More business opportunities await foreign investors in the Philippines with amended Foreign Investment Act

Liberalizing its economic policies and laws, the Philippines continues to transform itself as an attractive investment destination by allowing foreign investors who are considering doing business in the country to set up and fully own domestic enterprises through the recently-amended Foreign Investment Act or the FIA.  

The law is a testament of the Philippine government’s resolve and commitment to further create a business-friendly landscape so that foreign investors can grow and flourish their businesses.  

The law establishes the Inter-Agency Investment Promotion Coordination Committee (IIPCC), integrating all the investment promotion activities of various Philippine government bodies with the Board of Investments (BOI) as Secretariat. The IIPCC is set to convene its inaugural meeting on November 8, 2022. 

Here is the rundown of the salient features and provisions of the FIA that would offer an array of business opportunities for foreign investors who are eyeing to invest in the Philippines.  

FIA slashes barrier on foreign ownership of small and medium-sized enterprises 

Amending the 30-year-old law, the new measure will ultimately improve foreign investments in the Philippines by providing less stringent requirements for potential foreign investors to enter the roaring Philippine market. 

Primarily, the law allows – for the first time – foreign investors to set up and completely own domestic market enterprises categorized as micro-enterprises. The said economic measure gives way for foreign nationals to invest and fully-own micro and small domestic market enterprises with paid-up equity below the stated threshold but not below USD100,000.  

The enterprises, however, must fulfill the following criteria: (1) use of advanced technology, (2) endorsed as startup or startup enablers by the lead host agencies according to Republic Act (RA) No. 11337 or the Innovative Startup Act, (3) employ Filipinos as a majority of its direct employees.  

The amended FIA also trims down the employment requirement for foreign investments in domestic market enterprises from 50 direct employees to now at least 15 Filipino employees. Notably, the amended FIA cuts the list of investment areas exclusively reserved for Filipinos, namely: defense-related businesses and small and micro domestic market enterprises with paid-up equity capital of below USD200,000, subject to certain exceptions.  

In addition, foreigners engaged in export enterprises can secure 100 percent ownership in areas outside the Foreign Investment Negative List (FINL).  

The inception of the Inter-Agency Investment Promotion Coordination Committee  

Another major feature of the law is the establishment of the Inter-Agency Investment Promotion Coordination Committee (IIPCC), which is tasked to integrate the promotion activities to woo more foreign investors to do business in the Philippines. It also aims to achieve a world-class brand image for the country within the intertwined approaches of image building, investment generation, and investment servicing.  

Ushering in a culture of cooperation, the law removes competition for investments among the investment promotion agencies (IPAs), resulting in the best possible locational choice for investments. The Secretary of the Department of Trade and Industry (DTI) shall be the Chairman of the IIPCC, while the BOI, headed by the Executive Director for Investments Promotion, shall be the IIPCC Secretariat which will provide administrative support to the said Committee. 

As the leader of the country’s investment promotion agencies (IPAs), the BOI is set to play an important role in spurring the growth of the country’s economy. The revised law will foster a “culture of cooperation” among the IPAs by coordinating investment promotion efforts in the country. 

Through the amended FIA, the IIPCC – led by DTI Secretary Alfredo E. Pascual – is resolute to make more business opportunities happen in the Philippines for foreign investors. Before the creation of the IIPCC, there was the Philippine Investment Promotion Plan (PIPP) – an informal grouping of 19 IPAs –  in which the BOI headed both the Steering Committee and Technical Working Group.  

With these amendments, foreign investors are at an advantage. The FIA is an opportune moment for foreign investors to complement the recent full reopening of the Philippine economy. The said consequential economic law, along with the Public Service Act (PSA) and Retail Trade Liberalization Act (RTLA), and the Corporate Recovery and Tax Incentives Act (CREATE) makes the country’s business climate more conducive to foreign investments.  # 

Businessmen hail signing of new Public Service Act

by Bernie Cahiles-Magkilat, Manila Bulletin

Local and foreign investors hailed the signing into law of the Public Service Act (PSA) by President Duterte, while Trade and Industry Secretary Ramon M. Lopez revealed at least investment leads of $100 billion over a two-year period as the law opens up to 100 percent foreign ownership of public services in the country and creating more jobs for Filipinos.

Initially, Lopez said the amended PSA is projected to haul in more than $60 billion investments in the telecommunications, transportation, logistics and railways sectors. “This is still understated as other leaders have not indicated investment amount. Can be over $100 billion over two years,“ Lopez added without identifying the investment leads.

From the private sector, the American Chamber of Commerce of the Philippines (AmCham) applauded the signing of the bill amending the 1936 PSA pointing out that the amendments will match that of Singapore, Thailand and Vietnam’s level of liberalization in these sectors.

“AmCham is confident that its signing, along with other recent investment liberalization bills –the Retail Trade Liberalization Act and the Foreign Investments Act –will significantly help the Philippines compete with its regional neighbors in bringing in investments to the Philippines. It will also be extremely helpful to the long-run recovery of the economy after the pandemic,” American investors said in a statement.

 

The American business chamber, which was incorporated in 1920, vowed to continue to endeavor to contribute to the Philippine economic growth and serves the interests of Philippine and American businesses through the participation of members in promoting its long-term objectives. AmCham represents over 700 member organization’s voice and interests.

Officials of the German-Philippine Chamber of Commerce and Industry (GPCCI – AHK Philippinen), who were invited to witness the signing of the law in Malacanang as well the presentation of the recently enacted Amendments to Foreign Investments Act (Republic Act No. 11647), also lauded the enactment of the amended PSA.

GPCCI President Stefan Schmitz said “The passage of the Amendments of the Public Service Act harmonizes with the recently passed amendments to Retail Trade Liberalization Act and Foreign Investment Act” said “with these laws enacted, we are confident that the country can attract many investors in various sectors and will benefit Filipinos by improving basic services and creating more jobs.”

GPCCI Executive Director Christopher Zimmer said the “game-changing law shall break major economic barriers in the country and will be beneficial for the economic recovery.”

Zimmer said the enactment of RA 11659 seeks to ease or lift restrictions on foreign investments in public services by amending the 85-years-old public service law, distinguish definitions between “public utilities” and “public services”, and repeal provisions that limit foreign participation in certain economic activities.

The amendments will attract global players to help modernize Philippine public services telecommunications, shipping, air carriers, railways, and subways. Increased competition is seen to generate higher quality of service and competitive pricing for consumers.

The Management Association of the Philippines (MAP) noted of how they and other private sector groups collaborated to support the passage of the PSA amendments.

MAP President Alfredo “Fred” E. Pascual said that along with the recently amended Retail Trade Liberalization Act (RTLA) and the Foreign Investment Act (FIA), the amended PSA provides a legal framework to encourage the inflow of more foreign investments into the country. “The entry of foreign investors will foster strong competition that will benefit the consumers, create more jobs, expand our economy, and boost our recovery from the disruptions caused by COVID-19.A more open Philippine economy will enable us to catch up with our more progressive neighbors in ASEAN,” said Pascual.

In a statement, the Foundation for Economic Freedom (FEF) said the enactment of the Amendments to the Public Service Act is the most game-changing economic legislative reform in 86 years that is pro-consumer, pro-security and pro-growth.

As the Philippine economy emerges from the effects of the COVID-19 pandemic, FEF said, the enactment of this law will facilitate new opportunities and sustainable growth by fostering competition in the public service sector, attracting much-needed foreign direct investments, and paving the way for better access, quality, and rates of public services.

FEF commended legislators and the government’s economic managers for crafting a law that not only opened the country to FDI and creates a more competitive public sector, but also safeguards the nation from potential national security threats, protects the welfare of small local businesses, and ensures benefits for Filipino businessmen.

“This new law will bring huge benefits for business and individual consumers alike, with the entry of more investors in the telecommunications and transport industries offering a wider choice at different price points. We foresee increased investments in the sectors opened up to a maximum of 100% foreign ownership such as telecommunications, shipping, trains and railways, airports and airlines, toll roads, and transport network vehicles (TNVs),” FEF said.

As new foreign investments enter the country, the amended Public Service Act establishes rules to protect the country from malign intentions that endangers our national security. The provisions on vetting of potential investments in critical infrastructure, and the requirement for an ISO certification for Information Security for telecommunications investors ensures that the Philippines will be less vulnerable to cyber threats and domination of foreign interests.

The amended law likewise protects consumer welfare by increasing the penalties for erring companies engaged in public services. It also provides protection for small operators in the transportation industry by retaining the 60/40 restriction for public utility vehicles such as tricycles and jeepneys. Filipino businessmen likewise benefit, as the law includes a reciprocity provision that may open up business opportunities for them in other countries. Another benefit of the law is the creation of more jobs for Filipinos with the entry of more investments.