft and corrupt practices of public officials
RA 11647 imposes additional penalties for public officials and employees, involved in foreign investment promotions, who shall commit any of the corrupt practices enumerated under Section 3 of RA 3019 or the “Anti-Graft and Corrupt Practices Act.” Other than the penalties under Section 9 of RA 3019, which are imprisonment of 6 years and 1 month to 15 years, perpetual disqualification from public office, and confiscation or forfeiture in favor of the Government of any prohibited interest and unexplained wealth, RA 11647 imposes punishment by fine of Php2 Million to PhP5 Million.
6. Scope limitation to certain practice of profession
According to RA 11647, the Foreign Investments Act of the Philippines will continue not to apply to banking and financial institutions governed by RA 8791 or “The General Banking Law of 2000”, and regulated by the Bangko Sentral ng Pilipinas (“BSP”).
In addition, the amended FIA will also not apply to the practice of profession (of registered and duly licensed professional or holder of special temporary permits) covered by special laws and which are regulated by the various Professional Regulatory Boards or equivalent regulating body, or those subject to reciprocity agreements with other states.
It is undeniable that the COVID19 pandemic adversely affected economies around the world, including the Philippines’. Facts gathered by the NEDA show that at the height of the pandemic in 2020 in the Philippines, a number of businesses temporarily closed or permanently ceased operations, unemployment swelled to around 8.7 million Filipinos, and the loss of household wage and income amounted to PhP1.04 Trillion. Based on BSP data, the Philippines’ total external debt has also risen from US$ 83.62 Billion in December 2019 to US$106.43 Billion in December 2021. As such, RA 11647, much like its precursor RA 11595, in further attracting foreign investors, seems to be a move showing the resilience of the country amidst the pandemic. It is surely hoped to not only create more opportunities for the Filipinos but also to ultimately pave the way for the faster economic recovery and continuous growth of the Philippines.
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 Promoting Foreign Investments Amending Thereby Republic Act No. 7042, Otherwise Known as the “Foreign Investments Act of 1991,” As Amended, and for Other Purposes, Republic Act No. 11647 (approved on 2 March 2022).
An Act to Further Liberalize Foreign Investments, Amending for Purpose Republic Act 7042, and for Other Purposes, Republic Act No. 8179 (approved on 28 March 1996).
An Act to Promote Foreign Investments, Prescribe the Procedures for Registering Enterprises Doing Business in the Philippines, and for Other Purposes [FOREIGN INVESTMENTS ACT OF 1991], Republic Act No. 7042 (approved on 13 June 1991).
Anti-Graft and Corrupt Practices Act, Republic Act No. 3019 (approved on 17 August 1960).
An Act Amending the National Internal Revenue Code, As Amended, and for Other Purposes [TAX REFORM ACT OF 1997], Republic Act No. 8424 (as amended by TRAIN, BAYANIHAN 2 and CREATE).
Executive Order No. 166, series of 2022, Adopting the Ten-Point Policy Agenda to Accelerate and Sustain Economic Recovery From the COVID-19 Pandemic, and Directing a Whole-of-government Approach to Align All Economic Recovery Programs and Measures of the National Government (21 March 2022), available at https://pcoo.gov.ph/wp-content/uploads/2022/03/20220321-EO-166-RRD.pdf (last accessed on 29 March 2022).
Bangko Sentral ng Pilipinas, Statistics-External Accounts: Total External Debt (SDDS format), available at https://www.bsp.gov.ph/Statistics/External/sddsextdebt.pdf (last accessed on 29 March 2022).