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The Philippines Amends its Foreign Investment Act
On March 2, 2022, President Rodrigo Duterte signed Republic Act No. 11647 (Act 11647), which amends the Foreign Investment Act (FIA), also known as Republic Act No. 7042.
The amendments aim to promote and attract foreign investments by allowing, for the first time, international investors to set up and fully own domestic enterprises (including micro and small enterprises in the Philippines.
Under the FIA, micro, small, and medium-sized enterprises (MSME) with paid-in capital of less than US$200,000 are reserved for Philippine nationals. However, under the amendments, foreign nationals can own an MSME with a minimum paid-in capital of US$100,000 provided that the enterprises meet the following conditions:
Under the amended FIA, the government will create the Inter-Agency Investment Promotion Coordination Committee (IIPCC) which is a body that integrates all the promotion and facilitation efforts to encourage foreign investments. An inter-agency body will provide a uniform approach to foreign investment promotion, since various government agencies may have different strategies when it comes to foreign investment promotion and facilitation.
To safeguard national interests, the amened FIA gives the President of the Philippines power to order the IIPCC to review foreign investments that may threaten the safety, security, and well-being of Filipinos. Examples include foreign investments involving cyberinfrastructure, military-related industries, and pipeline transportation, among others.
Foreign businesses employing foreign nationals and are enjoying fiscal incentives must devise an understudy or skills development program that benefits Filipino workers. This ensures that local workers receive the knowledge and skills from their foreign colleagues.
The program that companies develop will be monitored by the Department of Labor and Employment.
The Philippines has long struggled to lure foreign investments and a 2019 Organization for Economic Cooperation and Development index shows the country had Asia’s most restrictive foreign investment laws.
The Philippines is also plagued with issues such as policy uncertainty, corruption, red tape, and poor infrastructure. Moreover, its economy is dominated by conglomerates (many family-owned) who have spanned their industries to include telecommunications, real estate, and retail, and the tough foreign investment rules have acted as a form of protectionism to protect these local brands.
This article was first published by AseanBriefing which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, India, and Russia. Readers may write to [email protected].
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