FIA at a Glance

November 28, 2012
Philippines Seal

People say getting started is, by far, hard to do.  Unarmed with some relevant information to begin with is like unlocking a door with tons of keys to choose from.  This, undeniably, has great repercussions and will surely bring tremendous blunders – a typical achilles’ heel among beginners, which, understandably, is acceptable because more often than not, one has to start from scratch. Foreign investors who have less, if not zero, knowledge on some basic laws of the land fall on this predicament. Alien, not in the country alone but on the basic principles of the law governing investments including business practices as well.  Thus, paramount objective is to feed oneself with the basics of the law, particularly the Foreign Investment Act under Republic Act 7042, otherwise known as FIA.

It is the fundamental law governing foreign participation in economic and commercial activities in the Philippines. It is a law that recognizes the rights of foreign investors to engage in business in the Philippines by holding an interest in corporations, partnerships and other entities in the Philippines, including creation of its own extension in the country provided that they are not engaged in an activity that is reserved by law to Philippine citizens.

The FIA provides the formulation of a Foreign Investment Negative List which is a list of economic activities where foreign equity is either prohibited or limited to a certain percentage.  Thus, while foreign investors are recognized by law in the Philippines, this is not, however without restrictions. A foreign national may engage business in the Philippines with 100% capital if the following conditions are met:

1.  The activities a foreign national intends to engage into must not be within the Negative List

2. The amount of capital to be infused must meet the requirement of the law which is dependent on the type of enterprise the foreign investor is willing to invest into (domestic market enterprise or in an export enterprise). A domestic market enterprise is an enterprise which produces goods for sale or renders service or otherwise engages in any business in the Philippines.  An export enterprise is a manufacturer, processor or service (including tourism) enterprise that exports 60% or more of its output, or wherein a trader that purchases products domestically and exports 60% or more of such purchases. Thus, for domestic market enterprise, the minimum paid-up capital requirement is US$200,000 in peso equivalent.  However this may be reduced to US$100,000 peso equivalent

(1) if its activity involves advance technology, OR

(ii) if it employs at least 50 direct employees as certified by the appropriate regional office of the Department of Labor and Employment.  (This certification may be obtained only upon commitment to the DOLE that it will hire said number of employees and upon posting of a bond)

If however, foreign investor intends to invest in export enterprise, the paid up capital requirement can be as low as P100,000.

3.  And provided further, that as required by existing laws, the country or state of the applicant must also allow Filipino Citizens and corporations to do business therein.

From the very basic to complex requirements of the law, these matters are equally significant not to be taken lightly.  Thus, it is very important to get the right information from the right people.  At Triple i, we are committed to give you just that and beyond.

By: Atty. Grace R. Pangilinan

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