Businesses Allowed for Foreign Ownership Under the Foreign Investment Negative List (FINL) in the Philippines
Legal Article – Philippine Context

I. Introduction

Foreign investors considering doing business in the Philippines often encounter the concept of the Foreign Investment Negative List (FINL). Issued pursuant to the Philippine Constitution, the Foreign Investments Act of 1991 (Republic Act No. 7042), and other pertinent laws, the FINL specifies activities or industries where foreign equity participation is either limited or outrightly prohibited.

Yet while the FINL highlights restrictions on foreign ownership, it also implicitly shows the sectors that are either fully open or partially open to foreign investors. Understanding both the list’s prohibitions and the areas not restricted by law is vital for multinational firms, entrepreneurs, and other stakeholders wanting to invest in the Philippines.

This article offers an overview of:

The legal framework supporting the FINL;
Key classifications of the FINL (List A and List B) and their implications;
Examples of businesses fully open to foreign ownership;
Recent legislative reforms liberalizing foreign participation;
Practical considerations for foreign investors.

II. Legal Framework of the FINL

Philippine Constitution
- The 1987 Constitution imposes certain foreign ownership restrictions, particularly involving land ownership, mass media, and public utilities. These constitutional provisions serve as the highest legal foundation for the negative list.
Foreign Investments Act of 1991 (FIA), as amended
- Republic Act No. 7042 (as further amended by R.A. 8179 and, more recently, by R.A. 11647) lays out the general policy that foreign investments are welcome in the Philippines, except in industries expressly restricted.
- It empowers the National Economic and Development Authority (NEDA) Board to publish the Foreign Investment Negative List that enumerates these restricted sectors.
Relevant Sector-Specific Statutes
- Apart from the Constitution and the FIA, specific laws also restrict or allow foreign equity in certain sectors (e.g., Retail Trade Liberalization Act, Public Service Act, Build-Operate-Transfer Law, etc.).

Every few years, the Philippine government updates the FINL to reflect legislative changes and evolving policy priorities. The most recent iterations, including the 12th and 13th FINL, have introduced significant expansions of foreign participation in select industries.

III. Classifications in the FINL: List A vs. List B

The FINL is typically divided into two primary categories:

List A
- Covers industries or activities reserved for Philippine nationals by virtue of the Constitution or specific laws.
- Examples include:
  - Mass media (100% Filipino-owned, with limited exceptions for recording and internet content not classified as mass media).
  - Practice of professions, unless specific laws allow some degree of foreign participation.
  - Retail trade enterprises with paid-up capital below certain thresholds (subject to amendments by the Retail Trade Liberalization Act).
  - Ownership of private lands (foreigners generally cannot own land but may have leasehold rights under certain conditions).
List B
- Covers sectors where foreign equity is limited for reasons of national security, defense, risk to health and morals, or protection of small and medium enterprises.
- Typical examples:
  - Certain forms of defense-related manufacturing.
  - Small-scale mining.
  - Utilization of marine resources.
  - Businesses that may pose risks to public health or well-being.

Foreign equity caps within both List A and List B may vary: some activities are fully prohibited, while others allow foreign stakes of 20%, 25%, 30%, 40%, or 60%, depending on the specific legal basis.

IV. Businesses Not on the FINL: Fully or Partially Open to Foreign Ownership

Crucially, all business activities not specifically covered by the Negative List (i.e., not listed under List A or List B and not otherwise restricted by the Constitution) are allowed up to 100% foreign ownership. Below are some noteworthy examples and clarifications:

Export Enterprises and BPOs
- Business Process Outsourcing (BPO) operations and export-oriented enterprises (generally those that export at least 70% of their output) can be 100% foreign-owned. The government actively promotes these industries for foreign investors.
Manufacturing (General)
- Many general manufacturing activities are not covered by the FINL. Accordingly, a foreign investor can generally own 100% of a Philippine manufacturing enterprise.
IT and Software Development
- Software development companies, IT solutions, data analytics, and related technology businesses are typically 100% open to foreign equity so long as they do not engage in restricted activities such as mass media.
Wholesale and Retail (Above Certain Capital Thresholds)
- The Retail Trade Liberalization Act (as amended by RA 11595 in 2022) significantly lowered the minimum paid-up capital for foreign-owned retail businesses. If the paid-up capital meets or exceeds the prescribed threshold, 100% foreign ownership is possible.
Services in Tourism and Hospitality
- Many sub-sectors in tourism (e.g., hotels, resorts, restaurants) are open to 100% foreign equity, provided they do not involve ownership of land or operation of a restricted utility.
Public Services (Subject to the Amended Public Service Act)
- The Amendments to the Public Service Act (RA 11659), signed in 2022, liberalized key services previously considered “public utilities.” Certain transportation, telecommunications, and other public service industries may now allow up to 100% foreign ownership, except for activities clearly identified as “public utilities” (e.g., electricity transmission, water distribution, and select categories still subject to constitutional restrictions).

V. Notable Recent Legislative Changes

The Philippine government has been on a drive to create a more investment-friendly climate. Among the noteworthy reforms:

Amendments to the Foreign Investments Act (RA 11647)
- Introduced relaxed requirements for foreign investors and allowed broader participation of non-Philippine nationals in startup or innovation-centric ventures.
Public Service Act Amendments (RA 11659)
- Clarified which services are categorized as public utilities (and thus subject to the 60-40 ownership requirement in favor of Filipinos). Transportation and telecommunications, unless considered integral public utilities, can now allow 100% foreign equity.
Retail Trade Liberalization Act Amendments (RA 11595)
- Lowered the minimum paid-up capital for foreign-owned retail businesses, making it more viable for smaller and medium-sized international retailers to set up shop in the Philippines.

VI. Compliance and Practical Considerations for Foreign Investors

Check Updates to the FINL
- Always confirm the latest Negative List iteration, as restrictions and thresholds may shift over time. Consult official government websites or recognized legal advisories.
Corporate Structure
- If your targeted activity appears on the FINL but with partial restriction (e.g., maximum 40% foreign equity), you may need a Filipino partner to form a joint venture or choose a structure ensuring compliance (e.g., a domestic corporation with Filipino majority shareholders).
Land Ownership vs. Lease
- The Philippine Constitution restricts direct foreign ownership of land. Foreign investors commonly engage in long-term leases (up to 50 years, renewable once for 25 additional years), or they form corporations with at least 60% Filipino equity to own the land.
Licensing, Permits, and Registration
- Foreign companies must generally register with the Securities and Exchange Commission (SEC) and obtain pertinent local government permits. For certain industries, registration with agencies such as the Board of Investments (BOI) or the Philippine Economic Zone Authority (PEZA) may yield tax incentives.
Industry-Specific Rules
- Some industries (e.g., gaming, mining, medical services, energy) have additional regulations or licensing requirements. Engage legal counsel or consult the relevant government agency (DENR for mining, DOH for hospitals, DOE for energy, PAGCOR for gaming, etc.).
Visa and Immigration Compliance
- Foreign investors, when entering the Philippines, must secure the proper visa category (e.g., 9(g) pre-arranged employment visa, 9(d) treaty trader visa, or an SRRV for retirees). Hiring foreign staff may require additional immigration compliance.

VII. Enforcement and Penalties

The Securities and Exchange Commission (SEC) closely monitors corporate compliance with ownership structures. A violation—e.g., using dummy Filipino shareholders to skirt equity requirements—can lead to administrative and criminal penalties, such as cancellation of registration, fines, or imprisonment of the responsible officers.

VIII. Conclusion

While the Foreign Investment Negative List highlights the restrictions to foreign participation, its corollary value is in showing which industries are not restricted—meaning many business ventures in the Philippines can be 100% foreign-owned. Recent legislative reforms have broadened opportunities for global investors, aligning with the Philippine government’s push to attract capital inflows and spur economic growth.

Nevertheless, compliance with the FINL, the Constitution, and sector-specific laws remains paramount. Foreign investors should conduct due diligence, verify the latest regulatory landscape, and engage professional assistance when needed. By carefully navigating ownership limitations and legislative frameworks, foreign-owned enterprises can thrive in the Philippine market and benefit from one of Southeast Asia’s most dynamic economies.

Disclaimer:
This article is for general informational purposes only and does not constitute legal advice. Laws, regulations, and implementing rules may change, and the application of such rules can vary based on individual circumstances. For guidance specific to your situation, please consult a licensed attorney or accredited professional in the Philippines.