SyCipLaw Partner Benedicto P. Panigbatan responds to questions in relation to property ownership and foreign investment in the Philippines.

Conventus Law (CL): How are the current regulations governing foreign ownership of real estate in the Philippines, and have they been changed or developed recently?

SyCipLaw:The 1987 Constitution of the Philippines ("Philippine Constitution") provides that the exploration, development, and utilization of natural resources, including lands of the public domain, may only be undertaken by Filipino citizens or by corporations whose capital is at least 60% owned by Filipino citizens. Likewise, the Philippine Constitution limits the ownership of private lands only to those who are qualified to acquire and hold lands of the public domain and, thus, is subject to the same 60% nationality restriction.

The Philippines has an Anti-Dummy Law which gives teeth to the nationality restrictions imposed under the Philippine Constitution and statutes by penalizing the following: (a) the use of a Filipino's name or citizenship for the purpose of evading such constitutional or legal provision requiring Philippine citizenship as a requisite for the enjoyment of a right, franchise or privilege, (b) the false simulation of the existence of the minimum capital as owned by Filipino citizens for the purpose of evading a constitutional or legal provision requiring a minimum nationality requirement for the exercise or enjoyment of a right, franchise or privilege, and (c) foreign intervention in the management, operation, administration or control of a corporation engaged in a partially nationalized activity, whether as an officer, employee or laborer therein with or without remuneration, except that: (i) technical personnel may be employed when specifically authorized by the Secretary of the Department of Justice, and (ii) aliens may be elected as directors in proportion to their allowable participation in the capital of the corporation.

The Foreign Investments Act of 1991, as amended, ("FIA") defines "Philippine national" for the purpose of compliance with the nationality requirement. Section 3(a) of the FIA provides that

The term "Philippine national" shall mean a citizen of the Philippines or a domestic partnership or association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty (60%) of the fund will accrue to the benefit of the Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stocks outstanding and entitled to vote of both corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of both corporations must be citizens of the Philippines, in order that the corporations shall be considered a Philippine national. (Emphasis supplied.)

The above definition sets out the Control Test for determining compliance with applicable nationality requirements or restrictions. Under the Control Test, if at least 60% of the capital stock outstanding and entitled to vote of a corporation organized under the laws of the Philippines is owned and held by citizens of the Philippines, such corporation shall be considered a Philippine national. The Control Test has been used in the past for determining compliance with the nationality restriction.

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