Can Foreigners / Foreign Companies Do Business in the Philippines?
By: Noel C Ducusin
Understanding the Foreign Investments Negative List
One of the most searched questions on the Internet regarding doing business in the Philippines is whether or not foreigners or foreign companies can do business in the Philippines.
There are just too many resources and scholarly articles out there that it is almost impossible not to get bogged down by the details. Try as we might, after hours of endless research, we still end up with just a hazy understanding of the overall picture.
I'm here to simplify this for you, point you in the right direction and will try my best to minimize or better yet, eliminate your overwhelm.
That being said, I suggest that you focus your efforts and sharpen your understanding of a single regulation. i.e. the Foreign Investments Negative List. With this as the starting point, every other research or scholarly article you will eventually come across will tend to fall neatly into place within the structure of the said Foreign Investments Negative List which we will discuss below.
The Bottom Line
Yes – foreigners or foreign companies can do business in the Philippines.
The main thing to be mindful of this type of activity that the company will engage in which in turn gives the percentage amount of share ownership/equity that foreigners me may own in the company.
The important thing to note is that when it comes to the percentage of share ownership, the restriction is based on the amount of equity position in the company and does not relate directly to actual management control.
We will be producing a separate how-to blog article on this site on how to achieve management control despite minority share position. You may wish to look up when you have more time.
An additional important thing to note is that even if the activity is 100% reserved for Philippine nationals, all that this usually means is that no amount of foreign ownership in the company is allowed. This does not mean that a foreign company cannot participate in the activity in other indirect ways such as by providing financing, technical expertise and advice, and the like.
We will be producing a separate how-to blog article on this site on how to achieve management control despite minority share position. You also may wish to look up when you have more time.
In other words, there are indeed workarounds that allow foreigners or foreign companies to participate in these restricted activities while still being compliant with local regulations.
How the Negative List Is Organized
Now that we have our starting point where to look, I suggest that you don't dive into the details of the list just yet.
It is always helpful to first get a brief overview of how the list is structured, i.e. "getting the lay of the land" so to speak, before going into the nitty gritty details of the list. This way you don't get overwhelmed by a sea of details and lose sight of the big picture. This way, if you find any support material, later on, it will be very much easier for you to please this in the appropriate categories of the list into a much less scattered understanding of it.
Basically, the negative list is divided into two broad categories specifically "List A" and "List B".
Each List is in turn organized into sub-categories but this time, not by industry or activity, but instead by the percent of foreign ownership allowed, e.g. 0%, 25%, 30%, and 40%. You will also notice that when it comes to the foreign ownership equity percentages, these percentages are usually tied to a minimum capitalization figure. This minimum capitalization the press to equity capitalization, i.e. share capital, and not funding the debt or loan. Of course, this capital can be immediately deployed for any business purpose including but not limited to the purchase and importation of raw materials, land and office equipment, lease and renovation of land or office space, employee payroll, and the like.
We will be producing a separate how-to blog article on things to consider when funding your local company from offshore.
We will discuss below how these two categories are organized.
List A
This list refers to activities that have been either restricted or partially restricted on the basis of the Philippine Constitution or specific statutes.
The beauty of this list is that it is, in effect, a compilation of various laws and regulations on the matter which basically does your research for you. Thus, instead of haphazardly searching online and hoping to stumble upon something of relevance, all you need to do is to check in one place and have everything neatly packaged for you.
List B
This list covers activities that are restricted or partially restricted not because of any specific law or regulation, but because of government policy on security, risk, and the protection of small and medium enterprises.
The minimum capitalization provisions are more apparent in this list particularly because it deals with the production of small and medium enterprises whereby the amount of capitalization is used as the method that determines whether or not an enterprise is "small or medium".
Clickable Legal Reference
Now that you have the basic flow and structure of the negative list, it's time to go into its details.
We will be discussing some of its more common industry sectors, e.g. retail trade, the domestic market enterprise, and real estate investments, via separate bite-sized how-to blog articles elsewhere on this site.
In the meantime, you may click here to access the full text of the foreign investments negative list.
Please note that the negative list is amended from time to time every few years or so. The negative list in the above link is the latest one just issued this year.
We hope this content was helpful and presented in a simple and user-friendly manner for you. For additional related content please see our other blogs on this site.
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About the Author
Atty. Noel C. Ducusin is an M&A lawyer who has advised boards, business owners, investors, and family offices on strategic transactions and business transformation for nearly three decades. As Director for M&A at DoingBusinessPH and Senior Partner at N. Ducusin & Partners Law Offices, he advises on mergers and acquisitions, strategic partnerships, capital raising, corporate restructuring, and cross-border investments, while helping international companies establish, invest, and grow in the Philippines. Beyond advising on transactions, he also helps create them by connecting investors, business owners, executives, and advisers whose strategic interests align, believing that many successful opportunities begin with a simple conversation. Through this blog, he shares practical, plain-English insights to help foreign investors, business owners, directors, and executives make better strategic decisions.
"Everything should be made as simple as possible, but no simpler." — Albert Einstein
Connect with him on LinkedIn to compare notes on strategic opportunities and future possibilities.