Registration Requirement | Republic Act (R.A.) No. 7042, as amended by R.A. Nos. 8179 and 11647 or the Foreign Investments Act | Foreign Corporations | Corporations | BUSINESS ORGANIZATIONS

Foreign Corporations and the Foreign Investments Act (FIA) Registration Requirement Under Philippine Law

I. Overview of the Foreign Investments Act (FIA) in the Philippines

The Foreign Investments Act (FIA) of the Philippines, primarily outlined under Republic Act (R.A.) No. 7042, and amended by R.A. Nos. 8179 and 11647, governs the entry, establishment, and regulation of foreign investments in the Philippines. The Act aims to establish a more liberal investment climate to attract foreign capital while balancing national economic interests and ensuring that strategic sectors remain protected for Filipinos. The FIA defines and regulates the requirements for foreign corporations seeking to conduct business in the Philippines, especially regarding registration requirements for lawful operation.

II. Definition and Scope of Foreign Corporations Under Philippine Law

In Philippine law, foreign corporations are typically classified as corporations incorporated under laws other than the Philippines and are registered with the Securities and Exchange Commission (SEC) for the purpose of operating within the country. Foreign corporations intending to engage in business in the Philippines must meet specific requirements, as stipulated under the FIA, and abide by its provisions to legally operate and benefit from the Philippine market.

III. Key Amendments under R.A. Nos. 8179 and 11647

1. R.A. No. 8179 (1996) – This amendment liberalized the FIA by relaxing foreign equity restrictions and allowing foreign ownership up to 100% in businesses not included in the Foreign Investment Negative List (FINL).

2. R.A. No. 11647 (2022) – This recent amendment further liberalized the law by enhancing certain procedural requirements, reducing the capital requirements for qualified foreign enterprises, and refining the sectors eligible for foreign investment.

IV. Registration Requirement for Foreign Corporations

Foreign corporations wishing to operate in the Philippines must undergo a specific registration process with the Philippine Securities and Exchange Commission (SEC). The FIA mandates this requirement to ensure transparency, enforce compliance, and protect both the domestic economy and foreign investors. The registration process is comprehensive and covers the following aspects:

1. SEC Registration and Licensing

   • The SEC is responsible for registering foreign corporations. Registration is essential to legally authorize the corporation’s activities in the Philippines.
   • Upon registration, foreign corporations are issued a License to Do Business in the Philippines, which permits them to engage in commercial activities, subject to the conditions set forth in the FIA.

2. Minimum Capital Requirements

   • Export-oriented enterprises (i.e., companies exporting 60% or more of their goods/services) may be exempt from stringent capital requirements.
   • For domestic market enterprises, which cater to the local Philippine market, a minimum capital investment of USD 200,000 is required, although R.A. No. 11647 has reduced this requirement to USD 100,000 for foreign enterprises that employ at least 15 Filipino employees.

3. Board of Investments (BOI) Registration

   • Foreign corporations may seek BOI registration if they wish to access investment incentives, such as tax holidays and tax credits, under the Omnibus Investments Code.
   • BOI registration is not mandatory for all foreign corporations but is often sought by entities engaging in preferred business activities to benefit from fiscal and non-fiscal incentives.

4. Compliance with the Foreign Investment Negative List (FINL)

   • The Foreign Investment Negative List (FINL) delineates business areas and activities restricted or limited to foreign investors, either partially or fully.
   • The FINL consists of List A (activities reserved for Filipinos due to constitutional mandates or special laws) and List B (industries with foreign ownership restrictions for national security, defense, health, and moral reasons).
   • Foreign corporations seeking registration with the SEC must ensure that their intended activities do not conflict with the FINL to avoid legal and regulatory complications.

5. Industry-specific Approvals

   • In some cases, foreign corporations may need additional clearances from regulatory agencies if they operate in industries that require special oversight, such as banking, telecommunications, media, and natural resources.

V. Post-registration Compliance Requirements for Foreign Corporations

Once registered, foreign corporations must adhere to continuous compliance obligations, which the SEC strictly monitors. Key requirements include:

1. Annual Reporting and Financial Disclosures

   • Foreign corporations must submit annual financial statements and other reports detailing their business operations, revenue, tax compliance, and workforce composition to the SEC.

2. Corporate Governance Standards

   • Foreign corporations must implement corporate governance practices consistent with Philippine regulations, including transparency, board accountability, and equitable treatment of stakeholders.

3. Adherence to National Labor Standards

   • Employment standards and labor relations laws apply to foreign corporations, particularly regarding fair labor practices, minimum wage compliance, and safe working conditions.

VI. Incentives and Privileges for Foreign Corporations

To promote investment, the FIA and related Philippine laws offer foreign corporations several incentives:

1. Tax Holidays and Incentives under the BOI

   • BOI-registered enterprises engaged in preferred activities may enjoy income tax holidays, tax and duty exemptions on imports, and other fiscal benefits.

2. Special Economic Zone (SEZ) Benefits

   • Foreign corporations operating within SEZs, such as the Philippine Economic Zone Authority (PEZA) zones, may benefit from a 5% gross income tax in lieu of national and local taxes, customs duty exemptions, and simplified import-export procedures.

3. Incentives under the CREATE Act

   • The Corporate Recovery and Tax Incentives for Enterprises Act (CREATE Act) provides incentives for foreign corporations that engage in activities aligned with national priorities by offering reduced corporate income tax rates and extended tax holidays.

VII. Consequences of Non-compliance with Registration Requirements

Non-compliance with the FIA’s registration requirements can result in significant legal repercussions:

1. Revocation of SEC License

   • The SEC can revoke a foreign corporation’s license to operate in the Philippines if it is found in violation of registration requirements, including non-compliance with reporting standards or engaging in activities beyond its authorized scope.

2. Administrative Sanctions and Penalties

   • Non-compliant foreign corporations may face penalties, fines, and administrative sanctions under the FIA, which can lead to additional operational costs and reputational risks.

3. Legal Actions and Possible Deportation of Foreign Personnel

   • Persistent non-compliance could lead to litigation, and in severe cases, foreign personnel may be deported from the Philippines.

VIII. Summary

Foreign corporations looking to do business in the Philippines must navigate a structured registration process under the Foreign Investments Act, with compliance overseen by the SEC and other regulatory bodies. Recent amendments have enhanced the attractiveness of the Philippines as a destination for foreign investment, particularly through reduced capital requirements and extended incentives. However, foreign corporations must remain vigilant in meeting regulatory and compliance standards to sustain their operations and fully benefit from the Philippine business landscape.