Are you considering investing in the Philippines? Understanding the regulations surrounding foreign investment is crucial for making informed decisions. FilePino is here to be your trusted partner in navigating the Foreign Investment Negative List (FINL) and unlocking the vast opportunities available in the Philippine market.
In the Philippines, company incorporation starts with the registration with the Securities and Exchange Commission (SEC) and requires further registrations with other government regulatory bodies, local government units (LGUs), and statutory agencies.
Before foreign nationals incorporate and operate their business however, it is important to understand the governing corporation code and other regulations — particularly on the foreign ownership and trade participation restrictions.
What is Foreign Investment Negative List (FINL)?
The Foreign Investment Negative List (FINL), or simply Negative List, is a government-issued document that lists economic sectors or investment areas where foreign ownership and participation in the Philippines are regulated based on the set percentages.
While the list is updated and issued every two years, the latest version, the Executive Order (EO) 175 series of 2022, promulgated the Twelfth (12th) Regular Foreign Investment Negative List (FINL), replacing the Eleventh (11) regular Foreign Investment Negative List, to reflect changes to List A and List B, pursuant to existing laws, consistent with the policy to ease restrictions on foreign participation in certain investment areas or activities.
List A contains areas of investments where foreign ownership is limited by mandate of the constitution and specific laws. List B, on the other hand, lists those limited for reasons of security, defense, risk to health and morals, and protection of small and medium scale enterprises. The Annex on Professions provides a list of professions where foreigners are not allowed to practice in the Philippines except if subject to reciprocity as provided in the pertinent laws.
List A: Foreign Ownership Is Limited By Mandate of the Constitution and Specific Laws
From the previous list, the current List A provides that foreign equity restriction on the operation of public utilities shall be limited to ‘public utilities’ as defined under Commonwealth Act 146, as amended by Republic Act 11659 (“Amended PSA”), which further provides the services under. Corporations engaged in activities that were previously considered as public utilities, such as telecommunications, are no longer considered as public utilities.
The foreign equity and participation restriction on retail trade applies only to enterprises with paid-up capital of PHP 25 million, instead of the previous USD 2.5 million (approximately PHP 135 million). Additionally, corporate practice of a profession subject to restriction is limited to architecture.
NO (0%) FOREIGN EQUITY
- Mass Media, except recording and internet business
- Practice of Professions, except in cases specifically allowed by law:
- Professions where foreigners are not allowed to practice in the Philippines, except if subject to reciprocity as provided in pertinent laws; and
- Corporate practice if professions with foreign equity restrictions under pertinent laws
- Retail trade enterprises with paid-up capital of less than PHP25,000,000.00
- Cooperatives, except investments of former natural born citizens of the Philippines
- Organization and operation of private detective, watchmen, or security guards agencies
- Small-scale mining
- Utilization of marine resources in archipelagic waters, territorial sea, and exclusive economic zone, as well as small-scale utilization of natural resources in rivers, lakes, bays, and lagoons,
- Ownership, operation, and management of cockpits
- Manufacture, repair, stockpiling and/or distribution of nuclear weapons
- Manufacture, repair, stockpiling, and/or distribution of biological, chemical, and radiological weapons and anti-personnel mines
- Manufacture of firecrackers and other pyrotechnic devices
UP TO TWENTY FIVE PERCENT (25%) FOREIGN EQUITY
- Private recruitment, whether for local or overseas employment
- Contracts for the construction of defense-related structures
UP TO THIRTY PERCENT (30%) FOREIGN EQUITY
- Advertising
UP TO FORTY PERCENT (40%) FOREIGN EQUITY
- Procurement of infrastructure projects
- Exploration, development, and utilization of natural resources
- Ownership of private lands, except a natural born citizen who has lost hi Philippine citizenship and who has the legal capacity to enter into a contract under Philippine laws
- Operation of public utilities
- Educational institutions other than those established by religious groups and mission boards, for foreign diplomatic personnel and their dependents, and other foreign temporary residents, or for short-term high-level skills development that do not form part of the formal education system
- Culture, production, milling, processing, trading except retailing, of rice and corn, and acquiring, by barter, purchase or otherwise, rice and corn and the by-products thereof
- Contracts for the supply of materials, goods, and commodities to government-owned or -controlled corporations (GOCCs), company, agency, or municipal corporation
- Operation of deep sea commercial fishing vessels
- Ownership of condominium units
- Private radio communications network
List B: Foreign Ownership Is Limited for Reasons of Security, Defense, Risk to Health and Morals, and Protection of Small and Medium Scale Enterprises
Foreign equity restrictions for the manufacture, repair, storage, and distribution of products requiring Department of National Defense (DND) clearance have been removed.
For domestic market enterprises, the foreign equity restriction now applies only to micro or small enterprises with paid-in equity of less than USD 200,000. Previously, this restriction applied to all domestic enterprises below this equity threshold.
However, micro or small domestic market enterprises involved in advanced technology, endorsed as start-ups by the Department of Trade and Industry (DTI), Department of Information and Communications Technology (DICT), or Department of Science and Technology (DOST), or with a majority of Filipino employees (at least 15) are subject to foreign equity restrictions only if their paid-in equity is less than USD 100,000.
UP TO FORTY PERCENT (40%) FOREIGN EQUITY
- Manufacture, repair storage, and/or distribution of products and/or ingredients requiring Philippine National Police (PNP) clearance:
- Firearms (handguns to shotguns), parts of firearms and ammunition thereof, instruments or implements used or intended to be used in the manufacture of firearms
- Gunpowder
- Dynamite
- Blasting supplies
- Ingredients used in making explosives (chorates of potassium and sodium; nitrates of ammonium, potassium, sodium, barium, copper (11), lead (11), calcium, and cuprite; nitric acid, nitrocellulose, perchlorates of ammonium, potassium and sodium; dinitrocellulose; glycerol; amorphous phosphorus; hydrogen peroxide, strontium nitrate powder; toluene)
- Telescopic sights, sniper cope and other similar devices
However, the manufacture or repair of these items may be authorized by the Chief of the PNP to non-Philippine nationals; provided that a substantial percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership allowed shall be specified in the said authority/clearance (RA No. 7042 as amended by RA No. 8179).
- Manufacture and distribution of dangerous drugs
- Sauna and steam bathhouses, massage clinics, and other like activities regulated by law because of risks posed to public health and morals, except wellness centers
- All forms of gambling, except those covered by investment agreements with Philippine Amusement and Gaming Corporation (PAGCOR
- Micro and small domestic market enterprises with paid in equity capital of less than the equivalent of US$200,000
- Micro and small domestic markets that:
- Involve advance technology as determined by Department of Science and Technology (DOST)
- Are endorsed as a start-up or start-up enablers by Department of Trade Industry, or DOST
- With a majority of their direct employees as Filipinos, but in no case shall the number of Filipino employees be less than fifteen (15), with paid-in equity capital of less than the equivalent of US$100,000.
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