WSG Article: Philippines: Amendments to the Foreign Investment Act

Philippines: Amendments to the Foreign Investment Act

March, 2022 - Segolene Leffy

On 02 March 2022, President Rodrigo Duterte signed into law Republic Act No. 11647 (“R.A. 11647”) which further amends Republic Act No. 7042, otherwise known as Foreign Investments Act (“FIA”) as amended. Such amendment is consistent with the State’s policy to further attract, promote, and welcome productive investments from foreign individuals, partnerships, corporations and governments, including their political subdivisions in activities which significantly contribute to sustainable, inclusive, resilient, and innovative economic growth.

Among the notable amendments are:

1. The creation of an Inter-Agency Investment Promotion Coordination Committee (“IIPCC”)

The IIPCC is the body that will integrate all promotion and facilitation efforts to encourage foreign investments in the country. It shall be composed of the Department of Trade and Industry (“DTI”) Secretary as the Chairperson, the Secretary of Undersecretary of Department of Finance (“DOF”) as Vice Chairperson, and one representative from the following agencies: Board of Investments, Philippine Economic Zone Authority, Office of the Undersecretary for Multilateral Affairs and International Economic Relations of the Department of Foreign Affairs, National Economic Development Authority (“NEDA”), Department of Information and Communications Technology, Commission on Higher Education, Technical Education and Skills Development Authority, and one representative each for Luzon, Visayas and Mindanao to be chosen from the list of nominees prepared and submitted by nationally recognized leading industry or business chambers.

2. The introduction of the Foreign Investment Promotion and Marketing Plan (“FIPMP”)

The IIPCC shall develop a comprehensive FIPMP for the medium five-year and long term ten-year, which must be consistent with the strategic investment priorities under Title XIII of the National Internal Revenue Code (“NIRC”). An online portal containing the FIPMP and other details such as IIPCC’s procedures, contacts and schedules, among others, shall be provided by the IIPCC. Said database should also include a directory of local enterprises capable and willing to partner with potential foreign investors. The IIPCC shall consult local chambers of commerce, sectoral, business groups, and other individual partners whenever foreign applicants seek partners, subcontractors, suppliers, and other local business counterparts.

3. Reserving micro and small domestic market enterprises to Philippine nationals.

R.A. 11647 reserves for Philippine nationals micro and small domestic enterprises with paid-in equity capital of less than USD200,000. This threshold is lowered to USD100,000 if the enterprise is: (1) involved in advanced technology, as determined by the Department of Science and Technology; or (2) endorsed as start-up or start up enablers by the lead host agencies pursuant to R.A. 11337 otherwise known as the Innovative Startup Act; or (3) majority of the employees are Filipinos which should not be less than fifteen.

4. Review of Foreign Investments Upon Order of the Philippine President

A new Section 16 mandates the IIPCC, upon order of the President, and in coordination with NEDA, to review foreign investments involving military-related industries, cyber infrastructure, pipeline transportation, or such other activities which may threaten territorial integrity and the safety, security and well-being of Filipino citizens when: (1) made by a foreign government-controlled entity or state-owned enterprises, except independent pension funds, sovereign wealth funds, and multi-national banks, or (2) located in geographical areas critical to national security.

Any recommendation to suspend, prohibit or otherwise limit a reviewed foreign investment shall be transmitted to the Office of the President for the appropriate action.

5. Tax compliance by export enterprises

The law reiterates the requirement that export enterprises register and comply with the requirements of Title XIII of the NIRC, as amended, to wit:

It must be engaged in a project or activity included in the Strategic Investment Priority Plan;
It must meet the target performance metrics after the agreed time period;
Install an adequate accounting system that shall identify the investment, revenues, costs and profits or losses of each registered project or activity undertaken by the enterprise;
It must comply with the e-receipting and e-sales requirement in accordance with Sections 237 and 237(a) of the NIRC; and
Submit annual reports of beneficial ownership of the organization and the related parties.

6. Anti-graft practices in foreign investment promotions

Public officials and employees involved in foreign investment promotions are mandated to uphold the highest standards of public service, accountability and integrity. Accordingly, any public official or employee involved in foreign investment promotions who shall commit any of the following acts shall be punished by a fine of not less than two million pesos (PHP2,000,000.00) but not more than five million pesos (PHP5,000,000.00):

Persuading, inducing or influencing another public officer to perform an act constituting a violation of rules and regulations duly promulgated by competent authority or an offense in connection with the official duties of the latter, or allowing himself to be persuaded, induced, or influenced to commit such violation or offense.
Directly or indirectly requesting or receiving any gift, present, share, percentage, or benefit, for himself or for any other person, in connection with any contract or transaction between the Government and any other part, wherein the public officer in his official capacity has to intervene under the law.
Directly or indirectly requesting or receiving any gift, present or other pecuniary or material benefit, for himself or for another, from any person for whom the public officer, in any manner or capacity, has secured or obtained, or will secure or obtain, any Government permit or license, in consideration for the help given or to be given, without prejudice to Section thirteen of this Act.
Accepting or having any member of his family accept employment in a private enterprise which has pending official business with him during the pendency thereof or within one year after its termination.
Causing any undue injury to any party, including the Government, or giving any private party any unwarranted benefits, advantage or preference in the discharge of his official administrative or judicial functions through manifest partiality, evident bad faith or gross inexcusable negligence. This provision shall apply to officers and employees of offices or government corporations charged with the grant of licenses or permits or other concessions.
Neglecting or refusing, after due demand or request, without sufficient justification, to act within a reasonable time on any matter pending before him for the purpose of obtaining, directly or indirectly, from any person interested in the matter some pecuniary or material benefit or advantage, or for the purpose of favoring his own interest or giving undue advantage in favor of or discriminating against any other interested party.
Entering, on behalf of the Government, into any contract or transaction manifestly and grossly disadvantageous to the same, whether or not the public officer profited or will profit thereby.
Director or indirectly having financing or pecuniary interest in any business, contract or transaction in connection with which he intervenes or takes part in his official capacity, or in which he is prohibited by the Constitution or by any law from having any interest.
Directly or indirectly becoming interested, for personal gain, or having a material interest in any transaction or act requiring the approval of a board, panel or group of which he is a member, and which exercises discretion in such approval, even if he votes against the same or does not participate in the action of the board, committee, panel or group.
Interest for personal gain shall be presumed against those public officers responsible for the approval of manifestly unlawful, inequitable, or irregular transaction or acts by the board, panel or group to which they belong.
Knowingly approving or granting any license, permit, privilege or benefit in favor of any person not qualified for or not legally entitled to such license, permit, privilege or advantage, or of a mere representative or dummy of one who is not so qualified or entitled.
Divulging valuable information of a confidential character, acquired by his office or by him on account of his official position to unauthorized persons, or releasing such information in advance of its authorized release date.

R.A. 11647 does not apply to banking and financing institutions governed by Republic Act No. 8791, or the General Banking Law of 2000 and other laws under the supervision of the Bangko Sentral ng Pilipinas. The law shall also not apply to the practice of professions that are covered by specific laws and fall under the jurisdiction of various regulatory agencies, or those subject to reciprocity agreements with other countries.

The full text of R.A. 11647 can be accessed here.

The information provided here is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.