Salient Features of the recent amendments to the Foreign Investment Act (RA 11647)

Atty. Rami Hourani

This article will attempt to abbreviate the novel features of the recent amendments to the Foreign Investment Act. It will discuss the changes in the law as opposed to an exhaustive discussion of the state of the law governing investments.

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1. The Law Recognizes The Importance of Technology, Start-Ups, Venture Capital, and Sovereign Wealth Funds

It is clear that the intent of the law is to respond to the changes in the state of the global economy. It is no secret that the start-up space has been a huge boon to the economies of more developed nations and the statements of the law’s purpose attempts to capture the intent to welcome these kinds of enterprises to invest in the Philippines. This is less reflective of the amendments to the Foreign Investment Act and is more descriptive of the changes made in other laws, such as the recent Public Service Act amendments and the TRAIN and CREATE Laws

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2. Clarified the terms “Investment”, “Foreign Investment”, “Practice of a Profession”, and “Pipeline Transportation”

The term investment is clarified to mean an investment in a Filipino Corporation and duly recorded in the stock and transfer book or other registry of ownership. This addition in the law is to add further justification to attempts to regulate or prohibit the practice of “silent partners” or investors who do not reflect their ownership in such records accurately for the purposes of concealment or to circumvent prohibitions on foreign ownership.

The definition of foreign investment was reduced to remove the language that imposed the duty on the Bangko Sentral ng Pilipinas to assess the value of such assets other than foreign exchange.

Added definitions for practice of profession and pipeline transportation. In my personal opinion, the practice of profession definition was added in order for the Department of Trade and Industry to assist in the transfer of technical knowledge otherwise subject only of PRC Jurisdiction to enter the Philippines. The reference in the law of professions, is likely to encourage regulatory agencies concerned with the regulation of professions to permit greater facility to the entry of this technical knowledge into the Philippines. The addition of pipelines is likely to mirror the additions in the recent Public Service Act amendments.

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3. The Creation of the Inter-Agency Investment Promotion Coordination Committee

This body would coordinate the activities of the various agencies which seek or are otherwise concerned with the entry of foreign capital in the Philippines. They are DTI, as chairperson, DOF, BOI, PEZA, DFA, NEDA, DICT, CHED, TESDA, and members of the Private Sector. This committee shall implement a Foreign Investment Promotion and Marketing Plan. (FIPMP)

The FIPMP is the medium and long term plan of how the Philippines will attract investment. It will be consistent with the Strategic Investment Promotion Plan in the CREATE Law. Important for locals who seek to take advantage of the change in regime is alongside the FIPMP there shall be a directory of local enterprises who are capable and willing to partner with foreign enterprises.

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4. Powers of the Bureau of Trade Regulation and Consumer Protection (BTPRCP) is folded back in to the DTI.

The BTRCP was, under the old language of the law, referenced as an entity that could impose a higher capitalization requirement. The deletion of the mention of this office is to make clear the intention that the power to regulate capital requirements, to the extent that the power exists with the DTI, rests with the DTI as a department and not in any specific office of the same.

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5. Explicit reference is made to the recent CREATE Amendments

The passage of the CREATE Law, which amended the NIRC, introduced into our system of laws several pre-conditions for the availment of Tax Incentives. It was the policy push of the DOF for the longest time to harmonize the disparate investment incentive schemes that were reposed across multiple agencies into the BOI and to clarify in a single body of law the conditions for the availment of the same. This is embodied in Sec. 294 and 295 of the National Internal Revenue Code. The explicit reference to the NIRC in the law has the intention of making this intention clear, textually, in the law.

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6. The addition of “Start-Up Enablers” as an exception to the general rule of Domestic Market Enterprise, Local Understudy Program, and Affirmation of Centrality of NEDA.

As a general rule, in the Philippines a foreigner or foreign entity that sought to conduct its business in the Philippines and not export had to put up at the very least Two Hundred Thousand (200,000) US Dollars. This is because this kind of entity is termed a domestic market enterprise. There used to be only two ways to halve the requirement down to One Hundred Thousand (100,000) US Dollars: First, obtain a certification from the DOST that the enterprise employed “advanced technology”, and Second, the majority of your employees were Filipino and there were at least Fifteen (15) of them. With the passage of the Innovative Startup Act, a third way to reduce the capital requirement was added. This is for the “Start-Up Enablers” pursuant to that law.

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However, additional language was introduced that where a foreign enterprise employs foreign nationals it is required to implement an understudy program for the purpose of transferring technology and skills by Filipinos. This shall be regulated by the Department of Labor and Employment.

Lastly, NEDA has been affirmed as the agency for which matters which affect the composition of Negative List B shall be coursed through. Negative List B is concerned with the Security, Defense, Health, Morals, and protection of SMEs. This is as opposed to Negative List A which merely echoes the prohibitions found in the law and Constitution. NEDA is also the principal agency which is tasked with recommending to congress changes to the law.

7. Review Powers of the National Security Council

With the recent liberalization of key sectors in our economy, there was a need to balance the opening up of our economy with checks that affected our strategic interests. In the case of military-related industries, cyber infrastructure, pipeline infrastructure, or other activities which might threaten our territorial integrity and safety, these shall be regulated also by the National Security Council. However, important qualifiers were added: First, when these investments are made by a foreign-government controlled entity, or state-owned enterprise except independent pension funds, sovereign wealth funds, or multinational banks; or Second, located in geographical areas critical for national security.

Any action taken under this auspice though can only be recommended to the Office of the President for their review and appropriate action. This affirms the centrality of the Office of the President for these matters.

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The Philippines faces many structural challenges to the entry of foreign investment into the country. This amendment is however a definite step in the right direction for the Philippines.

Atty. Hourani practices law in Cebu City, PhilippinesIf you would like to set an appointment with him, you may reach him here.

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