Foreign Investments Reviewer

ATENEO LAW SCHOOL
ELECTIVE
L.T.J.F.
FOREIGN INVESTMENTS LAW

[ATTY. HOFILENA]
1st Semester S.Y. 2013-2014

I. Foreign and Domestic Corporations
Foreign Corporations
Corporations organized under any laws
other than those of the Philippines
Reciprocity Clause (Corporation Code)
foreign corporation's home country
allows Philippine Corporations to do
business in it
Reciprocity clause does not affect the
status of the foreign corporation
It merely emphasizes the policy of
granting access to foreign corporations
whose home state also grants access to
Filipino citizens and corporations
Philippine Nationals (FIA definitions)
Citizen of the Philippines
Domestic partnership or association
wholly owned by Philippine nationals
Domestic corporations
Organized under Philippine laws
At least 60% of the outstanding
capital stock entitled to vote is held
and owned by Filipinos
Trustee of funds for pension
Trustee is a Philippine national
At least 60% of the fund will accrue
to Filipino beneficiaries
Corporation owning stocks in a SECRegistered enterprise (corporation)
At least 60% of the outstanding
capital stock entitled to vote of both
corporations is held and owned by
Filipinos
At least 60% of the members of the
Board of Directors of both
corporations must be citizens of the
Philippines
License to Do Business
Grants foreign corporation or entity
access to domestic courts
Purpose is to acquire jurisdiction over
the foreign business entity

Licenses and permits
Certificate of authority for
regulated industries and businesses
License general permit to do
business
Where to obtain license/permits
Corporations SEC
Sole Proprietorship DTI
Certificate of authority
government agency concerned
(BSP, Insurance Commission, etc)
Penalties
No access to courts
Fines (Sec. 144 Corporation Code)
Summary
Transaction
Doing
Business
May Sue
May be Sued
No License: NO
No License: YES
With License: YES With License: YES
Isolated
YES: by mere
Transaction consent or
voluntary
surrender
GR: NO no
jurisdiction over
foreign corp.
Except: consent
through a
contractual
stipulation
II. Concept of Doing Business

Acts of Doing Business
FIA Definitions
Soliciting orders, service contracts
Opening of offices
Appointing distributors or
representatives who are:
Domiciled in the Philippines
Staying in the country for a period
totaling 180 days or more in a
calendar year
Participating in the management or
control of any domestic business
Any other acts that imply a continuity
of commercial dealings
Sources:
Republic Act 7042, Foreign Investments Act of 1991
Executive Order No. 226, Omnibus Investments Code of 1987
Villanueva, Cesar, Philippine Corporate Law, Manila: Rex Printing Company, 2010
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Not Deemed Doing Business (FIA IRR)
Mere investment as a shareholder in
domestic corporations
Exercise of rights of such investor
(shareholder)
Having a nominee director or officer to
represent the foreign investor's interest
in the domestic corporation
Appointing a distributor domiciled in the
Philippines which transacts business in
its own name and account
Publication of a general advertisement
Maintaining a stock of goods in the
Philippines solely for the purpose of
having the same processed by another
entity in the Philippines
Consignment by a foreign entity of
equipment with a local company to be
used in the processing of products for
export
Collecting information in the Philippines
Performing services auxiliary to an
existing isolated contract of sale which
are NOT on a continuing basis
NOTES:
The 180-day stay must fall within the
Calendar Year (Jan. 1 Dec. 31). If the
period falls on 2 different consecutive years,
the duration is deemed for 2 different periods.
Engaging in mortgage contracts is not
considered as doing business. A foreign
mortgagee enforcing a mortgage contract is
not considered to be doing business
Soliciting Orders vs. Advertisements
Solicitation is a specific transaction thus
considered as doing business
Advertising is more general (not
directed to a specific client) thus not
considered as doing business
Broker vs. Sales Agent
An agent receives commission upon the
successful conclusion of a sale
A broker earns his pay by merely

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bringing the buyer and seller together,
whether or not a sale is made.
Primary Purpose vs. Incidental Purpose
A business activity NOT in the usual
course or purpose of a business entity
It is an incidental activity compared to
its purpose
Eg: a Bank operating a hotel
License and Capacity to Sue
1. If a foreign corporation does business
in the Philippines without a license, it
cannot sue before Philippine courts
2. If a foreign corporation is NOT doing
business in the Philippines, it needs no
license to sue before Philippine courts
on an isolated transaction
in the Philippines without a license, a
Philippine citizen which has contracted
with said corporation may be estopped
from challenging the foreign
corporation's capacity to sue. NOTE:
The estoppel doctrine is an exception to
the general rule but is relevant only
when a foreign corporation is suing
Filipino party.
in the Philippine with the required
license, it can sue before Philippine
courts on any transaction
Case Doctrines
Agilent Tech v Integrated Silicon to
constitute doing business, the activity to be
undertaken is one that is for profit-making
Alfred Hann v CA For purposes of having
summons served on a foreign corporation, it is
sufficient that it be alleged that the foreign
corporation is doing business in the Philippines
Avon Insurance v CA A single transaction
could qualify a foreign corporation to be doing
Sources:
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business in the Philippines if such transaction
indicates an intention of the foreign
corporation to do business in the Philippines
B Van Zuiden v GTVL The mere act of
exporting from one's own country without
doing any specific commercial acts within the
territory of the importing country cannot be
deemed as doing business in the importing
country
Eriks Pte v CA A series of separate deliveries
for one single order is considered as an
isolated transaction. However, a series of
commercial dealings (unique and independent
from one another) signifies an intent to do
business in the Philippines. A grant of a 90-day
credit term is proof of an intention to continue
transacting with the domestic client.
European Resources v Ingenieuburo a
foreign corporation doing business in the
Philippines without a license may sue in
Philippine courts a Philippine citizen or entity
that had contracted with and benefited from it
General Garments v Director of Patents A
foreign entity bringing an action to protect a
trademark right needs no license to do
business in order to access the domestic
courts because it does not seek to enforce any
contractual right arising from any business
transaction
Litton Mills v CA where a single act or
transaction of a foreign corporation is not
merely incidental or casual but is of such
character as distinctly to indicate a purpose on
the part of the foreign corporation to do other
business in the state, such act will be
considered as constituting doing business.
Lorenzo Shipping v Chubb Capacity to sue is
a personal qualification, thus if successor in
interest of the disqualified entity is qualified to
sue, then the restriction does not apply

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Steelcase Inc v Design Intl A letter of intent
to enter a bid is not an act sufficient enough to
constitute an intent to do business. A bidder
must win the bid first before acquiring a
license
Tuna Processing v Phil Kingford A foreign
corporation not licensed to do business in the
Philippines may still gain access to domestic
courts through an international treaty or
convention (in this case, the recognition the
Alternative Dispute Resolution Act of 2004,
New York Convention)
Universal Shipping v IAC A foreign entity
may bring an action in Philippine courts to
enforce an insurance policy, executed abroad,
even if it has no license to do business since
such insurance contract did not arise from a
business transaction done here in the
Philippines.
Non-Stock and Non-Profit Foreign Corporation
Such corporations are permitted to
generate profit
What is prohibited is the distribution of
profits to its members
Technically, non-stock corporations are
not required to secure a license since
they are not doing business
However, in practice, such corporations
still need a license
III. Vehicles of Doing Business
Different Types of Entities
Domestic Subsidiary
Branch Office
Representative Office
Regional Headquarters
Partnership
Domestic Subsidiary
Forming and registering a domestic
corporation with a juridical personality
separate from parent company
Majority of the incorporators must be
Sources:
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natural persons and residents of the

Philippines
If foreign equity is more than 40%
there must be a minimum paid up
capital of $200,000 (which must be
remitted into the Philippines).
If subsidiary will be exporting goods or
generating 60% of its gross sales from
abroad it will be considered as an
Export Enterprise, hence the minimum
paid up capital of $200,000 is not
required
Capitalization requirement does not
apply to enterprises involving advanced
technology and will employ at least 50
employees
Branch Office
A 100% foreign-owned entity does
not have a separate entity from its
parent corporation
Parent corporation is liable for the
liabilities of its branch office
Foreign corporation's head office must
prove:
Existence in country of origin
Financial soundness
Authorization to set up branch
Involves $200,000 capitalization
(remitted/deposited)
If engaged in advanced technology or
the branch office employs at least 50
direct employees, only $100,000
capitalization is required
Foreign head office must appoint and
register a resident agent
If resident agent is a foreigner, s/he
should be a holder of a valid Philippine
visa, which entitled the holder to stay
in the Philippines for at least 1 year
Representative Office
Has limited functions:
Undertake information
dissemination
Promote parent company's products

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Provide quality control of the
products
Can only deal with the clients of the
parent company
Does not or is not allowed to generate
income
Head office must prove annual inward
remittance of $30,000.00 (not a
security deposit) to cover operating
expenses of the representative office
Regional Headquarters (RHQ)

Functions:
Coordinate with the other entities of
the parent company in the region
Be the coordination and
communication center for its
affiliates, subsidiaries and branches
in the Asia-Pacific Region and other
foreign markets
Not allowed to do business or earn
income
Parent company of the RHQ office may
market and sell products to other
companies except for the RHQ office
Required to deposit an initial remittance
of $50,000.00
Tax incentives: exemptions from
corporate income tax, local taxes, fees,
charges and VAT
Partnership
General Rule: Corporations cannot be
partners
However, the SEC started opening up to
the idea and has allowed corporations
to form partnerships
Must have at least 1 general partner
(for liability purposes)
Summary
Cost
Domestic
Corp
Partnership
Branch
Office
RHQ
Capital
$200K
$200K
$200K
NONE
Security
Deposit
Generally
NONE
NONE
YES
YES
Sources:
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Separate
Juridical
Entity
YES

[ATTY. HOFILENA]
YES
Flexibility Stockholder's Not bound

of
meeting
by any
operation
Majority of
legal
Board must procedures
be Phil.
residents
NO
NO
Not
bound
by any
legal
procedu
res
Not
bound
by any
legal
procedu
res
Taxes
Subsidiary
Branch Office
Regional HQ
Taxed on
worldwide
income
Only Philippine
Not allowed to
source income is generate
taxed
income
Dividends paid
are taxed
Branch profit
remittances are
taxed
Not subject to
local taxes and
VAT
IV. Grandfather Rule

Concept and Application
Applies to nationalized industries under
the Philippine Constitution
60:40 rule corporation, in certain
industries, must be at least 60%
Filipino-owned
Rule states that ownership of the
investing corporation is counting in
calculating how much capital is
controlled by Filipino citizens. This test
is applied up to the 2nd level of
corporate ownership
It does not consider a corporation, the
majority (50%+1) of which is
controlled by Filipinos, a 100% Filipino
entity
Previously, the control test is applied as
the general rule and the grandfather
rule is applied in case compliance with
the 60:40 rule is in doubt
Control Test vs. Grandfather Rule
The SEC, SC and DOJ has been
switching its stand as to which test
should apply
1989 DOJ Control Test
1990 SEC Control Test

2010 SEC Grandfather Rule
SEC Memo Circular 8 (2013)

SEC gave a new interpretation of the
rule on Filipino ownership
The required percentage of Filipino
ownership shall be applied to BOTH:
Total number of outstanding shares
of stock entitled to vote -AND Total number of outstanding shares
of stock whether or not entitled to
vote
The memo pretty much overturned the
Gamboa v. Teves Case
Case Doctrines
Redmont v Macarthur
There is doubt as to the 60:40 rule
since the financial resources originated
from a foreign corporation
SEC considers the financial resources as
a factor in testing control in a
corporation
He who controls the financial resources
wields the power of control
The economics are now considered in
determining control
In Matter of Rehabilitation of Bayantel
Conversion of Debt into Equity of a
foreign creditor
Problematic if equity is voting since
there is a 40% limit on foreign
ownership
What if the holding exceeds the 40%
limit?
There will be a disqualification to
hold the nationalized industry but
no specific penalties will be imposed
(disqualification is merely a status)
Gamboa v Teves
Defined the phrase effective control
Contemplates shares that are entitled
Sources:
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to vote + receive dividends

The Filipino-controlled stocks do not
mean the total outstanding capital
stock
Gamboa v Teves (M.R.)

Added a qualification - every share
must be 60% Filipino-owned
Each class (Preferred and Common)
must be 60% Filipino-owned
Controversial because it has no legal
basis
The added qualification may be
argued to be merely an obiter
NOTE: See note on SEC Memo Circular
No. 8 Series of 2013
V. Nationality Restrictions
Filipino First Policy
In the grant of rights and concessions
covering the national economy and
patrimony, the State shall give
preference to qualified Filipinos (Art.
XII, Sec 10, 1987 Constitution)
Does not exclude or prejudice foreign
trade and investments
Filipinos are given priority but should
they be always allowed to win?
Tanada v Angara
The WTO Agreement contained parity
provisions and national treatment
clauses
It was argued that the clauses placed
foreigners on equal footing with
Filipinos thus violating the Filipino First
Policy of the Constitution
SC ruled that the policy, like the other
principles and State policies, is NOT
self-executing. It is not an enforceable
constitutional right, but merely a
guideline for legislation
The policy is not aimed to destroy free
competition in the foreign and domestic
markets but rather to protect Filipino
enterprises against unfair foreign

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competition and trade practices

The policy of a self-reliant and
independent national economy does not
rule out the entry of foreign goods,
services and investments. It
contemplates neither economic
seclusion nor mendicancy in the
international community
Manila Prince Hotel v GSIS

A difficult case since it seemed to rule
that the policy is self-executing
National Patrimony is not limited to
national resources but national heritage
is also included
But is it up to the courts to decide what
is part of the national patrimony and
what is not?
National Resources
Regalian doctrine all lands, waters
and natural resources are property of
the State
Exploitation, development and
utilization of natural resources shall be
under the full control of the State
Options for the State in exploitation
Direct exploitation activities
Co-production, joint venture or
production-sharing agreements with
Filipino citizens or corporations or
associations at least 60% of whose
capital is owned by Filipinos
Small-scale utilization of natural
resources by Filipino citizens
granted by Congress by law
Technical or financial assistance
agreements with foreign-owned
corporations entered into by the
President
La Bugal Tribal Association v Ramos
The Financial/Technical Assistance
Agreements (FTAA) should be limited
only to financial and technical
assistance
FTAA is not a service contract where
Sources:
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the foreign entity may participate in the

management of the enterprise
Foreign investors, through FTAA's, are
limited only to providing:
Technical assistance for highly
technical enterprises
Financial assistance for large-scale
enterprises
Pretty much the foreign investor is
limited to passive participation
IDEALS v PSALM
Use of water resources means
extracting the water from its natural or
original source
Only Filipino entities may extract and
appropriate such resources
Extraction of water eg: deep well
extraction
By law (EPIRA - Electric Power Industry
Reform Act of 2001), power generation
is NOT a public utility hence no
franchise is necessary
The procurement of the water
resources for power generation is the
task of the National Power Corporation
not the foreign entity managing the
hydro-power plant
Land Ownership
Regalian doctrine all lands belong to
the State
Alienable lands of the public domain
shall be limited to agricultural lands
Private corporations or associations
may not hold alienable lands but may
lease them for a period not exceeding
25 years, renewable for not more than
25 years and not exceeding 1000
hectares in area
Individual citizens may lease not more
than 500 hectares or acquire more than
12 hectares by purchase or grant
A transfer of land from one private
entity to another private entity is
outside the purview of this prohibition
The limits on ownership and lease apply

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only to transfers from the State to a
private entity
Chavez v Public Estates Authority
Reclaimed lands are classified as
alienable public lands
However, they must first be classified
as agricultural lands in order to be held
by private corporations and entities
If they are not classified as agricultural
lands, private entities are disqualified to
own them
Lee v Republic
When land previously held by
disqualified individuals is transferred to
a qualified individual, the subsequent
transfer cures the defect brought by the
disqualification of the transferor
Land held by the qualified transferee is
deemed to be cured of the defect
Public Utilities
Franchises shall be granted only to
Filipinos or to corporations organized
under the laws of the Philippines at
least 60% of whose capital is owned by
such citizens
All executive and managing officers of
such corporation or association must be
citizens of the Philippines
JG Summit Holdings v CA
PHILSECO (Philippine Shipyard and
Engineering Corporation) is NOT a
public utility
By nature, a shipyard is not a public
utility and no law declares it as such
Bagatsing v CoP
Petroleum imported abroad and refined
in the Philippines is not part of the term
Public Utility
Petroleum extracted in the Philippines,
processed and refined here a public
utility since the extraction and refining
is a service (utility) for the public
Sources:
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Educational Institutions
Constitutional Limits:
Ownership is limited to Filipino
citizens or corporations 60%
Filipino-owned
Exceptions: Those established by
religious groups or mission boards
Control and administration shall be
vested in the citizens of the
Philippines
No educational institution shall be
established exclusively for aliens
Exception: schools for foreign
diplomatic personnel and their
dependents
It does not matter if the restricted
activity is primary or incidental to the
overall business of the foreign entity.
The restriction still applies
Eg: Hospitals having a nursing school
Hospital is not regulated/restricted
School is regulated/restricted
Crisostomo v SEC
Foreigners practicing professions in the
Philippines a regulated activity
But mere investment in a corporation
(eg: foreign doctors investing in a
domestic hospital corporation) is not
deemed to be a practice of profession
But public hospitals are considered
public utilities thus ownership is still
regulated
Mass Media and Advertising
Ownership and management of mass
media shall be limited to Filipino
citizens and corporations or
associations wholly-owned and
managed by Filipinos (100% ownership
and control)
Only Filipino citizens or corporations
70% Filipino-owned shall be allowed to
engage in the advertising industry
All executive and managing officers of

[ATTY. HOFILENA]
such entities must be Filipinos
Retail Trade Law
Republic Act 8762
Retail the occupation of habitually
selling direct to the general public
merchandise or goods for consumption
This Act is NOT applicable to:
Sales by a worker or producer if his
capital does not exceed Php100,000
Sales by a farmer selling products
of his farm
Sales in restaurants by a hotel
owner provided the restaurant is
incidental to the hotel business
Sales limited to products
manufactures by a manufacturer
through a single outlet irrespective
of capital
Categories of Foreign Equity Participation
Category
Paid Up Capital
May be Owned by
Less than $2.5

Million
Filipino citizens and

corporations 100%
Filipino-owned
$2.5 - $7.5
Million
May be wholly owned

by foreigners
$7.5 Million and

above
May be wholly owned

by foreigners
[for establishing stores
- $830,000 per store]
Enterprise
selling luxury
products
May be wholly owned

by foreigners
[for establishing stores
- $250,000 per store]
NOTE: The amounts are in US dollars
Qualifications of Category B & C Investments

1. Net worth:
1. $200 Million net worth of the parent
corporation for category B & C
2. $50 Million net worth of the parent
corporation for category D
2. 5 retailing branches or franchises
anywhere around the world unless the
Sources:
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retailer has at least 1 store capitalized
at $25 Million
3. 5-year track record in retailing
4. Reciprocity rule: The country or States
of such foreigners also allow Filipino
retailers in such country or State
B & C Investments IPO Requirement
If foreign ownership exceeds 80%
Required to offer a minimum of 30% of
equity to the public
Within 8 years from the start of its
operations
Espina v Zamora
The constitutionality of the Retail Trade
Act is questioned
While the Constitution mandates bias in
favor of Filipino business, it also
recognizes the need to do business with
the rest of the world on the bases of
equality and reciprocity
There is a Constitutional provision
allowing congress discretion to reserve
to Filipinos certain areas of investments
upon recommendation of NEDA
Reservation of certain industries is an
exercise of Police power of the State
Anti-Dummy Law
If a party makes it appear that a
Filipino owns a franchise or right when
in fact he is not
Prohibitions on:
Ownership (60-40 rule)
Acts of management
Exception: Technical personnel
whose employment may be
authorized by the Secretary of
Justice
People v Quasha
The Constitution does not prohibit the
mere formation of a public utility
without the required formation of
Filipino capital.
What is prohibited is the granting of

[ATTY. HOFILENA]
franchise for the operation of a public

utility to a corporation already in
existence but without the requisite
Filipino capitalization
Primary Franchise to invest a body of
men with corporate existence
(formation)
Secondary Franchise the privilege to
operate as a public utility (operation)
The Secondary Franchise is the one
regulated by law
Roque v COMELEC
The foreign entity (Smartmatic) is given
a specific and limited technical task
At the end of the day, the foreign entity
is merely a service provider and lessor
of goods and services to COMELEC
The COMELEC retains exclusive control
and supervision of the electoral process
Sui Bi v CA
Funding by a foreigner is allowed:
If it is a donation in good faith
If it is really a loan
If there is no intent for the foreigner
to acquire interest over the business
being invested in or circumvent the
limitations set by law
What is prohibited by the anti-dummy
law were the acquisition by an alien for
himself of private lands in the
Philippines
VI. Investment Incentives
Omnibus Investments Code
Not later than the end of March of
every year, the Board of Investments
shall submit to the President an
Investment Priorities Plan
The Board of Investments may, at any
time, add additional areas in the plan
or alter any of the terms thereof
Preferred Investments
Pioneer Enterprises
Sources:
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Enterprise which uses a formula,
design or system of production
which is new and untried inn the
Philippines
Manufacture of goods, raw materials
which are not being produced in the
Philippines on a commercial scale
Agriculture, forestry and mining
activities and/or services including
the industrial aspects of food
processing
Production of non-conventional fuels
or manufactures equipment which
utilize non-conventional sources of
energy
Non-Pioneer Enterprises
All registered producer enterprises
other than pioneer enterprises
Registration of Enterprises (Qualifications)

1. Citizenship Requirements
General Rule: Filipino citizens or
corporations 60% Filipino-owned
Exceptions:
Pioneer activities (not within the
activities or industries reserved
by the Constitution)
Export enterprises (at least 70%
of total production is exported)
2. Listed Activity The activity is listed in
the current Investments priorities plan.
If not on the list, the entity may still be
registered if the at least 50% of the
total production of the business is for
export
3. Capacity to Operate Applicant is
capable of operating in a sound and
efficient basis of contributing to the
national economy
4. Separate Accounting System If
applicant is engaged in another
enterprise other than the preferred
projects, it has an accounting system
adequate to identify the records of the
preferred project separately from the
aggregate accounting records of the
whole enterprise

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Basic Rights and Guarantees

Repatriation of Investments
Remittance of Earnings
Foreign Loans and Contracts Right to
remit to meet the payments of foreign
loans and obligations arising from
technological assistance contracts
Freedom from expropriation except
for public use in the interest of national
welfare or defense and upon payment
of just compensation
Requisition of Investment No
requisition of the property invested
except in the event of war or national
emergency and only for the duration
thereof
Common Incentives to Registered Enterprises
Income Tax Holiday Full exemption
from income tax
6 Years for pioneer firms
4 Years for non-pioneer firms
Extension for another year in each
of the following cases:
the project meets the prescribed
ratio of capital equipment to the
number of workers set by the
Board
Utilization of indigenous raw
materials at rates set by the
Board
Net foreign exchange savings or
earnings amount to at least
US$500,000 annually during the
first 3 years of operation
Maximum period for enjoying the
tax holiday incentive 8 years
Additional Deduction for Labor Expense
Additional deduction of 50% of the
wages from the taxable income
The additional deduction is allowed
for the first 5 years from
registration
Additional deduction is doubled
(100%) if activity is located in less
Sources:
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developed areas
Exemption from Contractor's Tax
Registered enterprise shall be
exempt from contractor's tax
whether national or local
Simplification of Customs Procedure
Simplified procedure for the
importation of equipment, spare
parts, raw materials and supplies
and exports of processed products
Unrestricted Use of Consigned
Equipment
Provided that such consigned
equipment is for the exclusive use
of the registered enterprise
Employment of Foreign Nationals
Registered enterprise may employ
foreign nationals in supervisory,
technical or advisory positions for a
period not exceeding 5 years from
registration
Period is extendible at the discretion
of the Board
When majority of the capital stock
of the enterprise is owned by
foreign investors, the position of
President, Treasurer and General
Manager may be retained by foreign
nationals
Exemption on Breeding Stock and
Genetic Materials
Importation of such stock and
materials shall be exempt from all
taxes and duties
Within 10 years from date of
registration
Provided that such stocks and
genetic materials are:
Not locally available
Reasonably needed in the
enterprise
Approved by the Board
Tax Credit on Domestic Breeding
Stocks and Genetic Materials
Equivalent to 100% of the value of
the taxes and duties that would

[ATTY. HOFILENA]
have been waived had these items

been imported
Such items are purchased from a
domestic producer
Tax Credit for Duties on Raw Materials
Provided, taxes on raw materials
and supplies domestically purchased
are indicated as separate items in
the sales invoice
Access to Bonded Manufacturing or
Trade Warehouse System
For registered export oriented
enterprises
Subject to the guidelines issued by
the Board
Exemption from Taxes and Duties on
Imported Spare Parts
Enjoyed by exporters (70% of total
production is exported)
Such spare parts imported must not
be locally available
Exemption from Wharfage Dues, Export
Tax, Duty, Impost and Fee
Exports by a registered enterprise
of its non-traditional export
products shall be exempt from any
wharfage dues and export tax
Incentives to Less-Developed-Area
When a registered enterprise is located
in a less-developed-area
Nationality is not a factor/qualification
Shall be entitled to the incentives of a
pioneer registered enterprise
When enterprise is located in an area
lacking in public utility or major
infrastructure:
May deduct from taxable income
1005 of the cost of infrastructure or
public utility it has built in the area
Any amount not deducted for a
particular year may be carried over
for subsequent years not exceeding
10 years from commercial operation
Garcia v BOI
Sources:
Page 11 of 13
ATENEO LAW SCHOOL

ELECTIVE
L.T.J.F.
Does the investor have the right to

make the final decision on the location
of the Petrochemical Plant, the
certificate of registration of which is
issued by the Board of Investments?
Supreme Court ruled in the NEGATIVE
The right of final choice is not granted
since the investor's choice is always
subject to the approval of the BOI
The petrochemical industry is essential
to the national interest thus the State
must exercise its police power in
regulating the industry to its advantage
The Constitution provides that it is the
duty of the State to regulate and
exercise authority over foreign
investments in accordance with its
national goals and priorities

[ATTY. HOFILENA]
the incentive
Remittance of Profits
Profits may be remitted without prior
BSP approval
Remittance must be done through any
of the banks licensed by BSP in the
ECOZONE
Provided, that such foreign investments
in said enterprises have been
previously registered with the BSP
Special ECOZONES Under Bases Conversion
and Development Act
Wallace Airbase
Clark Airbase
Subic
Camp John Hay
Economic Zones
Implementing Agencies
NEDA
PEZA
DTI
Business establishments operating
within the ECOZONES shall be entitled
to the fiscal incentives under the
Omnibus Investments Code
Business establishments within an
ECOZONE shall register with the PEZA
to avail of the incentives
PEZA shall establish a one stop shop
center in the ECOZONE for the purpose
of facilitating the registration of new
enterprises
John Hay People's Coalition v Lim

The grant of tax immunity and financial
incentives as contained in Presidential
Proclamation 420 is unconstitutional
Under RA 7227, it is only the Subic SEZ
which was granted by Congress with
tax exemption and similar incentives
Absent a legislative act, the President
cannot extend the same incentives to
Camp John Hay (a special economic
zone still to be created) through a mere
executive proclamation
The president alone cannot create the
SEZ (special economic zone) because
under RA 7227, it expressly requires
the concurrence of the affected LGU's
Tax Exemptions
In lieu of all taxes (income taxes),
business establishments shall pay 5%
of gross income
Distribution of the 5%:
3% - National Government
1% - LGU or LGU's (pro-rated)
1% - Development fund of
municipalities outside the ECOZONE
Real Property Taxes are not included in
Coconut Oil Refiners v Torres

The tax and duty-free importations of
raw materials, capital and equipment
are merely examples and NOT an
exhaustive list
The legislative intent is that all
consumer goods entering the special
ECOZONES which satisfy the needs if
the zone and are consumed there are
NOT subject to duties and taxes
There is also no violation of the right to
Sources:
Page 12 of 13
ATENEO LAW SCHOOL

ELECTIVE
L.T.J.F.
equal protection of the laws because
substantial distinctions lie between the
establishments inside and outside the
zone, justifying the difference in their
treatment
NOTE: Service enterprises operating within
the zones (eg: janitorial services) are NOT
entitled to the incentives because they are not
export enterprises
VII. Foreign Exchange Controls
Purpose
To regulate the inflow and outflow of
foreign currency
To ensure the stability of the Philippine
Peso and its convertibility
To control foreign exchange supply
Foreign Loans and Creditors
In order for the debtor to access the
Philippine Banking system:
Central bank must approve the
foreign loan first
Without prior approval, the local
banks cannot sell the debtor any
foreign currency
Thus the foreign loan cannot be
paid by the debtor using dollars
from Philippine Banks
Only choice for debtor is to acquire
foreign currency form outside the
Philippine Banking System
If a FOREX (foreign exchange)
company is a subsidiary of a local
bank, the same restrictions apply
But if debtor can pay the obligation
or loan using its own currency
reserves or resources (paying in its
own capacity), then no BSP
approval is necessary
STEP 1 Approval of BSP
Prior Approval there must be an
approval first before entering into a
loan agreement

[ATTY. HOFILENA]
Proceeds of the loan must be used in

the investments priority plan (one of
the criteria for approval)
STEP 2 Registration of Foreign Loan

Registration of the actual loan
Eg: If the loan agreed upon is $1
Million but only $500,000 was
drawn out
The BSP approves the $1 Million
loan agreed upon
But what is registered is the
$500,000 loan actually borrowed
If the other $500,000 balance is
drawn down subsequently, a second
registration for such amount is
necessary
BSRD Banko Sentral Registration
Document
Reflects the amount registered AND
the amount of foreign currency that
is allowed to be sold to the debtor
by the local bank
If there are guarantors of domestic
debtors, the guaranty must be
approved as well
Foreign Investors
Instead of lending funds, a foreign
entity may make an investment in the
domestic enterprise
2 ways to invest:
Portfolio Investment through the
stock market
Equity Investment direct infusion
of capital into the equity of the
domestic company
Only requires registration with the BSP
No approval is necessary
Every time an investment is made,
registration is required
Investor is issued a corresponding
BSRD for the investment
Sources:
Page 13 of 13

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ATENEO LAW SCHOOL

FOREIGN INVESTMENTS LAW

FOREIGN INVESTMENTS LAW

the foreign business entity

II. Concept of Doing Business

ATENEO LAW SCHOOL

FOREIGN INVESTMENTS LAW

ATENEO LAW SCHOOL

FOREIGN INVESTMENTS LAW

ATENEO LAW SCHOOL

natural persons and residents of the

FOREIGN INVESTMENTS LAW

Regional Headquarters (RHQ)

ATENEO LAW SCHOOL

FOREIGN INVESTMENTS LAW

Flexibility Stockholder's Not bound

IV. Grandfather Rule

1990 SEC Control Test

SEC Memo Circular 8 (2013)

ATENEO LAW SCHOOL

to vote + receive dividends

Gamboa v Teves (M.R.)

FOREIGN INVESTMENTS LAW

competition and trade practices

Manila Prince Hotel v GSIS

ATENEO LAW SCHOOL

the foreign entity may participate in the

FOREIGN INVESTMENTS LAW

ATENEO LAW SCHOOL

FOREIGN INVESTMENTS LAW

Less than $2.5

Filipino citizens and

May be wholly owned

$7.5 Million and

May be wholly owned

May be wholly owned

NOTE: The amounts are in US dollars

Qualifications of Category B & C Investments

ATENEO LAW SCHOOL

FOREIGN INVESTMENTS LAW

franchise for the operation of a public

ATENEO LAW SCHOOL

Registration of Enterprises (Qualifications)

FOREIGN INVESTMENTS LAW

Basic Rights and Guarantees

ATENEO LAW SCHOOL

FOREIGN INVESTMENTS LAW

have been waived had these items

ATENEO LAW SCHOOL

Does the investor have the right to

FOREIGN INVESTMENTS LAW

John Hay People's Coalition v Lim

Coconut Oil Refiners v Torres

ATENEO LAW SCHOOL

FOREIGN INVESTMENTS LAW

Proceeds of the loan must be used in

STEP 2 Registration of Foreign Loan

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