Even before the Covid-19 pandemic, the Philippine government has been hard at work making the country more business-friendly for foreign investment. As other regional players enhance and improve on their respective business and investment climates, there is a need to adapt and innovate lest the country lag further behind its neighbors.
With the lingering effects of the pandemic that disrupted economies, the need to revamp the economic landscape has been given a fresh perspective: to revitalize and reinvigorate an economy ravaged by a series of lockdowns and fiscal drain.
Addressing the economic concerns, the Philippine government is seeking to pass a set of amendments to existing investment laws. These amendments, dubbed “economic liberalization bills,” involve the Retail Trade Liberalization Act, the Public Service Act, and the Foreign Investments Act. For now, let us focus on the last-mentioned economic liberalization bill, the proposed amendments to the Foreign Investments Act.
The amendments to the Foreign Investments Act have already been passed by both Houses of Congress as of December 7, 2021. Among the amendments to the law include the creation of the “Inter-Agency Investment Promotion Coordination Committee” (IIPCC), which will be the body to integrate all promotion and facilitation efforts to encourage foreign investments. This is a welcome development considering that various government agencies and instrumentalities handling foreign investment promotion may have differing strategies to attract foreign investors. An inter-agency body would ensure a uniform approach to foreign investments and perhaps even avoid red tape.
In line with the creation of the IIPCC is the formulation of the Foreign Investment Promotion and Marketing Plan (FIPMP) based on competitive advantages, natural resources, skill and educational development, traditional linkages, and international market potential. The FIPMP must also be fully consistent with the Strategic Investment Priorities Plan under the Tax Code, as amended. This shows the government’s integrated approach to deal with foreign investments. Gone are the days where each instrumentality of the government will act on its own to achieve its mandate. Now, a common direction for all is being charted.
Perhaps one of the more notable proposed amendment is in relation to the Foreign Investment Negative List. It is put forward that micro and small domestic market enterprises with paid-in capital of less than $200,000 are reserved to Philippine nationals.
However, as a matter of exception, a minimum paid-in capital of $100,000 shall be allowed to non-Philippine nationals if their enterprise: (i) involves advanced technology as determined by the DOST; (ii) is endorsed as a startup or startup enablers; or (iii) has direct employees the majority of which are Filipinos but in no case shall the number of Filipino employees be less than 15. Further, the registered foreign enterprises involving foreign nationals and enjoying fiscal incentives shall implement an understudy or skills development program.
The restriction on micro and small domestic market enterprises is nothing new. The same provision already exists in the present iteration of the law albeit the enterprise is described as “small and medium” instead of “micro and small.” Nonetheless, to give more opportunity for economic growth, the exceptions were provided for enterprises involved in advanced technology which the Philippines may lack or has limited access to; or to enable or promote startups to deepen the business pool of the country; or even just to ensure employment to Filipinos.
All in all, the steps taken to improve the investment climate are very promising. The groundwork has been laid out and is just waiting for a stroke of the pen to transform it into law. After that comes the selling of the idea of investing in the Philippines to foreign investors. Hopefully, that is an area we will not fall short on.
The author is a senior associate of Du-Baladad and Associates Law Offices (BDB Law), a member-firm of WTS Global.
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 jomel.manaig@bdblaw.com.ph or call 403-2001 local 380.
