What is the 60 40 Ownership Rule in the Philippines?

November 6, 2024

The 60%-40% ownership rule in the Philippines governs foreign investments and ownership of businesses within the country. It stipulates that foreign investors can hold a maximum of 40% ownership in certain businesses, while Filipino citizens or entities must own the remaining 60%. This rule aims to protect and prioritize Filipino interests in specific industries vital to national development, security, or economic welfare. The restriction generally applies to businesses classified as “partially nationalized” or included in sectors where foreign equity participation is limited or prohibited.

Registering a Business with the SEC or DTI

To operate legally in the Philippines, businesses must be registered with either the Securities and Exchange Commission (SEC) or the Department of Trade and Industry (DTI), depending on their structure. The DTI handles the registration of sole proprietorships, while partnerships and corporations must register with the SEC. Choosing the appropriate registration body depends on the type of business structure selected. For example, the SEC regulates foreign corporations, joint ventures, and other incorporated entities.

The Foreign Investment Negative List

The Foreign Investment Negative List (FINL) outlines which areas of investment in the Philippines are restricted or prohibited for foreign ownership. It classifies industries into List A and List B. List A limits foreign ownership based on constitutional and legal provisions. For instance, sectors like mass media, retail trade enterprises, and certain professions are reserved solely for Filipino citizens. Meanwhile, List B limits foreign ownership due to national security, defense, health, morals, and public safety considerations. Understanding the FINL is crucial for any foreign investor to ensure compliance and to determine allowable investment thresholds in specific industries.

Types of Businesses that Foreigners Can Own

Foreigners can own certain businesses, subject to the 60%-40% ownership rule. However, some sectors permit higher or complete foreign ownership, such as:

Export enterprises: 100% foreign ownership is allowed, provided at least 60% of their output is exported. This can include digital goods and services.
Domestic market enterprises must adhere to the 60%-40% ownership rule unless they qualify for 100% foreign equity based on capital requirements (e.g., minimum capital of USD 200,000).

9g Visa for Foreigners

The 9g visa is a standard working visa issued to foreign nationals who will work in the Philippines for a Philippine-based employer. This visa allows foreigners to work legally and reside in the Philippines during their employment. It is renewable, making it a vital document for expatriates engaged in local businesses.

Full Foreign Ownership: How It Works

Foreigners can own 100% of a business if it falls within permissible sectors or if they qualify under specific criteria. Businesses such as export enterprises, companies registered under the Board of Investments (BOI) with incentives, or businesses with a minimum capital investment of USD 200,000 for domestic market activities are eligible for 100% foreign ownership. Sectors like business process outsourcing (BPO) and exporting goods and services typically allow total foreign equity.

Role of Corporate Secretaries, Resident Agents, and Nominee Directors

Corporate Secretary: This position is mandatory for corporations, and must be a resident Filipino citizen. The corporate secretary ensures compliance with corporate governance and regulatory filings.
Resident Agent: Foreign corporations operating in the Philippines must appoint a resident agent as their official legal representative.
Nominee Director: In cases where foreign investors need minimum local participation, nominee directors may be used to satisfy local representation requirements, subject to legal and regulatory compliance.

Foreigners Owning Property as an Investment

Foreigners are restricted from owning land in the Philippines but may own condominium units or buildings (provided foreign ownership does not exceed 40% of the total project). They may also engage in long-term land leases (up to 50 years, renewable for another 25 years). For foreign investors interested in property investments, the Special Investor’s Resident Visa (SIRV) allows for long-term residency for those who invest a minimum amount in specific industries or property development. The 9d Treaty Traders Visa is another option for foreign nationals engaged in substantial trade or investment under treaties between the Philippines and their home countries.

Is Assistance Available?

Yes, assistance is available! Triple i Consulting specializes in helping businesses navigate the complex regulatory and legal requirements for creating and registering a business in the Philippines. Whether you need guidance on business structure, SEC/DTI registration, or compliance with foreign investment rules, our experienced business experts are here to assist you. Contact one of our consultants today to schedule an initial consultation and start your journey to successful business ownership in the Philippines: