Foreign direct investment (FDI) flows have been hit hard during the Covid-19 pandemic. Government-imposed travel bans and quarantines for foreign travelers likely contributed to this, so it is crucial that the government adopt economic measures to promote FDI.
At the beginning of this year, we saw the adoption of the Law on Business Recovery and Tax Incentives for Businesses (Create). Board of Investments Governor Angelica Cayas, speaking at the medical device industry webinar on November 25, 2021, called the law “a major change for investors in the Philippines, because it rationalizes, modernizes and offers more incentives “.
Business groups have also pushed for the passage of other key economic bills to stimulate FDI inflows. These include in particular proposed amendments to the law on foreign investment (law of the Republic [RA] 7402, as amended by RA 8179 or the FIA), the Public Service Act (Commonwealth Act 146, as amended, or the PSA) and the Retail Trade Liberalization Act (RA 8762 or RTLA).
A report from the bicameral conference committee on the proposed FIA amendments, which harmonizes Senate Bill 1156 and House Bill 300, has been approved and ratified on December 9, 2021 by the Senate and the House of Representatives.
The proposed amendments adopted the same general rule embodied in the existing AIF: that foreigners can invest up to 100 percent of shares in domestic market companies, except in areas included in the negative list. It also reiterates the rule that there are no restrictions on the extent of foreign ownership in export companies.
Exporting companies are manufacturing, processing or service (including tourism) companies that export at least 60 percent of their production or, if they are traders, buy products domestically and export at least 60 percent of their production. percent or more.
“Internal market enterprises”, on the other hand, are enterprises which produce goods for sale or render services entirely to the internal market or, if they export part of their production, do not systematically export at least 60%. percent of their production.
The proposed changes to the FIA are intended to introduce changes to Article 8 of RA 7402, which currently stipulates that small and medium-sized enterprises in the domestic market with a paid-up share capital of less than the equivalent of $ 200,000 are reserved for Filipino nationals. However, the minimum paid-up capital required will be reduced to $ 100,000 if the national company is involved in advanced technology as determined by the Department of Science and Technology (DoST) or employs at least 50 direct employees.
The proposed changes to the FIA will reduce the minimum paid-in capital of $ 100,000 to domestic market companies approved as startups or startup facilitators by major host agencies in accordance with RA 11337, the Innovative Startup Act. By law, a “startup” is any person or entity registered in the Philippines who aims to develop an innovative product, process or business model.
A startup facilitator, on the other hand, is any person or entity registered in the Philippines registered under the Philippine Startup Development Program that provides goods, services or capital identified as essential to support the operation and growth of startups. by the Ministry of Trade and Industry in consultation with the DoST, the Department of Information and Communications Technology and relevant government and non-government organizations.
The hiring of 50 direct employees to qualify for the paid-in capital of $ 100,000 has been reduced to just 15 direct employees, provided that at least the majority of employees are Filipino.
The changes also provide that registered foreign companies employing foreign nationals and benefiting from tax incentives should implement a training or skills development program that will be overseen by the Ministry of Labor and Employment to ensure the transfer of technology or skills to Filipinos. This should generate more jobs and improve the skills of Filipino workers.
The development of a global and strategic plan for the promotion and marketing of foreign investments (FIPMP) in the medium and long term is also proposed. This should be based on competitive advantages, natural resources, skills and education development, traditional linkages and international market best practices. It also provides for the establishment of an online portal containing the FIPMP.
Other proposed changes include the inclusion of the principle that public officials and employees involved in the promotion of foreign investments must adhere to the highest standards of public service, accountability and integrity and the imposition of fines. and penalties for violation of these, with reference to the provisions of the RA. 11032, the Ease of Doing Business Act, and RA 3019, the Anti-Registry and Corruption Practices Act.
We look forward to the adoption of these proposed changes to the FIA, as well as the proposed changes to the PSA and RTLA. The bill proposing amendments to the RTLA has already been passed by Congress and was forwarded to the President on November 10, 2021. The Senate Bill 2094, or the PSA Amendment, was approved for second reading on the 14th. December 2021.
Euney Marie J. Mata-Perez is a CPA lawyer and managing partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, mergers and acquisitions and tax lawyer, and has been ranked among the top 100 lawyers in the Philippines by the Asia Business Law Journal.
This article is for general information only and does not replace professional advice when the facts and circumstances warrant. If you have any questions or comments, you can email the author at [email protected] or visit the MTF website at www.mtfcounsel.com.