Foreign Investments in the Philippines – Foreign Investments Act of 1991
Republic Act 7042 as amended by RA 81 79. also known as the Foreign Investments Act of
1991. is the basic law that governs foreign investments in the Philippines. It is considered landmark legislation because it liberalized the entry of foreign investments into the country.
KEY FEATURES OF THE FIA
- Concept of a negative list
- Opened domestic mar1<ot to 100% foreign investment except those in the Foreign Investment Negative List (FINL)
- Redefined ”export enterprise” to mean at least 60% for export
- Allowed 100% foreign ownership of business activities outside FINAL but WITHOUT incentives
Foreign Investment Negative List
Under this law. foreign investors are allowed to invest 100% equity in companies engaged in almost all types of business activities subject to certain restrictions as prescribed in the Foreign Investments Negative List (FINL).The FINL is a shortlist of investment areas or activities which may be opened to foreign investors and/or reserved to Filipino nationals. The Foreign Investments Negative Lists (FINL) are classified as follows:
- List A • consists of areas of activities reserved to Philippine nationals where foreign equity participation in any domestic or export enterprise engaged in any activity listed therein shall be limited to a maximum of forty percent (40%) as prescribed by the Constitution and other specific laws.
- List B – consists of areas of activities where foreign ownership is limited pursuant to law such as defense or law enforcement-related activities, which have negative implications on public health and morals, and small and medium-scale enterprises.
- The FIA clearly states that if the activity to be engaged in: is not included in the FINL, is more than 40% foreign-owned, and will cater to the domestic market, the capital required is at least two hundred thousand dollars (US$200,000.00). The capital may be lowered to one hundred thousand dollars (USS100,000.00), if the activity involves advanced technology, or the company employs at least 50 direct employees.
- If the foreign company will export at least 60% of its output or a trader that purchases products domestically will export at least 60% of its purchases, the required capital of US$200,000.00 paid-in is not applicable. If the company is at least 60 %Filipino-40% foreign-owned and will cater to the domestic
market, paid-in capital can be less than US$200,000.00.
Specific Areas of Equal Investment Rights for Former Filipino Nationals
While most areas of businesses have limits for foreign investors. Section 9 of the amended Foreign Investments Act of 1991 lists the following types of businesses where former natural-born Filipinos can enjoy the same investment rights as a Philippine citizen.
- Thrift Banks and Private Development Banks
- Rural Banks
- Financing Companies
Former natural-born Filipinos can also engage in activities under List B of the FINL. This means that their investments shall be treated as Filipino or will be considered as forming
part of Filipino investments in activities closed or limited to foreign participation.
The equal investment rights of former Filipino nationals do not extend to activities under List A of FINL which are reserved for Filipino citizens under the Constitution. Former natural-born Filipinos have also been given the right to be transferees of private land up to a max1mum of 5.000 square meters in the case of urban land or three (3) hectares in the case of rural land to be used for business or other purposes.