The Philippines has enjoyed a sustained period of economic growth and record increases in foreign direct investment in recent years. This is noteworthy not only because of the relatively strong performance of the Philippine economy but also because this growth occurred within one of the stricter regulatory environments for foreign investors in an ASEAN economy.
The most recent iteration of the Negative List, forming part of the main regulatory instrument governing foreign investment in the Philippines, is not radical in approach but sets out some noteworthy concessions for prospective foreign investors into the Philippines. When considered alongside a number of bills due to be passed in Congress that will further liberalise foreign investment controls in certain key sectors, it is clear that the Philippine government is seeking to bring the Philippines in line with the relatively less strict foreign investment regimes elsewhere in the region.
The Negative List
On 29 October 2018, President Duterte signed Executive Order No. 65 setting out the most recent iteration of the Foreign Investment Negative List of the Foreign Investments Act of 1991 (the Negative List). The Negative List is, as the name implies, a list of regulated sectors in which non-Philippine nationals face varying levels of restriction on the ownership of entities operating in those sectors. The Negative List is administered by the National Economic and Development Authority (NEDA).
For the purposes of the Negative List restrictions, non-Philippine nationals are defined as individuals who are not Filipino citizens, corporations established outside of the Philippines, or corporations established in the Philippines in which non-Philippine nationals own more than 40 per cent of the voting capital.
The Negative List is subdivided into two lists, List A and List B. List A sets out the sectors where foreign ownership is regulated by the Philippine Constitution and specific laws. Generally, the Constitution regulates foreign participation in the ownership of land; certain key professions; defence-related activities; and the exploration, development and utilisation of natural resources. Further, there are specific laws which further regulate foreign participation in national defence, retail trade, public utilities and educational institutions. However, the Negative List does attach an annex setting out a number of professions open to foreign participation and the local laws they are subject to.
List B sets out the sectors where foreign ownership is regulated for reasons of security, defence, the risk to health and public morals, and the protection of small and medium-sized enterprises. List B may be revised by the NEDA once every two years. Section 6 of the amended Foreign Investments Act of 1991 states that entities in those sectors not identified in the Negative List are exempt from foreign ownership restrictions, although additional requirements may apply on paid-up capital if the relevant entity does not export at least 60 per cent of its goods or services abroad, does not introduce advanced technology, or directly employs at least 50 people.
Former natural-born Filipinos who no longer hold Philippine citizenship will be treated as Philippine citizens in relation to the sectors regulated by List B of the Negative List. Additionally, section 9 of the amended Foreign Investments Act of 1991 sets out the types of businesses where former natural-born Filipinos have parity with Philippine citizens in terms of investment rights, subject to the Constitution. These businesses include rural banks, thrift banks, private development banks and financing companies.