Due to the driving factors like tropical climate, the warmth of Filipinos and great opportunities for investment, more and more foreigners are interested to start a business and settle in the Philippines. Not long ago, the country adhered to a protectionist policy, implementing numerous restrictions on complete foreign ownership for businesses. Like, retail business was reserved exclusively for Filipino citizens. But that was changed when the government brought in the legislation of the Trade Liberalization Act of 2000 allowing the entry of foreign capital in the Philippine retail trade industry.
It seems that the tides changed once again for foreigners who were looking for investment opportunities in the Philippines. A new law was passed in the latter part of August 2016, which saw a permanent change in the course of Philippine commerce and industry. To attract and promote investments from foreign individuals, partnership, corporation, and government including the political subdivisions in activities that significantly contribute to the industrialization, socio-economic development, and sustainable investment growth, Republic Act No. 10881 came into the picture.
Republic Act No. 10881 is an act amending investment restrictions in specific laws governing adjustment companies (insurance companies), lending companies, financing companies, and investment houses. The law has allowed 100% foreign ownership in adjustment, lending, and financial companies as well as investment houses. The law was passed taking into consideration the country’s developmental objectives and the need to increase investments. Previously, foreign investors were allowed up to 60% ownership in financing companies and investment houses, 69% for lending companies as well as 40% for adjustment companies.
Let us now get into the in-depth information about each category.
Finance companies are organizations offering loan benefits or credits to individuals as well as businesses. These companies are required to be registered as a corporation under the Securities and Exchange Commission. They are also supposed to secure a legitimate certificate of registration from SEC. Finance companies which are subsidiaries of banks or non-bank financial institutions with quasi banking license are regulated and monitored by the Bangko Sentral ng Pilipinas. As said earlier, prior to the amendments, foreigners could only own up to 60% of investment, finance, and lending firms. They, too, can own up to 40% of insurance adjustment firms. While these parameters seem reasonable, one other clause added to the restriction. The law also set a P10-million minimum requirement for paid up capital for finance companies in Metro Manila, P5 million for other classes of the cities outside the national capital, and P2.5 million in municipalities.
According to the Insurance Commission (IC) Authorities, the Republic Act (RA) which lifts foreign ownership restriction on adjustment companies, would open up the industry to foreign players and encourage local stakeholders to become more competitive. The law would also compel local players to improve the quality of their services in view of the competitive business climate, which would ultimately benefit the insuring public.
According to the legislation passed by the government, a lending company may be owned completely by foreigners provided that the loan is secured by land, a lending company having more than 40% of the capital owned by a foreign national, may bid and take part in any sale of such land as a consequence of such mortgage, avail of enforcement proceedings, take possession, and transfer their rights to qualified Philippine nationals for a period not exceeding five years from actual possession. It further says that title to said land must not be transferred to such lending companies and finally, the investments of a lending company shall be in accordance with the provisions of the Constitution.
An investment house may be fully owned by a foreign national and the person can also become a member of the board of directors to the extent of the foreign participation in the equity of said enterprise.
Of course, while the companies themselves can be owned by foreign nationals, Republic Act No. 10881 is still subject to the constitutional proscription that foreigners cannot own real estate in the Philippines. Thus, while these new 100% foreign-minted companies may engage in business, they will have to assert with the constitutional proscription on ownership of real property.