Republic Act No.

7042 June 13, 1991

AN ACT TO PROMOTE FOREIGN INVESTMENTS, PRESCRIBE THE PROCEDURES
FOR REGISTERING ENTERPRISES DOING BUSINESS IN THE PHILIPPINES, AND
FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled::
Section 1. Title. - This Act shall be known as the, "Foreign Investments Act of 1991".
Section 2. Declaration of Policy. - It is the policy of the State to attract, promote and
welcome productive investments from foreign individuals, partnerships, corporations, and
governments, including their political subdivisions, in activities which significantly contribute
to national industrialization and socioeconomic development to the extent that foreign
investment is allowed in such activity by the Constitution and relevant laws. Foreign
investments shall be encouraged in enterprises that significantly expand livelihood and
employment opportunities for Filipinos; enhance economic value of farm products; promote
the welfare of Filipino consumers; expand the scope, quality and volume of exports and
their access to foreign markets; and/or transfer relevant technologies in agriculture, industry
and support services. Foreign investments shall be welcome as a supplement to Filipino
capital and technology in those enterprises serving mainly the domestic market.
As a general rule, there are no restrictions on extent of foreign ownership of export
enterprises. In domestic market enterprises, foreigners can invest as much as one hundred
percent (100%) equity except in areas included in the negative list. Foreign owned firms
catering mainly to the domestic market shall be encouraged to undertake measures that will
gradually increase Filipino participation in their businesses by taking in Filipino partners,
electing Filipinos to the board of directors, implementing transfer of technology to Filipinos,
generating more employment for the economy and enhancing skills of Filipino workers.
Section 3. Definitions. - As used in this Act:
a) The term "Philippine national" shall mean a citizen of the Philippines or a domestic
partnership or association wholly owned by citizens of the Philippines; or a
corporation organized under the laws of the Philippines of which at least sixty
percent (60%) of the capital stock outstanding and entitled to vote is owned and held
by citizens of the Philippines; or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine national and at
least sixty (60%) of the fund will accrue to the benefit of the Philippine nationals:
Provided, That where a corporation and its non-Filipino stockholders own stocks in a
Securities and Exchange Commission (SEC) registered enterprise, at least sixty
percent (60%) of the capital stocks outstanding and entitled to vote of both
corporations must be owned and held by citizens of the Philippines and at least sixty
percent (60%) of the members of the Board of Directors of both corporations must
be citizens of the Philippines, in order that the corporations shall be considered a
Philippine national;
b) The term "investment" shall mean equity participation in any enterprise organized
or existing under the laws of the Philippines;
c) The term "foreign investment" shall mean as equity investment made by a non-
Philippine national in the form of foreign exchange and/or other assets actually
transferred to the Philippines and duly registered with the Central Bank which shall
assess and appraise the value of such assets other than foreign exchange;
d) The praise "doing business" shall include soliciting orders, service contracts,
opening offices, whether called "liaison" offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any calendar
year stay in the country for a period or periods totalling one hundred eighty (180)
days or more; participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines; and any other act or
acts that imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the exercise of some
of the functions normally incident to, and in progressive prosecution of, commercial
gain or of the purpose and object of the business organization: Provided, however,
That the phrase "doing business: shall not be deemed to include mere investment as
a shareholder by a foreign entity in domestic corporations duly registered to do
business, and/or the exercise of rights as such investor; nor having a nominee
director or officer to represent its interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines which transacts business in
its own name and for its own account;
e) The term "export enterprise" shall mean an enterprise which produces goods for
sale, or renders services to the domestic market entirely or if exporting a portion of
its output fails to consistently export at least sixty percent (60%) thereof; and
g) The term "Foreign Investments Negative List" or "Negative List" shall mean a list
of areas of economic activity whose foreign ownership is limited to a maximum of
forty ownership is limited to a maximum of forty percent (40%) of the equity capital of
the enterprise engaged therein.
Section 4. Scope. - This Act shall not apply to banking and other financial institutions which
are governed and regulated by the General Banking Act and other laws under the
supervision of the Central Bank.
Section 5. Registration of Investments of Non-Philippine Nationals. - Without need of
prior approval, a non-Philippine national, as that term is defined in Section 3 a), and not
otherwise disqualified by law may upon registration with the Securities and Exchange
Commission (SEC), or with the Bureau of Trade Regulation and Consumer Protection
(BTRCP) of the Department of Trade and Industry in the case of single proprietorships, do
business as defined in Section 3 (d) of this Act or invest in a domestic enterprise up to one
hundred percent (100%) of its capital, unless participation of non-Philippine nationals in the
enterprise is prohibited or limited to a smaller percentage by existing law and/or limited to a
smaller percentage by existing law and/or under the provisions of this Act. The SEC or
BTRCP, as the case may be, shall not impose any limitations on the extent of foreign
ownership in an enterprise additional to those provided in this Act: Provided, however, That
any enterprise seeking to avail of incentives under the Omnibus Investment Code of 1987
must apply for registration with the Board of Investments (BOI), which shall process such
application for registration in accordance with the criteria for evaluation prescribed in said
Code: Provided, finally, That a non-Philippine national intending to engage in the same line
of business as an existing joint venture in his application for registration with SEC. During
the transitory period as provided in Section 15 hereof, SEC shall disallow registration of the
applying non-Philippine national if the existing joint venture enterprise, particularly the
Filipino partners therein, can reasonably prove they are capable to make the investment
needed for they are competing applicant. Upon effectivity of this Act, SEC shall effect
registration of any enterprise applying under this Act within fifteen (15) days upon
submission of completed requirements.
Section 6. Foreign Investments in Export Enterprises. - Foreign investment in export
enterprises whose products and services do not fall within Lists A and B of the Foreign
Investment Negative List provided under Section 8 hereof is allowed up to one hundred
percent (100%) ownership.
Export enterprises which are non-Philippine nationals shall register with BOI and submit the
reports that may be required to ensure continuing compliance of the export enterprise with
its export requirement. BOI shall advise SEC or BTRCP, as the case may be, of any export
enterprise that fails to meet the export ratio requirement. The SEC or BTRCP shall
thereupon order the non-complying export enterprise to reduce its sales to the domestic
market to not more than forty percent (40%) of its total production; failure to comply with
such SEC or BTRCP order, without justifiable reason, shall subject the enterprise to
cancellation of SEC or BTRCP registration, and/or the penalties provided in Section 14
hereof.
Section 7. Foreign Investments in Domestic Market Enterprises. - Non-Philippine
nationals may own up to one hundred percent (100%) of domestic market enterprises
unless foreign ownership therein is prohibited or limited by existing law or the Foreign
Investment Negative List under Section 8 hereof.
A domestic market enterprise may change its status to export enterprise if over a three (3)
year period it consistently exports in each year thereof sixty per cent (60%) or more of its
output.
Section 8. List of Investment Areas Reserved to Philippine Nationals (Foreign
Investment Negative List). - The Foreign Investment Negative List shall have three (3)
component lists: A, B, and C:
a) List A shall enumerate the areas of activities reserved to Philippine nationals by
mandate of the Constitution and specific laws.
b) List B shall contain the areas of activities and enterprises pursuant to law:
1) Which are defense-related activities, requiring prior clearance and
authorization from Department of National Defense (DND) to engage in such
activity, such as the manufacture, repair, storage and/or distribution of
firearms, ammunition, lethal weapons, military ordnance, explosives,
pyrotechnics and similar materials; unless such manufacturing or repair
activity is specifically authorized, with a substantial export component, to a
non-Philippine national by the Secretary of National Defense; or
2) Which have implications on public health and morals, such as the
manufacture and distribution of dangerous drugs; all forms of gambling;
nightclubs, bars, beerhouses, dance halls; sauna and steambath houses and
massage clinics.
Small and medium-sized domestic market enterprises with paid-in equity
capital less than the equivalent of five hundred thousand US dollars
(US$500,000) are reserved to Philippine nationals, unless they involve
advanced technology as determined by the Department of Science and
Technology. Export enterprises which utilize raw materials from depleting
natural resources, with paid-in equity capital of less than the equivalent of five
hundred thousand US dollars (US$500,000) are likewise reserved to
Philippine nationals.
Amendments to List B may be made upon recommendation of the Secretary of
National Defense, or the Secretary of Health, or the Secretary of Education, Culture
and Sports, indorsed by the NEDA, or upon recommendation motu propio of NEDA,
approved by the President, and promulgated by Presidential Proclamation.
c) List C shall contain the areas of investment in which existing enterprises already
serve adequately the needs of the economy and the consumer and do not require
further foreign investments, as determined by NEDA applying the criteria provided in
Section 9 of this Act, approved by the President and promulgated in a Presidential
Proclamation.
The Transitory Foreign Investment Negative List established in Sec. 15 hereof shall
be replaced at the end of the transitory period by the first Regular Negative List to
the formulated and recommended by the NEDA, following the process and criteria
provided in Section 8 and 9 of this Act. The first Regular Negative List shall be
published not later than sixty (60) days before the end of the transitory period
provided in said section, and shall become immediately effective at the end of the
transitory period. Subsequent Foreign Investment Negative Lists shall become
effective fifteen (15) days after publication in two (2) newspapers of general
circulation in the Philippines: Provided, however, That each Foreign Investment
Negative List shall be prospective in operation and shall in no way affect foreign
investments existing on the date of its publication.
Amendments to List B and C after promulgation and publication of the first Regular
Foreign Investment Negative List at the end of the transitory period shall not be
made more often than once every two (2) years.
Section 9. Determination of Areas of Investment for Inclusion in List C of the Foreign
Investment Negative List. - Upon petition by a Philippine national engage therein, an area
of investment may be recommended by NEDA for inclusion in List C of the Foreign
Investment Negative List upon determining that it complies with all the following criteria:
a) The industry is controlled by firms owned at least sixty percent (60%) by Filipinos;
b) Industry capacity is ample to meet domestic demand;
c) Sufficient competition exists within the industry;
d) Industry products comply with Philippine standards of health and safety or, in the
absence of such, with international standards, and are reasonably competitive in
quality with similar products in the same price range imported into the country;
e) Quantitative restrictions are not applied on imports of directly competing products;
f) The leading firms of the industry substantially comply with environmental
standards; and
g) The prices of industry products are reasonable.
The petition shall be subjected to a public hearing at which affected parties will have the
opportunity to show whether the petitioner industry adequately serves the economy and the
consumer, in general, and meets the above stated criteria in particular. NEDA may delegate
evaluation of the petition and conduct of the public hearing to any government agency
having cognizance of the petitioner industry. The delegated agency shall make its
evaluation report and recommendations to NEDA which retains the right and sole
responsibility to determine whether to recommend to the President to promulgate the area
of investment in List C of the Negative List. An industry or area of investment included in
List C of the Negative List by Presidential Proclamation shall remain in the said List C for
two (2) years, without prejudice to re-inclusion upon new petition, and due process.
Section 10. Strategic Industries. - Within eighteen (18) months after the effectivity of this
Act, the NEDA Board shall formulate and publish a list of industries strategic to the
development of the economy. The list shall specify, as a matter of policy and not as a legal
requirement, the desired equity participation by Government and/or private Filipino investors
in each strategic industry. Said list of strategic industries, as well as the corresponding
desired equity participation of government and/or private Filipino investors, may be
amended by NEDA to reflect changes in economic needs and policy directions of
Government. The amended list of strategic industries shall be published concurrently with
publication of the Foreign Investment Negative List.
The term "strategic industries" shall mean industries that are characterized by all of the
following:
a) Crucial to the accelerated industrialization of the country,
b) Require massive capital investments to achieve economies of scale for efficient
operations;
c) Require highly specialized or advanced technology which necessitates technology
transfer and proven production techniques in operations;
d) Characterized by strong backward and forward linkages with most industries
existing in the country, and
e) Generate substantial foreign exchange savings through import substitution and
collateral foreign exchange earnings through export of part of the output that will
result with the establishment, expansion or development of the industry.
Section 11. Compliance with Environmental Standards. - All industrial enterprises
regardless of nationality of ownership shall comply with existing rules and regulations to
protect and conserve the environment and meet applicable environmental standards.
Section 12. Consistent Government Action. - No agency, instrumentality or political
subdivision of the Government shall take any action on conflict with or which will nullify the
provisions of this Act, or any certificate or authority granted hereunder.
Section 13. Implementing Rules and Regulations. - NEDA, in consultation with BOI, SEC
and other government agencies concerned, shall issue the rules and regulations to
implement this Act within one hundred and twenty (120) days after its effectivity. A copy of
such rules and regulations shall be furnished the Congress of the Republic of the
Philippines.
Section 14. Administrative Sanctions. - A person who violates any provision of this Act or
of the terms and conditions of registration or of the rules and regulations issued pursuant
thereto, or aids or abets in any manner any violation shall be subject to a fine not exceeding
One hundred thousand pesos (P100,000).
If the offense is committed by a juridical entity, it shall be subject to a fine in an amount not
exceeding of 1% of total paid-in capital but not more than Five million pesos
(P5,000,000). The president and/or officials responsible therefor shall also be subject to a
fine not exceeding Two hundred thousand pesos (P200,000).
In addition to the foregoing, any person, firm or juridical entity involved shall be subject to
forfeiture of all benefits granted under this Act.
SEC shall have the power to impose administrative sanctions as provided herein for any
violation of this Act or its implementing rules and regulations.
Section 15. Transitory Provisions. - Prior to effectivity of the implementing rules and
regulations of this Act, the provisions of Book II of Executive Order 226 and its
implementing rules and regulations shall remain in force.
During the initial transitory period of thirty-six (36) months after issuance of the Rules and
Regulations to implement this Act, the Transitory Foreign Investment Negative List shall
consist of the following:
A. List A:
1. All areas of investment in which foreign ownership is limited by mandate of
Constitution and specific laws.
B. List B:
1. Manufacture, repair, storage and/or distribution of firearms, ammunitions,
lethal weapons, military ordinance, explosives, pyrotechnics and similar
materials required by law to be licensed by and under the continuing
regulation of the Department of National Defense; unless such manufacturing
or repair activity is specifically authorized with a substantial export
component, to a non-Philippine national by the Secretary of National
Defense;
2. Manufacture and distribution of dangerous drugs; all forms of gambling;
nightclubs, bars, beerhouses, dance halls; sauna and steam bathhouses,
massage clinic and other like activities regulated by law because of risks they
may pose to public health and morals;
3. Small and medium-size domestic market enterprises with paid-in equity
capital or less than the equivalent of US$500,000, unless they involve
advanced technology as determined by the Department of Science and
Technology, and
4. Export enterprises which utilize raw materials from depleting natural
resources, and with paid-in equity capital of less than the equivalent
US$500,000.
C. List C:
1. Import and wholesale activities not integrated with production or
manufacture of goods;
2. Services requiring a license or specific authorization, and subject to
continuing regulations by national government agencies other than BOI and
SEC which at the time of effectivity of this Act are restricted to Philippine
nationals by existing administrative regulations and practice of the regulatory
agencies concerned: Provided, That after effectivity of this Act, no other
services shall be additionally subjected to such restrictions on nationality of
ownership by the corresponding regulatory agencies, and such restrictions
once removed shall not be reimposed; and
3. Enterprises owned in the majority by a foreign licensor and/or its affiliates
for the assembly, processing or manufacture of goods for the domestic
market which are being produced by a Philippine national as of the date of
effectivity of this Act under a technology, know-how and/or brand name
license from such licensor during the term of the license agreement:
Provided, That, the license is duly registered with the Central Bank and/or the
Technology Transfer Board and is operatively in force as of the date of
effectivity of this Act.
NEDA shall make the enumeration as appropriate of the areas of the investment covered in
this Transitory Foreign Investment Negative List and publish the Negative List in full at the
same time as, or prior to, the publication of the rules and regulations to implement this Act.
The areas of investment contained in List C above shall be reserved to Philippine nationals
only during the transitory period. The inclusion of any of them in the regular Negative List
will require determination by NEDA after due public hearings that such inclusion is
warranted under the criteria set forth in Section 8 and 9 hereof.
Section 16. Repealing Clause. - Articles forty-four (44) to fifty-six (56) of Book II of
Executive Order No. 226 are hereby repealed.
All other laws or parts of laws inconsistent with the provisions of this Act are hereby
repealed or modified accordingly.
Section 17. Separability. - If any part or section of this Act is declared unconstitutional for
any reason whatsoever, such declaration shall not in any way affect the other parts or
sections of this Act.
Section 18. Effectivity. - This Act shall take effect fifteen (15) days after approval and
publication in two (2) newspaper of general circulation in the Philippines.