SENATE Bill (SB) 2121, or “An Act Amending Republic Act 8762, otherwise known as the Retail Trade Liberalization Act and For Other Purposes,” was filed last year in order to increase investments by foreign entities in the Philippines. The bill will stand to eliminate the capital and equity requirement of foreign capitalists who will engage in the retail business in the country.
A decade and a half ago, the Retail Trade Liberalization Act of 2000 was enacted in order to attract and promote consumer welfare by bringing in productive investment. To this end, it was forecasted that the enactment of the law will result to a decrease in consumer prices, creation of more jobs, promote tourism, assist small manufacturers, stimulate economic growth, and enable Philippine goods and services to become globally competitive through the liberalization of the retail-trade sector.
However, the intended substantial foreign investment was nowhere achieved. Foreign investors have found the requirements to engage in retail trade to be very restrictive. For instance, in order for a foreign entity to be able to wholly own a retail store, it must have a paid-up capital of at least $2.5 million to $7.5 million, while those that will be engaging in selling high-end or luxury goods must have a paid-up capital of $250,000 per store.
There are also other conditions that the foreign investors must meet: First, a minimum of $200-million net worth in its parent corporation for Categories B and C, and $50-million net worth in its parent corporation for Category D; second, five retailing branches or franchises in operation anywhere around the world, unless such retailer has at least one store capitalized at a minimum of $25 million; third, a five-year track record in retailing; and fourth, that they must be nationals from or juridical entities formed or incorporated in countries that allow the entry of Filipino retailers.
Due to these constraints, Sen. Sergio R. Osmeña III introduced SB 2121 on February 12, 2014. The said bill proposes to do away with the barriers of foreign investment by removing the equity and capitalization requirements in the Retail Trade Liberalization law. As stated in the proposed bill, by allowing the entry of foreign investment, it will result in the creation of more jobs and providing the Filipino consumers with better choices and higher quality of goods at lower prices.
On the other hand, Rep. Giorgidi B. Aggabao of the Fourth District of Isabela, filed House Bill (HB) 4403 on May 13, 2014. The house bill contains the same goal, that is, to address the perceived loopholes in the existing law, particularly the capital requirement before a foreign entity may completely own a retail establishment.
Other than eliminating the equity and capitalization requirements, the SB also seeks to expound the requirement of maintenance of the capital. It mandates foreign investor to maintain in the Philippines the full amount of its capital, or in any case, any part of the capital is sold to a citizen of the Philippines, or to a partnership, association or corporation owned and controlled by citizens of the Philippines, the unsold amount of its capital, unless the foreign investor has notified the Securities and Exchange Commission and the Department of Trade and Industry of its intention to repatriate its capital and cease operations in
the Philippines.
The said bill also seeks to remove the requirement of public offerings of shares of stock in retail-trade enterprises under Categories B and C in which a foreign ownership that exceeds 80 percent needs to offer a maximum of 30 percent of the equity to the public through any stock exchange in the Philippines within eight years from the start of operations.
Last, it proposes to reduce the need for local procurement of the aggregate cost of the stock inventory of foreign retailers from 30 percent to 10 percent. These proposed amendments will definitely encourage foreign investors to explore the Philippine market. The elimination of the equity and the capitalization requirement will provide them with the appeasement on their investments where both they (investors/foreign entities) and the Philippine market will be able to grow from this venture.
SB 2121 is pending with the Committee on Trade, Commerce and Entrepreneurship, while HB 4403 is with the Committee on Trade
and Industry.
****
The author is a junior associate of Du-Baladad and Associates Law Offices (BDB Law), a member firm of World Tax Services (WTS) Alliance.
The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at roselle.casiguran@bdblaw.com.ph or call 403-2001 local 370.