Amendments to Foreign Investments Act aim to reduce restrictions and increase economic growth

Foreign investors in the Philippines will have a significantly better experience due to amendments provided by the Republic Act (RA) 11647 towards Section 8 of the Foreign Investments Act (FIA) of 1991. President Rodrigo Duterte signed the amendment on March 2, 2022. Changes that lessen restrictions on foreign investments and improve economic growth are among its new decrees now that the Covid-19 Pandemic has slowed down. 

This act was signed not long after amendments to another RA called the Trade Retail Trade Liberalization Act of 2000 (RTLA), which reduces the minimum paid-up capital of foreign retailers. These laws aim to bring in additional foreign investors and gain a more substantial economic presence in the global market. 

Initially, the FIA provides a general rule explaining that there are no restrictions on the extent of foreign ownership of export enterprises (i.e., those that consistently export at least 60 percent of their products or services) and in domestic market enterprises (i.e., those that produce goods for sale or render services to the local market entirely or export less than 60 percent of their products or services). 

These changes allow foreigners to invest as much as 100 percent equity except in areas in the Foreign Investment Negative List, which enumerates the business activities subject to nationality requirements or restrictions as provided in the Constitution, existing laws, and governmental policy. 

RA 11647 adds the condition that micro and small domestic market enterprises with a paid-up capital requirement of $200,000 are still reserved for Philippine nationals unless otherwise set under RA 8762 or the "Retail Trade Liberalization Act" and other relevant laws. Furthermore, it clarified that the paid-up threshold was provided before the amendment, but only the term used is "small- and medium-sized domestic market enterprises.". 

Amendments to the law explain that foreign nationals must include citizens of the Philippines in the operations. Furthermore, a domestic partnership or association wholly owned by citizens of the Philippines, or a corporation organised under the laws of the Philippines of which at least 60 percent of the capital stock outstanding and entitled to vote is owned and held by citizens of the country must be enforced. 

Additionally, RA 11647 strives to further technological innovation and create a solid foundation when creating startups or startup enablers following the "Innovative Startup Act" (RA 11337) and lowering the capitalisation requirement to $100,000. 

The amendment also covers the previous rule of foreign nationals employing at least fifty (50) direct employees to become eligible for the $100,000 capitalisation requirement. The new law states that enterprises now only need to have most of their direct employees be Filipinos to become eligible for the lower capitalisation rule. However, this will only apply to the number of Filipino employees not less than fifteen (15). Domestic enterprises are mandated to implement an understudy or skills development program if they benefit from said lower capitalisation requirement to ensure the transfer of technology or skills to Filipinos. 

Another critical amendment provided by RA 11647 was the creation of an agency called the Inter-agency Investment Promotion Coordination Committee (IIPCC), which is mandated to help develop a comprehensive and strategic Foreign Investment Promotion and Marketing Plan (FIPMP) for the next five years and ten (10) years. 

The proposed plan must be based on competitive advantages, natural resources, skill and educational development, traditional linkages, and international market potential while still entirely consistent with the strategic investment priorities plan under Title XIII of the National Internal Revenue Code. 

Additionally, the IIPCC also serves to help review foreign investments involving military-related industries, cyberinfrastructure, pipeline transportation or other activities that may threaten the territorial integrity and the safety, security, and well-being of Filipinos. To accomplish these tasks, it will consult local chambers of commerce and business groups about developing the FIPMP. 

The final amendment explained in the RA was creating an accessible database for the FIPMP to be used by local enterprises to increase the chances of partnering with potential investors. Several government agencies, including The Department of Education, the Department of Labor and Employment and more, are required to create a curriculum and exert training efforts to address FIPMP workforce requirements. 

The country’s expenses and overall debt has increased drastically because of the Covid-19 pandemic, and these amendments were implemented to make foreign investments a strong driving force in developing the economy. It would attract domestic market innovations through good marketing plans that dramatically boost the number of investments in the country.