Foreign Ownership Limits in Philippine Corporations

Can foreigners own more than 40% of a corporation in the Philippines?

The legal framework governing foreign ownership in Philippine corporations is primarily dictated by the Philippine Constitution and the Foreign Investments Act (FIA) of 1991. These laws impose restrictions on the extent to which foreign nationals can participate in certain industries and businesses within the country.

Constitutional and Statutory Limits

The Philippine Constitution sets forth specific provisions regarding the ownership and control of businesses by foreign entities. According to Section 11, Article XII of the 1987 Constitution, at least 60% of the capital of corporations engaged in certain economic activities must be owned by Filipino citizens. This means that foreign ownership is generally capped at 40%.

However, the restrictions are industry-specific. Key industries where these limitations apply include:

1. Land Ownership: Foreigners are prohibited from owning land in the Philippines. They can, however, lease land for a period of up to 50 years, renewable once for another 25 years.

2. Public Utilities: Foreign ownership in public utilities is limited to 40%. Public utilities include entities that operate, manage, or control systems for public use, such as electricity, water, telecommunications, and transportation services.

3. Mass Media and Advertising: The ownership of mass media is fully restricted to Filipino citizens or corporations wholly-owned by Filipinos. Advertising agencies must be at least 70% Filipino-owned.

4. Natural Resources: The exploration, development, and utilization of natural resources are reserved for Filipinos or corporations with at least 60% Filipino ownership.

Amendments and Exceptions

There have been significant legislative efforts to relax some of these restrictions. The 2018 amendments to the Foreign Investments Negative List (FINL) have allowed greater foreign participation in certain areas:

1. Internet Businesses: Previously classified under mass media, internet businesses are now open to full foreign ownership.

2. Educational Institutions: Foreign ownership in higher education institutions, previously capped at 40%, has been relaxed, allowing up to 100% foreign ownership under certain conditions.

3. Retail Trade: The Retail Trade Liberalization Act of 2000 has been amended to lower the minimum paid-up capital requirement for foreign retail enterprises, making it easier for foreign investors to enter the retail sector.

4. Practice of Professions: Certain professions are open to foreign nationals, provided their home country grants reciprocity to Filipinos.

Compliance and Enforcement

Foreign investors must ensure compliance with the regulatory requirements of various government agencies, including the Securities and Exchange Commission (SEC) and the Department of Trade and Industry (DTI). Failure to adhere to the ownership limitations can result in penalties, including the revocation of business permits and licenses.

In conclusion, while there are significant restrictions on foreign ownership in the Philippines, recent legislative changes have provided more opportunities for foreign investors in certain sectors. It is crucial for potential investors to thoroughly understand these regulations and seek legal counsel to navigate the complexities of Philippine corporate law.