Key changes

Key changes between the eleventh – and most recent – Negative List and the previous iteration in 2015 include:

1. The removal of credit granting entities from the list. Following the liberalisation of domestic regulation, in particular the Lending Company Regulation Act of 2007, lending companies, investment houses and financing companies are no longer subject to the former restrictions on foreign equity ownership.
2. An increased lower band for foreign equity ownership of entities in sectors set out in List A. In the 2015 iteration of the Negative List, the percentages of foreign ownership of such entities were set in bands of up to 20 per cent and up to 40 per cent of foreign equity. The Negative List now sets the lower band for relevant entities at up to 25 per cent foreign equity ownership. Both iterations retain a list of sectors where no foreign ownership is allowed.
3. Amendments to the limits of foreign ownership in certain sectors. Entities (i) running private radio communications networks and (ii) dealing with contracts for the construction and repair of locally funded public works are now allowed up to 40 per cent foreign equity ownership where before their upper bands were set at up to 20 per cent and up to 25 per cent, respectively.
4. The removal of adjustment companies from the Negative List. Previously foreign equity ownership in adjustment companies was limited to a maximum of 40 per cent.
5. Certain amendments to the list of professions open to non-Philippine citizens. Maritime officers and those working in sugar technology, among others, will require further approvals.

While not radical in approach, the new Negative List consolidates recent legislative attempts to liberalise foreign ownership laws in the Philippines. The Philippine Congress is in the process of passing six bills that will regulate foreign participation in the retail and public services sectors, among others, indicating that foreign ownership laws will continue to be liberalised. Despite this, some key sectors remain regulated or restricted altogether from foreign ownership. These include small-scale mining enterprises, which are restricted from any foreign equity, as well as a limit on foreign ownership to a maximum of 40 per cent for entities involved in the exploration, development and utilisation of natural resources, and entities involved in the provision of public utilities such as electricity, gas, water, transportation or telephone services. Despite this, entities involved in power generation and the supply of electricity to the open market remain exempt from such foreign ownership restrictions as they do not fall under the regulatory definition of public utilities. Credit granting agencies are another notable exception to these restrictions although both they and other entities wishing to carry out business operations in the Philippines remain subject to the registration and oversight requirements imposed at the domestic level by the multiple agencies involved in the registration and regulation of such entities in country.

As noted in our previous commentary on this topic, the ability of the NEDA to significantly relax the foreign ownership regime in the Philippines is somewhat hampered by the fact that, in order to have any impact on industry sectors under List A, constitutional change is required and, to date, successive governments have been unwilling to take this on. As such, NEDA is limited to tinkering with the limits applicable to industries in List B. The 2015 version of the Negative List was seen as somewhat underwhelming. Whether the latest offering from Manila is received more positively remains to be seen, but foreign investors should not be drawn into thinking that landmark concessions have been made.

Client Alert 2018-234