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GuzmanTaedo&AcainInvestmentissuesinthePhilippines

PrimaryContact
316MileLongBuilding
AmorsoloStreet
LegaspiVillage
MakatiCity
1200Philippines
Telephone:(632)8941441
TeleFax:(632)8124296
email: gtalaw@gtalawphil.com

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Q.Whomayinvest?

GTALAW.Anyone,regardlessofnationalityiswelcometoinvestin
thePhilippinesinalmostallareas,anduptotheextentof100
percentownership.Therearehowever,someareasofeconomic
activities,whichaccordingtolaw,arereservedforPhilippine
nationals.Theseactivitiesarefoundinthe ForeignInvestment
NegativeList(FINL).

Q.Howmuchistheminimuminvestment?

BusinessHome

GTALAW.Forsimpleincorporationpaidcapitalrequirementsofthe
SecuritiesandExchangeCommission,theminimumpaidupcapitalis
P5,000.00.However, higherpaidupcapital isrequiredforspecialized
businesseslikeBanks,Lendingcompanies,InvestmentHousesand
ManningAgencies,businessEngageinVOIPServices,andRecruitment
Agencies.

ForeignInvestorswhowishtoownmorethan40%to100%of
thebusinessmayalsocomplyPhilippineinvestmentlaws.Republic
Act8179amendedRepublicAct7042 (ForeignInvestmentAct)reduced
theminimumpaidcapitalofforeigncompaniesservingthedomestic
marketfromUS$500,000toUS$200,000.Theminimummaybe
decreasedfurthertoUS$150,000ifacompanyusesadvanced
technologyascertifiedbytheDepartmentofScienceandTechnology
ordirectlyemploysatleast50employees.

IndividualinvestorsmayalsoinvestaminimumofUS$50,000.00to
US$75,000.00toqualifyforcertainvisaslikeSpecialInvestor's
ResidentVisaandSpecialRetireesResidentVisa.

Q.Canaforeigninvestorbeallowedtoowna100%ofa
businessentity?

GTALAW.Yes,onehundredpercent(100%)foreignequitymaybe
allowedinallareasofinvestmentsundertheForeignInvestmentsAct
(FIA)exceptfinancialinstitutionsandthoseincludedintheRegular
ForeignInvestmentNegativeList(FINL).However,foracompany
thatwilldobusinesslocallyorfordomesticmarket,itismandatory
thattheminimumamountofinvestmentshouldbeUS$200,000.00if
foreignownershipismorethan40%to100%.
Q.Isthereanexemptiontotheminimumcapitalinvestmentof
US$200,000.00iftheinvestorwouldliketoown100%ofthe
companybutonlyinvestsaminimalamount?

GTALAW.Yes,thereisanexemption.Youcanapplyforan
exemptionfromtheForeignInvestmentActattheSecuritiesand
ExchangeCommission(SEC),preferablyuponthefilingofyour
applicationforIncorporation,wheneveryourbusinessisconsideredan
exportmarketenterpriseanenterprisewhereinamanufacturer,
processororservice(includingtourism)enterpriseexportssixty
percent(60%)ormoreofitsoutput,orwhereinatraderpurchases
productsdomesticallyorexportssixtypercent(60%)ormoreofsuch
purchases.Butyouhavetosubmitadetailedbusinessplanincluding

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theoutlineofyourbusinesstargetsandprojections.

Q.Weareplanningtooperateacallcenterbusinessand/or
backofficeoperationinthePhilippines.Wewillbedoing
servicesforallourclientsintheUnitedStates,Canadaandthe
UK.Canweown100%ofthebusinesswithoutinvesting
US$200,000.00?

GTALAW.Yes,butyouhavetoapplyforanexemptionwiththe
SecuritiesandExchangeCommissionandprovethatyourbusinessis
consideredasanexportmarketenterprise.BusinessProcess
Outsourcing,CallCentersandBackOfficeOperationsareall
consideredexportmarketenterprisebecausemorethan60%ofits
serviceoutputisexported.

Q.WhataretheareasofinvestmentscoveredbyForeign
InvestmentsAct(FIA)?
GTALAW.TheFIAcoversallinvestmentareasexceptbankingand
otherfinancialinstitutions,whicharegovernedandregulatedbythe
BangkoSentralngPilipinas(BSP).
ForeignInvestmentNegativeListmeansalistofareasofeconomic
activitywhoseforeignownershipislimitedtoamaximumofforty
percent(40%)oftheoutstandingcapitalstockinthecaseofa
corporationorcapitalinthecaseofpartnership.
BelowareNegativeListsA&Bwhere:
ListA:referstoareasreservedtoFilipinosbymandateofthe
ConstitutionandSpecialLawssuchasbutnotlimitedto:
MassMediaexceptrecording,practiceoflicensedprofession,retail
trade,cooperativeandsmallscalemining,etc.whereforeign
ownershipisprohibitedAdvertising,ownershipofland,operationand
managementofpublicutilities,etc.,whereonlyminorityforeign
ownershipisprohibited.
ListB:referstoareasthataredefenserelated,thosewithadverse
effectsonpublichealthandmoralsanddomesticmarketenterprises
withpaidupcapitaloflessthanUS$200,000,providedtheyinvolved
advancedtechnologyasdeterminedbytheDepartmentofScienceand
Technology(DOST)ordirectlyemployatleastfifty(50)employees,
inwhichcase,thepaidupcapitalshallbeloweredtoUS$100,000only
tononPhilippinenationals
Q.Whencanforeignersdobusinessorinvestinadomestic
enterpriseupto100%ofitscapital?

GTALAW.Iftheproposedactivityheintendstoventureinisnot
amongthoselistedintheForeignInvestmentNegativeList.Ifthe
paidupcapitalfordomesticmarketenterpriseisatleast
US$200,000.00,whichmaybeloweredtoUS$100,000ifthefollowing
conditionsaremet:(1)Introductionofadvancedtechnologyor(2)
Employmentofatleast50directemployees.

Q.Whatarethekindsofinvestments?

GTALAW.Dependingonthetypeofincentivesdesired,thekindof
investmentunderE.O.226are:

BookIofE.O.226InvestmentwithIncentives
RepublicActNo.8756AmendingBooksIIIandIVof
E.O.226MultinationalCompaniesEstablishingRegionalor
AreaHeadquartersorRegionalOperatingHeadquartersinthe
Philippines

BookVSpecialInvestor'sResidentVisa
RepublicAct7916asamendedbyRepublicAct8748Special
EconomicZonesActof1995

BookII(ForeignInvestmentsWithoutIncentives)hasbeenrepealed
byRepublicActNo.7042ortheForeignInvestmentsActof1991,as
amendedbyRepublicActNo.8179.Foreignownedcompaniesnot
availingofincentivesarecoveredbytheprovisionsofthisAct.

Q.Inwhatformcanforeigninvestmentsbemade?

GTALAW.Ingeneral,"foreigninvestments"whichmeansequity
investments,canbemadeintheformofforeignexchangeorother
assetsactuallytransferredtothePhilippines.Thesenoncaseassets
maybeintheformofcapitalgoods,patents,formulae,orother

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technologicalrightsorprocesses.

Q.Whatarethebasicrightsandguaranteesgiventothesafety
offoreigninvestments?

GTALAW.Allinvestorsandenterprisesareentitledtothebasicrights
andguaranteesprovidedinthePhilippineConstitution.Amongother
rightsrecognizedbythegovernmentofthePhilippinesarethe
following:

RighttoREPATRIATIONOFINVESTMENTS
Inthecaseofforeigninvestments,therighttorepatriatetheentire
proceedsoftheliquidationoftheinvestmentsinthecurrencyinwhich
theinvestmentwasoriginallymadeattheexchangerateprevailingat
thetimeofrepatriation.

RighttoREMITTANCEOFEARNINGS
Therighttoremit,attheexchangerateprevailingatthetimeof
remittance,suchasmaybenecessarytomeetthepaymentof
interestandtheprincipalonforeignloansandforeignobligations
arisingfromtechnologicalassistancecontracts.

RighttoFREEDOMFROMEXPROPRIATION
Thereshallbenoexpropriationbythegovernmentoftheproperty
representedbytheinvestmentsorofthepropertyofenterprises
exceptforpublicuseorintheinterestofnationalwelfareanddefense
anduponpaymentofjustcompensation.Insuchcases,foreign
investorsorenterprisesshallhavetherighttoremitsumsreceivedas
compensationfortheexpropriatedpropertyinthecurrencyinwhich
theinvestmentwasoriginallymadeandattheexchangerate
prevailingatthetimeofremittance.

RighttoNONREQUISITIONOFINVESTMENT
Thereshallbenorequisitionofthepropertypresentedbythe
investmentorofthepropertyofenterprises,exceptintheeventof
warornationalemergencyandonlyfortheduration.Just
compensationfortherequisitionedpropertymayberemittedinthe
currencyinwhichtheinvestmentwasoriginallymadeandatthe
exchangerateprevailingatthetimeofremittance.

Q.WhatistheForeignInvestmentsAct(FIA)of1991?

GTALAW.ForeignInvestmentsAct(FIA)of1991(orRepublicAct
7042andRepublic8179)allowsforeignownershipofupto100%in
mostindustries,exceptthosespecifiedintheForeignInvestment
NegativeList(FINL).
Investorswhodonotseekincentivesand/orwhosechosenactivities
donotqualifyforincentives,(i.e.theactivityisnotlistedintheIPP,
andtheyarenotexportingatleast70%oftheirproduction)maygo
aheadandmaketheinvestments.Theyonlyhavetobeguidedbythe
FINL.
TheFINLclearlydefinesinvestmentarearequiringatleast60%
Filipinoownership.Allotherareasoutsidethislistarefullyopento
foreigninvestors.
Q.Wheretofileinvestmentapplicationswithoutincentives?
GTALAW.PartnershiporCorporation(whetherstockornonstock),
notseekingincentives,cangodirectlytotheSecuritiesandExchange
Commission(SEC)toregisteritsArticlesofPartnershipor
Incorporation.
SingleproprietorshipneedonlytogototheBureauofTrade
RegulationandConsumerProtection(BTRCP)ortotheDTIRegional
officesintheregion
Q.Whatrequirementsmustbecompliedwithbeforeaforeign
corporationcanengageinbusinessinthePhilippines?
GTALAW.Beforeaforeigncorporationcanengageinbusinessinthe
Philippines,itmustfirstsecurethenecessarylicensesorregistration
certificatesfromtheappropriategovernmentagencies.Generally,the
registrationprocessstartswiththeSecuritiesandExchange
Commission(SEC).
Iftheproposedprojectoractivityqualifiesforincentives,theforeign
investormayfileitsapplicationwiththeappropriategovernment
agencydependingontheprojectslocation.
Q.Areinvestmentincentivestransferable?
GTALAW.Ingeneral,investmentincentivesarenottransferable.Tax

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creditcertificatesmay,however,betransferredsubjecttocertain
conditions.Inthecaseoftaxcreditcertificatesissuedpursuanttothe
ExportDevelopmentActof1994,saiddocumentsareconsidered
negotiableinstrumentsandmaybetransferredtoanyperson,natural
orjuridical,excepttolocalgovernmentunits.
Q.Doesourproposedprojectqualifyforregistrationwiththe
BOI/PEZA?
GTALAW.ToqualifyforregistrationwiththeBOIforincentive
purposes,theproposedforeigninvestmentmustbemadeinanyof
thefollowing:
preferredareasofinvestmentlistedinthecurrentInvestment
PrioritiesPlan(IPP).Apreferredareamaybedeclaredpioneerifit:
(1)involvesthemanufacturingorprocessing(notmerelyassemblyor
packaging)ofgoodsorrawmaterialsthathavenotbeenproducedin
thePhilippinesonacommercialscale(2)usesadesign,formula,
scheme,method,processorsystemofproductionortransformationof
anyelementorrawmaterialintoanotherrawmaterialorfinished
goodwhichisnewanduntried(3)engagesinagricultural
activities/servicesessentialtotheachievementofthecountry'sself
sufficiencyprogramand(4)producesnonconventionalfuelsor
manufacturesequipmentwhichutilizenonconventionalsourcesof
energyprovidedthatthefinalproductinanyoftheforegoing
instancesinvolvessubstantialuseandprocessingofdomesticraw
materials
Enterprisesengagedinpreferrednonpioneerareasandexportingat
least70%oftheiroutputand
Projectsinlessdevelopedareasprovidedthattheactivitiesinallof
theabovecasesarenotreservedforPhilippinenationals.
Ontheotherhand,theprojectsthatmayqualifyforregistrationwith
PEZAarethosethatinvolvemanufacturingforexportandthe
domesticmarket,freetrade,tourism,informationtechnology,
utilities,facilitiesenterprisesincludingthoseengagedinwarehousing
andtradingoperationsintheecozonesanddevelopmentandoperation
ofecozones.
Q.HowdoesonefileanapplicationwiththeBOI/PEZA?
GTALAW.Anapplicationshallbemadeintheformprescribedbythe
BOI/PEZAintwo(2)copiesandproperlysworntobeforeanotary
public.Aprojectfeasibilitystudyisrequiredasoneoftheprimary
documentssupportingtheapplicationforregistration.
Q.Whatpossibleobstacleswouldourapplicationmeet?
GTALAW.Theobstaclesnormallyencounteredinthefilingof
applicationsincludenoncompliancewiththecriteriasetbytheBOI,
misinterpretationofthecoverageofactivitieslistedintheIPP,failure
tosubmittherequiredsupportingdocumentsandprojectfeasibility
studyandpossibleoppositionfromsectorsorenterpriseswhichmight
beadverselyaffectedbytheproposedproject.TheBOIrequires
publicationofthenoticeofapplicationandconductshearingsif
objectionstotheapplicationarereceived.ForPEZAapplicants,the
usualproblemconsistsofnoncompliancewithsomeofthecriteriaset
byPEZAandfailuretosubmitrequireddocumentsandinformation.
Q.HowlongwillittaketoobtainBOI/PEZAapprovalonceall
requirementsarecompliedwith?
GTALAW.Underthe1987OmnibusInvestmentsCode,applications
filedwiththeBOIshallbeconsideredautomaticallyapprovedifnot
acteduponbytheBoardwithintwenty(20)workingdaysfromofficial
acceptancethereof,subjecttotheusualtermsandconditions.
InthecaseofPEZA,theprocessingandevaluationbytheappropriate
departmentusuallytakesabouttwoweeks.Thedecisiononthe
projectismadeduringthebimonthlymeetingsofthePEZABoard.
Q.Assumingapprovalisobtained,whatrestrictionsare
ordinarilyattached?
GTALAW.Alistofgeneralandspecifictermsandconditionsis
normallyattachedtotheapprovalletterissuedbytheBOI/PEZAupon
approvaloftheapplicationforregistration.Thegeneralconditions
includecertainmanagement,financial,operationalandmarketing
restrictionswhichmustbeproperlycompliedwithsoastoavoid
groundsforcancellationofregistration.Thespecifictermsand
conditionswhichmayincludenationality,operationalandreporting
requirementsvarydependinguponthenatureofthebusiness

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enterprise.
Q.Howmuchtimeisaninvestorallowedtostarthisproject?
GTALAW.Theamountoftimeallowedforstartingaregistered
projectdependsonthetypeoftheproposedprojectandtheperiodset
bytheproponentinthefeasibilitystudywiththeapprovalofthe
BOI/PEZA.

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LegaspiVillage
AmorsoloStreet
MakatiCity
Telephone:8941441
TeleFax:8124296
email: gtalaw@gtalawphil.com

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