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 SMEs
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).
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.