The Philippines is a great foreign investment destination. In recent years, foreign direct investment (FDI) has been rising steadily, achieving a multi-decade high of US$8 billion in 2016.
Many businesses and foreign investors are now reaping the benefits from the country’s young population with high English proficiency, vibrant industry, and robust economic status.
If you want to start a business in the Philippines, it’s important to consider the various types of foreign investment opportunities in the country, and the laws and legalities surrounding them.
Philippine Foreign Investment Act of 1991
The primary legislation governing foreign investments in the Philippines is Republic Act 7042 as amended by RA 8179, otherwise known as the Foreign Investment Act of 1991 (FIA). It’s considered a landmark legislation because it promotes the entry of foreign investments in the country.
Under the FIA, foreigners are allowed to own 100% equity of their business, provided that the nature of business is not subject to restrictions, as prescribed in the Foreign Investments Negative List (FINL).
The FINL is a list of business activities and products that are either open to foreign investors or reserved for Filipino nationals or citizens.
Foreign Investments in Export Enterprises
Foreign investment in export enterprises can own 100% equity as long as the products and services offered do not fall under the FINL. The foreign enterprise is required to register with the Bureau of Investment (BOI) and submit regular reports to ensure compliance.
The BOI will then report to the Securities and Exchange Commission (SEC) and the Bureau of Trade Regulation & Consumer Protection (BTRCP) if the export enterprise fails to comply with regulations. The export enterprise will then be subject to reduce their domestic sales to merely 40% of their total production.
Non-compliant foreign export enterprises will forfeit their SEC or BTRCP registrations.
Foreign Investments in Domestic Market Enterprises
Foreign investors are allowed to own 100% of domestic market enterprises unless it is prohibited by the constitution or the FINL (as amended by Republic Act No. 8179).
Foreign Investment in the Philippines
Foreign investments can be made by individuals, but are usually sought by large companies and corporations looking to expand their business and accommodate the globalization trends.
This section will discuss the types of foreign investments such as commercial loans, official flows, foreign direct investment, and foreign portfolio investment.
1. Foreign Direct Investments
Foreign Direct Investments (FDI) refers to the physical investments and purchases of an individual or company in assets in a foreign country. These may include opening factories, plants, and operations, as well as purchasing machineries, buildings, and equipment.
FDI is a long-term investment that benefits both the foreign investor and the country because their investment contributes to the economy and growth.
2. Foreign Indirect Investments or Foreign Portfolio Investments
Foreign Indirect Investments, also known as Foreign Portfolio Investments (FPI), is when investors, be it individuals, corporations, or business entities purchase stocks, stakes, positions, bonds or other financial assets in a foreign country.
In FPI, investors have no direct control of their investments and can be more temporary than FDI, as their shares can easily be sold or traded.
3. Commercial Loans
Until the 1980s, commercial bank loans were the largest source of foreign investments in developing countries and emerging economies. In commercial loans, domestic banks issue loans to businesses, governments, or other entities in foreign countries.
4. Official Flows
Official Flows is the general term associated with the various forms of assistance that developed countries provide foreign developing nations. Simply put, Official Flows refers to the investments that one country makes in another nation.
Start your Business in the Philippines Now
The Philippine government is liberalizing their laws and regulations to increase foreign investment revenue and encourage foreign individuals and businesses to invest in the country.
This 2017, there are fast reforms and advancements occurring in the Philippines, providing more reason for foreign entities to invest in the country now.
Regardless of the type of foreign investment you want to make, one thing’s for sure—the time to start a business in the Philippines is now.
Rocky Chan is a lawyer and business consultant who excels in corporate formation, immigration procedures, and client relations. In the last 7 years, he honed his craft in the field of foreign investment consultancy.
