Foreign Investment Act (FIA) of 1991 (RA 7042, as amended

by RA 8179 and RA No. 11647)

Prepared by: Dr. Jeannie P. Lim

(Series 2023)

Main features:

a) It introduced the concept of the negative list so that the policy of the law is that foreigners can now invest
in all activities or enterprises in the Philippines except those covered in the negative lists
b) It liberalized domestic market access for investment activities not restricted by the list
c) It liberalized domestic market access for investment activities not restricted by the list
d) It reduced bureaucracy in order to register foreign investment, and
e) It provided stable and transparent policies and procedures.

RA 8179 – Further Liberalization on Foreign Investments

 FIA does not apply to banks and other financial institutions that are governed and regulated
by the Bangko Sentral ng Pilipinas (BSP).

 Under RA 11647 – The Inter-Agency Investment Promotion Coordination Committee (IIPCC) was created
that will integrate all promotion and facilitation efforts to encourage foreign investments in the country.

 Investment – Refers to the equity participation in any enterprise organized or existing under the laws of the
Philippines and duly recorded in the enterprise’s stock and transfer book, or any equivalent registry of
ownership.

 Foreign Investment – An 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 BSP.

 Non-Philippine national may do business in the Philippines without need of prior approval unless he
engages in wholly or partly nationalized industries. He MUST register with the Department of Trade
and Industry. He is allowed to invest in a domestic enterprise up to 100% of its capital, unless the
business is wholly or partly nationalized.

 Foreign corporation MUST secure a license from the SEC to do business in the Philippines.

Who are deemed Philippine national under FIA:

a) A citizen of the Philippines, or

b) A domestic partnership or association wholly owned by citizens of the Philippines; or
c) A corporation organized under the laws of the Philippines of which at least 60% of the outstanding capital
stock and entitled to vote is owned and held by citizens of the Philippines.
d) A corporation organized abroad and registered as doing business in the Philippines under the Corporation
Code of which 100% of the outstanding capital stock (OCS) and entitled to vote is wholly owned by
Filipinos.

 If a corporation and its non-Filipino stockholders’ own stocks in a registered SEC enterprise it shall be
considered a Philippine national if they own at least 60% of the OCS and entitled to vote and 60% of
the members of the Board of Directors are citizens of the Philippines.

 Full beneficial ownership of the stocks, coupled with appropriate voting rights are essential. If the
voting rights of the stocks are assigned or transferred to aliens, the same cannot be considered as
held by Philippine citizens or nationals. (Roy III vs. Herbosa, April 18, 2017)

e) A trustee of funds for pension or other employee retirement or separation benefits, there the trustee is a
Philippine national and at least 60% of the fund will accrue to the benefit of Philippine nationals.

Investment Rights of Former Natural-born Filipinos:

They shall have the same investment rights of a Philippine citizen in Cooperatives, Rural Banks, Thrift
Banks and Private Development Banks and in Financing Companies. However, they shall not invest in (1)
the exercise of profession, (2) in Defense-related Activities unless authorized by the Sec. of National
Defense, (3) in Retail Trade industries, (4) Security Agency Act, (5) Small Scale Mining Act, (6) Rice and
Corn Industry Act and (7) Cockpits Operation and Management as provided by the Constitution.

Land Ownership of Former Natural-born Filipinos:

Any natural born citizen who has lost his Philippine citizenship and who has the legal capacity to enter
into a contract under Philippine laws may be a TRANSFEREE of a private land up to a maximum area of:

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 a) 5,000 square meters in case of urban land. Husband and wife may avail of this privilege separately
or jointly, the total area shall not exceed 5.000 square meters, or

b) Three (3) hectares of rural land to be used by him for business or other purposes. In case the
transferee already owns urban or rural land for business of for other purposes, he is still qualified to
own another but the total area should not exceed as authorized.

c) The transferee may not acquire more than two (2) lots should the property be situated in different
municipality or city and it should not exceed the limit as provided.

RA No. 10881 – Lifted the ceiling for foreign ownership in certain enterprises, which now allows 100% foreign
ownership, such as: (a) Adjustment Companies, (b)Investment Houses, (c) Lending Companies and (4)
Financing Companies.

 Micro and small domestic market enterprises with paid-in equity capital less than US $200,000.00 are
reserved to Philippine nationals

 A minimum paid-in capital of US $100,000.00 shall be allowed to non-Philippine nationals if: (a) they
are involved in advanced technology, (b) they are endorsed as startup or startup enablers by the lead
host agencies, or (c) a majority of their direct employee are Filipinos but on no case shall the number of
Filipino employees be less than fifteen (15).

X is a lending company more than 40% of its capital is owned by foreign nationals. B borrowed
money from X and mortgaged his land to X as security for the loan. B defaulted in payment and
the mortgaged was foreclosed. (a) May X participate in the public sale of the land? (b) If X won
in the sale as the highest bidder can the land be registered in the name of X?

(a) X may bid and take part in any sale of such land as a consequence of the mortgage, it can avail of
enforcement proceedings, take possession of the land.

(b) X shall transfer its rights to qualified Philippine nationals within a period of five (5) years from actual
possession. The title to said land shall not be transferred to X.

Differentiate a Domestic Market Enterprise from an Export Market Enterprise:

Domestic Market Enterprise Export Market Enterprise

It produces goods for sale or renders services in the local It purchases goods locally and exports more than 60% of
market entirely, or such purchases.
It is exporting a portion of its output but does not exceeds It manufactures, processes or services (including tourism)
60% of its goods exported. more than 60% of its outputs abroad

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JGL, 4-10/2023. ALL RIGHTS RESERVED.