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Amendments to the Retail Trade Liberalization Act

Greater involvement of foreign retailers in the Philippine retail trade sector is expected as barriers to their entry have effectively been relaxed in the Amendments to the Retail Trade Liberalization Act (Republic Act 11595).

The Retail Trade Liberalization Act of 2000 was enacted during the administration of President Joseph Estrada to attract and promote consumer welfare by bringing in productive investment. It also aimed to empower the Filipino consumer through lower prices, higher quality goods, better services and wider choices.

In a paper presented by Atty. Romeo Duran, past president of Tax Management Association of the Philippines (TMAP), he said that the amendments in RA 11595, which was signed into law by President Rodrigo Duterte on December 10, 2021, primarily (i) removed categories for foreign equity participation in retail trade; (ii) removed “Pre-Qualification” requirements; and (iii) reduced capitalization requirements.

It introduced significant amendments by removing the “barriers to entry,” as it were, to the entry of foreign retailers. To protect MSMEs in the retail sector, however, a minimum paid-in capital is still required albeit in a significantly reduced amount.

The categories of minimum paid-up capital requirements have been removed, and replaced with a single amount.

To engage or invest in the retail business, a foreign retailer: (a) shall have a minimum paid-up capital of P25 million (formerly $2.5 million); (b) its country of origin does not prohibit entry of Filipino retailers; and (c) in the case of foreign retailers engaged in retail trade through more than one physical store, the minimum investment per store has been reduced to at least P10 million (formerly $830,000).

RA 11595 has replaced the definition of “High-end or luxury goods” (since type of enterprise is no longer material) with “minimum investment per store” as including “the value of the gross assets, tangible or intangible, including but not limited to buildings, leaseholds, furniture, equipment, inventory, and common use investments and facilities such as administrative offices, warehouses, preparation or storage facilities.”

The investment for common use facilities, as reflected in the financial statements following the accounting standards accepted by SEC or DTI, whichever is applicable, shall be pro-rated among the number of stores being served. The paid-up capital may be used to purchase assets for purposes of complying with the investment requirement per store. The definition of “minimum investment per store,” given the breadth of its coverage, makes it even much easier for foreign retailers to comply with the required P10 million investment per store.

The Pre-Qualification Requirements, which to some extent have operated as barriers to entry, have been removed. Foreign retailers need only to comply with the above conditions.

The requirement for retail enterprises whose foreign ownership exceeds 80 percent of equity to offer at least 30 percent of their equity to the public within eight years from their operations has been removed.

RA 11595 has included the labor policy that employment of foreign nationals by foreign retailers shall comply with the applicable provisions of the Labor Code on the determination of non-availability of a competent, able and willing Filipino citizen before engaging the services of a foreign national, with due regard to the State policy under the Constitution to promote the preferential use of Filipino labor.

Foreign retailers are encouraged to have a stock inventory of products that are made in the Philippines.

The DTI, SEC, and Neda shall review the required minimum paid-up capital every three years, and shall each report its recommendation to Congress.

The penalties for violation were reduced to imprisonment of not less than four years to six years and a fine of not less than P1 million but not more than P5 million.

The amendments, which have effectively drawn down the barriers to entry for foreign retailers, are expected to entice greater involvement of foreign retailers in the Philippine retail trade sector.

 This will pave the way for entry of a wider product mix of consumption goods into the Philippine domestic market, which will offer wider array of choices for Filipino consumers, and with this, the further introduction of global supply chain networks and technologies into the Philippine market.

There is little doubt that this enhancement to the retail trade law presents significant business opportunities for foreign retailers.

Given the nature of the Philippine economy as a consumption-driven economy, fueled by a young, dynamic, creative and growing population, it is hoped that this will lead to a wider market for consumers, further stimulate domestic demand, promote employment, and contribute to further growth in the country’s gross domestic product.

Atty. Dennis R. Gorecho heads the seafarers’ division of the Sapalo Velez Bundang Bulilan law offices. For comments, e-mail info@sapalovelez.com, or call 09175025808 or 09088665786)

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