Foreign Investments Act: Definitions

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Definitions

• Act: Refers to Republic Act No. 7042, also known as the Foreign Investments Act of 1991, as amended.
• Administrative agency: A regulatory agency that regulates, administers, or adjudicates matters affecting the rights and interests of private persons, with powers exercised by a collective body.
• Advanced technology: High or emerging technologies that require advanced knowledge of biological and physical sciences, including solid-state physics, chemistry, materials science, engineering, and information technology. It also includes technology that is more advanced than what is domestically available and needed for the development of certain industries.
• BOI: Refers to the Board of Investments.
• Central Business Portal (CBP): A centralized online system for business-related transactions, including licenses, clearances, permits, and authorizations issued by LGUs, with the DICT primarily responsible for its establishment and maintenance.
• Cyber infrastructure: Physical or virtual assets and systems crucial for societal functions or public services, excluding passive telecommunications tower infrastructure and value-added services.
• Dangerous drug: Defined under Section 3(J) of R.A. No. 9165 or the Comprehensive Dangerous Drugs Act of 2002, including subsequent issuances of the Dangerous Drugs Board (DDB).
• Direct employees: Personnel hired and engaged under the control and supervision of the applicant investor or employer in the production of goods or performance of services.
• DOF: Refers to the Department of Finance.
• Doing business: Includes soliciting orders, service contracts, opening offices, appointing representatives, operating under full control of a foreign corporation, participating in management of a domestic business, and any other acts implying a continuity of commercial dealings.
• These acts are NOT considered "doing business" in the Philippines:
  • Mere investment as a shareholder
  • Having a nominee director or officer
  • Appointing a representative or distributor transacting business in their own name
  • Publication of general advertisements
  • Maintaining a stock of goods for processing by another entity
  • Consignment of equipment for processing products for export
  • Collecting information
  • Performing auxiliary services to an existing isolated contract of sale on a non-continuing basis
• Domestic market enterprise: An enterprise that produces goods for sale or renders services to the domestic market, not exporting 60% or more of its output.
• Exports: Volume of Philippine port F.O.B. peso value of products exported or value of services sold to non-resident foreigners. Constructively exported includes sales to bonded manufacturing warehouses, export processing zone enterprises, export enterprises operating bonded trading warehouses, and foreign military bases granted tax immunities.
• Export enterprises: An enterprise wherein a manufacturer, processor, or service (including tourism) enterprise exports 60% or more of its output, or a trader purchases products domestically and exports 60% or more of such purchases.
• Export ratio:
  • Percentage share of the volume or peso value of goods exported to the total volume or value of goods sold if engaged in manufacturing or processing.
  • Percentage share of the peso value of services sold to foreigners to total earnings if service-oriented.
  • Percentage share of the volume or peso value of goods exported to the total volume or value of goods purchased domestically if engaged in merchandise trading
• FIPMP: Refers to the Foreign Investment Promotion and Marketing Plan.
• Foreign corporation: One formed, organized, or existing under laws other than those of the Philippines, in accordance with the Revised Corporation Code.
  • Branch office: Carries out business activities of the head office and derives income from the host country.
  • Representative or liaison office: Deals directly with the clients of the parent company but does not derive income from the host country and is fully subsidized by its head office
• Foreign investment: An equity investment made by a non-Philippine national in the form of foreign exchange (FX) or the monetary equivalent in Philippine peso of other assets actually transferred to the Philippines and duly registered with the Bangko Sental ng Pilipinas (BSP).
• Foreign government-controlled entity: An entity in which a foreign state directly or indirectly owns more than 50% of the capital, controls more than 50% of the voting rights, holds the power to appoint a majority of the board of directors, or has the ability to interfere in the management, operation, administration, or control of an enterprise
• Foreign Investment Negative List (FINL): A list of areas of economic activity where foreign ownership is limited to a maximum of 40% of the equity capital.
• Former natural-born Filipinos: Those who have lost Philippine citizenship but were previously citizens of the Philippines from birth or by having elected Philippine citizenship.
• Geographical areas critical to national security: A geographical space or jurisdiction which alienation, privatization, or foreign control or presence, could potentially erode the country's geostrategic advantage and increase its vulnerability to foreign intrusion therefore undermines national security.
• Independent pension fund: An enterprise owned or controlled by a foreign state that is engaged exclusively in administering pension plans or investing the assets of these plans, has a fiduciary duty, and is free from investment direction from the foreign government.
• IIPCC: Refers to the Inter-Agency Investment Promotion Coordination Committee.
• Individual practice of profession: An activity rendered and performed by a registered and duly licensed professional or holder of a special temporary permit and fall under the jurisdiction of the various Professional Regulatory Boards (PRBs).
• Investment: The paid in equity participation in any enterprise organized or existing under the laws of the Philippines and duly recorded in the enterprise's stock and transfer book, or any equivalent registry of ownership.
• Investment promotion agencies (IPAS): Government entities in charge of promoting investments, granting incentives, and overseeing economic zones, including BOI, PEZA, BCDA, SBMA, CDC, JHMC, PPMC, CEZA, ZCSEZA, PIA, APECO, AFAB, TIEZA, and other similar authorities.
• Joint venture: Two or more entities, one of which must be a Philippine national, combining resources to carry out a single business enterprise for profit, duly registered with the SEC.
• MULTINATIONAL BANKS: Supranational institutions set up by sovereign states, which are shareholders. These institutions generally have the common task of fostering economic and social progress in developing countries by financing projects, supporting investment and generating capital for the benefit of all global citizens.
• National security: Requirements and conditions necessary to ensure the territorial integrity of the country and the safety, security, and well-being of Filipino citizens.
• NEDA: Refers to the Secretariat of the National Economic and Development Authority.
• NEDA Board: The body constituted under Executive Order No. 230 entitled "Reorganizing the National Economic and Development Authority" and in which reside the powers and functions of the Authority.
• Output: The enterprise’s total sales in a taxable year, referring to value for heterogeneous products and volume for homogeneous products.
• Paid-in equity capital: The total investment in a business that has been paid-in in a corporation or partnership or invested in a sole proprietor, which may be in cash or in property, including inward remittance or assigned capital for foreign corporations.
• Philippine national: A citizen of the Philippines, a domestic partnership or association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines.
• Pipeline transportation: Includes transport of goods or materials through a pipeline such as crude, refined petroleum, natural gas, biofuels, and other chemically stable substance. It also includes all activities related to pipeline transportation.
• Relevant department: An executive department created by law as defined in the Administrative Code of 1987.
• SEC: Refers to the Securities and Exchange Commission.
• Sovereign wealth fund: A juridical entity owned or controlled by a foreign state that serves solely as a special purpose investment fund or arrangement for asset management, investment, and related activities, using financial assets of a foreign state; and is a member of the international forum of sovereign wealth funds.
• Start of commercial operations: The date when an enterprise begins production for commercial purposes or the date when the enterprise begins catering or servicing its clients on a commercial basis.
• Startup: Any person, natural or juridical, registered in the Philippines which aims to develop an innovative product, process, or business model.
• Startup enabler: Any person registered under the Philippine startup development program that provides goods, services, or capital identified to be critical in supporting the operation and growth of startups.
• Strategic industries: Foreign investments on military-related industries, cyber infrastructure, pipeline transportation, or such other activities which may threaten territorial integrity and the safety, security, and well-being of Filipino citizens.
• Substantial partner: An individual or a firm who owns enough shares to be entitled to at least one (1) seat on the Board of Directors of a corporation, or in the case of a partnership, any partner.
• Transferee of private land: A person to whom ownership rights of private land is transferred through either voluntary or involuntary sale, devise or donation.

Inter-Agency Investment Promotion Coordination Committee (IIPCC)

• Purpose: Integrates promotion and facilitation efforts to encourage foreign investments.
• Composition:
  • Secretary of the DTI (Chairperson)
  • Secretary/Undersecretary of the DOF (Vice-chairperson)
  • Managing Head of BOI
  • Director-General of DTI-PEZA
  • Undersecretary of DFA for Multicultural Affairs and International Economic Relations
  • Secretary of Socioeconomic Planning of NEDA
  • Secretary of DICT
  • Chairperson of CHED
  • Director-General of TESDA
  • Four private sector representatives.
• Private Sector Representatives: Chosen for competence, probity, integrity, and expertise in investment, advertising, banking, finance management, or law, with 10+ years of experience, recommended by leading industry/business chambers.
  • Appointed by the President for a 3-year term, subject to reappointment, and must undergo security clearance.
• Meetings and Quorum: Meets at least semi-annually; a majority (at least 7) is required for quorum, with 2/3 government representatives and either the Chairperson or Vice-Chairperson present.
• Full Disclosure: Members with personal interests in agenda items must disclose and withdraw from the meeting when the matter is discussed.
• Powers and Functions of the Chairperson: Provides leadership, calls meetings, sets agenda, oversees outputs, ensures compliance with good governance, requests participation of other government entities, signs resolutions, and exercises powers pursuant to its functions and mandate.
• Responsibilities of the Secretariat: Headed by the Executive Director for Investments Promotion, the BOI serves as the Secretariat and provides administrative support, consolidates inputs, issues meeting notices, monitors policies, and reports to the Chairperson and Technical Committee Chairperson.

Powers and Functions of the IIPCC

• Establishes medium- and long-term Foreign Investment Promotion and Marketing Plan (FIPMP).
• Designs a marketing strategy and campaign to promote the country as an investment area.
• Coordinates with and assists IPAs in promoting foreign investments.
• Supports inbound/outbound foreign direct investment or trade missions.
• Encourages and supports research and development.
• Creates a technical committee that will lead the conduct of strategic industry review.
• Monitors performance against targets, including job generation and revenue.
• Submits annual reports to the President and Congress.
• Establishes and updates an online database of local partners.
• Supports local government efforts to promote foreign direct investments.

IIPCC Technical Committee

• Headed by DOF (Chairperson) and the National Security Council (NSC) (Co-Chairperson), with NEDA and DTI as permanent members.
• Functions:
  • Undertakes risk assessment study to identify and recommend the list of Strategic industries and Geographical areas critical to national security.
  • Upon order of the IIPCC, undertake an initial risk assessment of foreign investment transactions.
  • Upon order of the IIPCC, conduct the comprehensive national security review of foreign investments.
  • Submits findings or recommendations to the IIPCC.
• Powers and Functions of the Chairperson of the IIPCC Technical Committee: Provides leadership, calls meetings, sets agenda, ensures informed decisions, and requests participation of other government entities.
• IIPCC Coordination Activities: Ensures alignment of the FIPMP with the SIPP, coordinates with the Office of the President, solicits information from the FIRB, coordinates with the NSC and PCC, ensures alignment with the PDP, coordinates with IPAs and LGUs, and coordinates with other interagency committees.

Development of the Foreign Investment Promotion and Marketing Plan (FIPMP)

• General Principles: Consistent with the SIPP, PDP, and RDPs, aimed at creating high-skilled jobs, increasing product sophistication, expanding domestic supply, attracting foreign capital, and promoting export diversification and countryside development.
• Formulation: The IIPCC formulates the FIPMP in consultation with IPAs, government agencies, LGUs, and business chambers, based on competitive advantages, natural resources, skill development, linkages, and market potential.
• Timeframe: A comprehensive FIPMP is developed for medium (5-year) and long-term (10-year) plans, with the first plan formulated within one year of the Rules and Regulations' effectivity.
• Amendments: Reviewed and amended every two years, with updates to policies, strategies, programs, projects, and targets.
• Monitoring: Includes a tool with investment targets, revenue generated, approved investments, job generation, and SDG indicators.
• Curriculum Development and Training: The Department of Education (DepEd), CHED, TESDA, Department of Labor and Employment (DOLE), Professional Regulation Commission (PRC), and other training agencies involved in education and skills development shall direct curriculum and training efforts toward manpower requirements of the FIPMP.

Online Single-Portal System

• Responsibility: The IIPCC is responsible for establishing, operating, and maintaining an online portal.
• Information Included:
  • Procedures, contacts, schedules
  • Foreign Investment Promotion and Marketing Plan (FIPMP)
  • Information on investor rights and government obligations
  • Links to relevant government websites
  • Issuances, resolutions, and documents
  • Databases of investment-related statistics, local partners, and available land locations
  • Registration link to the CBP for necessary clearances and permits
• Should be accessible to the public and used for promoting investments and business matching.
• Operationalization: The IIPCC, in consultation with the DICT, operationalizes the online portal, with DICT providing technical assistance.

Registration of Investments of Non-Philippine Nationals

• Qualifications: Any non-Philippine national may do business or invest in a domestic enterprise up to 100% of its capital provided it is investing in a domestic market enterprise in areas outside the FINL or in an export enterprise whose products and services do not fall within Lists A and A of the FINL.
  • The applicant's country must also allow Filipino citizens and corporations to do business there.
• Application and Registration: Applications filed with the SEC (for corporations and partnerships) or DTI (for sole proprietors). Pre-processing of documents is undertaken to assist the investor.
• Additional Requirements:
  • For defense-related activities: clearance from the DND or PNP.
  • For micro and small domestic market enterprises with paid-in equity capital between US$100,000 and US$200,00: certificate from DOST (advanced technology), DICT/DTI/DOST (startup), or DOLE (undertaking to hire Filipinos).
• Approval: The SEC or DTI decides on the application within 7 working days (domestic) or 20 working days (foreign corporations).
• Monitoring: The SEC/DTI monitors compliance with equity participation requirements and minimum paid-up equity capital.
• Registration with SEC: For corporations, partnerships, and joint ventures, in accordance with the Revised Corporation Code, Securities Regulation Code (SRC), Civil Code of the Philippines and other laws implemented by the SEC.
• Registration with DTI: For sole proprietors, in accordance with DTI guidelines.
• Registration with IPAS: Follows existing procedures of relevant IPAs.

Registration with the Bangko Sentral ng Pilipinas

• Enterprises seeking to source foreign exchange from the banking system for profit remittance and capital repatriation must be registered with the BSP.

Foreign Investments in Export Enterprises

• Allowable Equity: Up to 100% foreign equity is allowed if products/services are not in Lists A/B of the FINL.
• Registration: Generally, non-Philippine national export enterprises register with the BOI; those seeking incentives must register with the IPAs.
• Submission of Reports: All duly-registered foreign export enterprises under this shall submit to the BOI a duly accomplished form within six (6) months after the end of each taxable year.
• Monitoring: The BOI determines compliance with export requirements. Failure to comply results in reduced domestic sales allowance and potential penalties.

Foreign Investments in Domestic Market Enterprises

• Allowable Equity: Up to 100% unless prohibited by the Constitution, laws, or the FNL.
• Change of Status from Domestic Market Enterprise to Export Enterprise: A domestic market enterprise may change its status to an export enterprise by notifying the SEC or DTI.

The Regular Foreign Investment Negative List (FINL)

• Description: Two lists (A & B) of economic activities reserved to Philippine nationals.
• Formulation: The NEDA formulates the Regular FINL according to Section 8 of the Act.
• Approval: The NEDA submits the proposed Regular FINL to the President for approval.
• Publication: The NEDA publishes the first Regular Negative List not later than sixty (60) days before the end of the transitory period.
• Effectivity: The first Regular Negative List shall become immediately effective at the end of the transitory period.
• Coverage of Operation: Each Regular FINL shall apply only to new foreign investments and shall not affect existing foreign investments at the time of publication.

Guidelines for List A of the Regular Foreign Investment Negative List

• Consists of activities reserved to Philippine nationals where foreign investments are limited to a maximum of 40% as prescribed by the Constitution and other specific laws.

Guidelines for List B of the Regular Foreign Investment Negative List

• Includes:
  • Activities where foreign ownership is limited pursuant to law such as defense or law enforcement-related.
  • Activities with negative implications on public health and morals.
  • Micro and small domestic market enterprises with paid-in equity capital of less than US$200,000, except those involving advanced technology, startups, or those undertaking to hire Filipinos.

Amendments to the Regular FINL

• Amendments to List B shall not be made more often than once every, upon the recommendation of the Secretary of National Defense or Secretary of Health, as applicable, endorsed by the NEDA, or upon recommendation motu proprio of NEDA, approved by the President and promulgated through the issuance of the regular FINL by Executive Order.

Review of and Amendments to the Regular FINL

• The review shall be made every two years starting from the issuance of the regular FINL, and shall cover industries under the FINL.
• The NEDA in consultation and cooperation with SEC, DTI, BOI, other IPAs, and other pertinent agencies, shall review the regular FINL and submit to Congress, an analysis of foreign investment performance and economic activities of industries under the FINL.
• NEDA shall submit its recommendation to Congress amendments to the regular FINL and other investment-related matters requiring necessary legislation, if any.

Understudy Training or Skills Development Program

• Foreign enterprises employing foreign nationals and enjoying fiscal incentives must develop and implement a program to transfer technology to Filipino employees, with at least two understudies or trainees per foreign national.

Investment Rights of Former Natural-Born Filipinos

• Have the same investment rights as Philippine citizens in Cooperatives, Rural Banks, Thrift Banks, private Development Banks, Financing Companies, and List B activities (including defense if authorized).

Rights of Former Natural Born Filipinos to Own Private Land

• May be a transferee of private land up to 5,000 sq. meters (urban) or 3 hectares (rural) for business or other purposes.

Transitory Provisions

• A transitory period of six (6) months after issuance of these Rules and Regulations to implement this Act.
• The existing FINL applicable upon the effectivity of the Act and its Rules and Regulations, shall serve as the transitory FINL.

Compliance with Environmental Standards

• All industrial enterprises must comply with environmental laws and standards.

Consistent Government Action

• No government agency can take action conflicting with the Act.

Effectivity

• These amended Rules and Regulations shall take effect fifteen (15) days after publication.

Administrative Sanctions

• Include fines and cancellation of registration for violations of export enterprise rules, submission of fraudulent reports, and failure to comply with environmental standards.

Review of Foreign Investment in Strategic Industries

• Strategic industries: Military-related, cyber infrastructure, pipeline transportation, or activities threatening national integrity, safety, and security.
• Review is initiated by the President when investments are made by foreign government-controlled entities or are located in critical geographical areas.

Criteria for Reviewing Foreign Investments

• Impact on national security, applicability of other Philippine laws and policies, implications of any national security risk, investor history, etc.
• Submission of Additional Information.
• Notice of Results to Parties.
• Pre-declaration Consultations.
• Confidentiality of Information.

Final Provisions

• Public officials involved in foreign investment promotions who commit graft and corruption shall be punished by a fine of not less than two million pesos (P2,000,000.00) but not more than five million pesos (P5,000,000.00)
• The Act does NOT apply to banking and financial institutions or individual practice of professions.
• An amount of fifty million pesos (P50,000,000.00) from the contingent fund of the General Appropriations Act (GAA) for the current fiscal year is hereby appropriated.
• R.A. No. 7042, as amended, is hereby amended.