Foreign Ownership of Land and Asset Protection in the Philippines: A Guide

A Question-and-Answer Guide

Question: We aim to own land and build in the Philippines, aware of the 60% ownership restriction for Filipinos. Are there mechanisms to protect our assets in the Philippines? For instance, can we have an agreement where the majority owner can be replaced by another local resident in case of problems?

Answer:

The Philippines has specific restrictions when it comes to land ownership by foreign entities and individuals. However, there are certain structures and mechanisms to protect investments while adhering to local regulations:

1. Land Ownership Restrictions:

The Philippine Constitution and the Public Land Act prohibit foreign individuals from owning land. Only Filipino citizens or corporations or partnerships wherein at least 60% of its capital stock is owned by Filipinos can acquire and own land.

2. Mechanisms for Asset Protection:

Lease Agreements: Foreigners can lease private land. Lease agreements can be made for an initial period of up to 50 years, renewable for another 25 years.
Condominium Units: While foreigners are prohibited from owning land, they can own units in condominium projects, as long as Filipino ownership in the condominium corporation is at least 60%.
Creation of a Corporation: One common method used by foreigners to invest in land is through the creation of a Philippine corporation where 60% of the shares are owned by Filipino citizens. The corporation, being a juridical entity, can own the land. It's crucial to ensure that the arrangement is legitimate and not a mere front (or "dummy") to circumvent the law, as "dummy" arrangements are illegal and can lead to penalties.
- Changing the Board Members: To address concerns about asset control, remember that even if the foreign investor owns only up to 40% of the shares, they can draft the corporation's by-laws or other internal agreements in a way that allows them a significant degree of control in terms of management decisions. For instance, certain crucial decisions could require a supermajority vote, ensuring foreign investors have a say. Additionally, board members (who can be replaced) need not necessarily be the major shareholders.

3. Consider Joint Ventures:

Engaging in a joint venture with a local partner can provide a foreign investor with more control and oversight. Careful crafting of the joint venture agreement can ensure that both parties' interests are protected.

4. Legal Agreements:

To protect assets and investments, parties can enter into various legal agreements stipulating conditions, roles, rights, and mechanisms for dispute resolution. These agreements can define terms on how board members or shareholders can be replaced, ensuring the foreign investor's continued influence or control over the company.

Conclusion:

While the Philippines has restrictions on land ownership by foreigners, there are legitimate avenues for asset protection and maintaining a degree of control over investments. It's essential to consult with a reputable Philippine attorney to structure your investments properly and ensure compliance with Philippine laws while safeguarding your interests.

Disclaimer: This article is intended for informational purposes only and should not be construed as legal advice. Consult a legal expert for advice specific to your situation.