Legal BlogRetail Business in the Philippines

September 3, 2012

I am often asked to qualify or identify whether a certain business activity of a prospective client falls under the retail category or not. It is important to know such because first, retail trade is reserved for Filipino citizens, and second, under certain strict conditions foreign participation may be allowed but a huge capitalization is attached to it.

Before the year 2000, Philippine retail business activity was governed by the Retail Trade Nationalization Law. Please take note of the explicit insertion by law framers of the word “nationalization” in the title of the said law. It is really intended to limit the retail business to Philippine Nationals. However, on 27 March 2000, Congress saw the light and realized of the possible influx of foreign investors should the retail be liberalized. Hence, the enactment of the new Retail Trade Liberalization Act which aims to promote consumer welfare by attracting, promoting and welcoming productive investment that will bring down price for the Filipino consumer, create more jobs, promote tourism, assist small manufacturers, stimulate economic growth and enable Philippine goods and services to become globally competitive through the liberalization of the retail trade sector.

Now what really is a retail trade business activity? It basically covers any act, occupation, or calling of habitually selling direct to the general public merchandise, commodities, or goods for consumption. In other words, all activities that pertain to all habitual acts of selling direct to the general public of any merchandise or goods.

The law does not mean, however, that retail trade is completely liberal. It just paved the way for both Filipinos and foreign investor to exploit the retail industry under certain conditions. The restrictions of the law does not apply to

(1) sales of manufacturer, processor, laborer, or worker, to the general public, the products manufactured, processed or produced by him if his capital does not exceed P100,000;

(2) Sales through a single outlet owned by a manufacturer of products manufactured, processed or assembled in the Philippines, irrespective of capitalization

(3) sales by farmers selling their own products;

(4) sales in restaurant operations by  hotel owner or inn-keeper irrespective of the amount capital: provided, that the restaurant is incidental to the hotel business.

(5) Sales to industrial and commercial users or consumers who use the products bought by them to render service to the general public and/or produce or manufacture of goods which are in turn sold by them; or

(6) Sales to the government and/or its agencies and government-owned and controlled corporations.

Corporations with foreign equity participation may qualify if capable to meet the capitalization of not less than USD2.5 Million.  Likewise, there are pre-qualification requirements that an applicant must possess.

Should you need assistance in evaluating your pre-qualifications, or in setting up a business in the Philippines, Triple i is more than willing to help you.

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