Can a Foreigner Own a Restaurant and Real Estate in the Philippines? Investment and Land Ownership Rules

Introduction

The Philippines, as a developing economy in Southeast Asia, attracts foreign investors interested in various sectors, including hospitality and real estate. However, the country's legal framework imposes significant restrictions on foreign ownership to protect national interests, particularly in land and certain business activities. These rules stem primarily from the 1987 Philippine Constitution, which reserves land ownership for Filipino citizens and corporations predominantly owned by Filipinos, and from statutes like the Foreign Investments Act of 1991 (Republic Act No. 7042, as amended) and the Retail Trade Liberalization Act of 2000 (Republic Act No. 8762). This article provides a comprehensive overview of whether foreigners can own restaurants and real estate in the Philippines, detailing the applicable laws, exceptions, requirements, and practical considerations. It covers constitutional provisions, statutory regulations, investment incentives, potential structures for compliance, and related issues such as leases, taxation, and immigration.

Constitutional Foundations of Ownership Restrictions

The 1987 Constitution forms the bedrock of ownership rules in the Philippines. Article XII, Section 2 declares that all lands of the public domain are owned by the State and alienable only to Filipino citizens or corporations at least 60% owned by Filipinos. Section 7 explicitly prohibits foreigners from acquiring private lands, except through hereditary succession. This constitutional mandate ensures that land, as a finite national resource, remains under Filipino control.

Corporations qualify as "Filipino" if at least 60% of their capital stock is owned by Filipino citizens, and they must also satisfy this threshold for voting rights in land-related decisions (Article XII, Section 3). Foreigners, defined as non-Filipino citizens or entities not meeting the 60% Filipino ownership requirement, are thus barred from direct land ownership. Dual citizens (Filipino-foreign) may own land if they retain or reacquire Philippine citizenship under Republic Act No. 9225 (Citizenship Retention and Re-acquisition Act of 2003), but they must comply with reporting obligations.

These restrictions do not extend to movable property or certain non-land real estate, creating avenues for foreign involvement, as discussed below.

Land Ownership Rules for Foreigners

Prohibition on Direct Land Ownership

Foreigners cannot own land outright. Any attempt to acquire land directly would be void ab initio under constitutional law. This includes agricultural, residential, commercial, and industrial lands. Violations can lead to escheat proceedings, where the land reverts to the State, and potential criminal penalties under anti-dummy laws (e.g., Commonwealth Act No. 108, the Anti-Dummy Law, which penalizes Filipinos who allow foreigners to use their names to evade ownership restrictions).

Exceptions and Alternatives

While direct ownership is forbidden, foreigners have several alternatives:

Long-Term Leases: Foreigners can lease land for up to 50 years, renewable for another 25 years (Presidential Decree No. 471). Leases must be registered with the Register of Deeds. In practice, many foreign investors lease land from Filipino owners and construct buildings, which they can own separately under the principle of accession (Civil Code, Article 440). Upon lease expiration, improvements may transfer to the lessor unless otherwise agreed.
Condominium Ownership: Under Republic Act No. 4726 (Condominium Act), foreigners can own condominium units, provided foreign ownership in the entire project does not exceed 40%. The remaining 60% must be Filipino-owned. This applies to residential, commercial, or mixed-use condos. Ownership includes an undivided interest in common areas but not the underlying land, which remains Filipino-owned. Registration with the Housing and Land Use Regulatory Board (now Department of Human Settlements and Urban Development) is required.
Ownership Through Corporations: A foreigner can invest in a corporation that owns land, but the corporation must be at least 60% Filipino-owned. The foreigner’s stake is limited to 40%. Anti-dummy provisions prohibit arrangements where Filipinos hold nominal shares to mask foreign control.
Special Economic Zones and Incentives: In areas like the Philippine Economic Zone Authority (PEZA) zones or freeports (e.g., Subic Bay, Clark), foreigners may lease land with favorable terms under Republic Act No. 7916 (PEZA Law). However, ownership remains restricted.
Inheritance: Foreign heirs can inherit land but must transfer it to a qualified Filipino within a reasonable time, typically through sale.

Practical Considerations for Real Estate Investment

Due Diligence: Foreign investors should verify titles via the Land Registration Authority and ensure no agrarian reform issues under Republic Act No. 6657 (Comprehensive Agrarian Reform Law).
Taxes and Fees: Real property taxes (based on assessed value) apply, plus documentary stamp tax, transfer tax (up to 1.5%), and capital gains tax (6% on gains) for transactions.
Environmental and Zoning Laws: Compliance with Republic Act No. 8749 (Clean Air Act) and local zoning ordinances is essential.
Risks: Political instability or changes in law could affect leases. Disputes are resolved in Philippine courts, which may favor local parties.

Owning and Operating a Restaurant as a Foreigner

Foreign Investment in Businesses

The Foreign Investments Act (FIA) allows 100% foreign ownership in most sectors not listed in the Foreign Investment Negative List (FINL), updated periodically by Executive Order (latest: Executive Order No. 18, series of 2022). The FINL has two lists:

List A: Activities reserved to Filipinos by mandate (e.g., mass media, small-scale mining).
List B: Sectors limited for reasons of security, health, or morals, or for small enterprises with paid-in equity below US$200,000 (or US$100,000 in advanced technology or employing at least 50 Filipinos).

Restaurants fall under the hospitality and food service sector, which is generally open to 100% foreign ownership if not classified as "retail trade" and meeting capitalization thresholds.

Classification of Restaurants

Retail Trade Aspects: If the restaurant involves selling food for immediate consumption, it may intersect with retail trade under Republic Act No. 8762. Pure retail trade (e.g., grocery stores) requires at least US$2.5 million in paid-in capital for 100% foreign ownership, with branches needing additional capitalization.
Food Service Exemption: Standalone restaurants are often treated as service-oriented rather than retail, allowing 100% foreign equity without the high capital requirement, provided they do not engage in retail merchandising. However, if the restaurant sells packaged goods or operates as a chain with low capitalization, it may fall under List B restrictions.

For small-scale restaurants (capital below US$200,000), ownership is limited to 40% foreign. Larger operations can be fully foreign-owned.

Requirements for Restaurant Ownership

Business Registration: Register with the Securities and Exchange Commission (SEC) for corporations or Department of Trade and Industry (DTI) for sole proprietorships (though foreigners cannot use the latter for restricted activities). Obtain a Bureau of Internal Revenue (BIR) Tax Identification Number, Mayor's Permit, and Barangay Clearance.
Minimum Capitalization: For 100% foreign-owned corporations, minimum paid-in capital is US$200,000 (or equivalent in PHP), reduced to US$100,000 for export-oriented or advanced tech businesses. Restaurants typically require the standard amount.
Sanitary and Health Permits: Compliance with Department of Health (DOH) standards under the Food and Drug Administration (FDA) regulations, including sanitation codes (Presidential Decree No. 856).
Labor Laws: At least 60% of employees must be Filipinos in managerial roles for certain sectors, but restaurants have flexibility. Compliance with Republic Act No. 6727 (Wage Rationalization Act) and social security obligations.
Incentives: PEZA or Board of Investments (BOI) registration offers tax holidays (4-8 years), duty-free imports, and simplified visas for qualifying investments.

Structures for Foreign Ownership

Sole Proprietorship: Not available to foreigners for land-involving businesses.
Partnership or Corporation: Preferred, with foreigners as minority shareholders if land is involved.
Franchising: Foreign brands can franchise to Filipino entities.
Joint Ventures: Partner with Filipinos to meet ownership thresholds.

Interplay Between Restaurant Ownership and Real Estate

A foreigner wishing to own a restaurant on owned real estate faces dual challenges. They can lease land, build or own the restaurant structure, and operate the business fully if capitalization allows. For example, a foreign-owned corporation leases land from a Filipino landlord, owns the building, and runs the restaurant. If the property is a condominium, the foreigner could own the unit used for the restaurant, subject to the 40% cap.

Immigration and Visa Requirements

Foreign investors need appropriate visas:

Special Investor Resident Visa (SIRV): Under Executive Order No. 226, requires US$75,000 investment; grants indefinite stay.
Special Resident Retiree's Visa (SRRV): For retirees, but allows limited business involvement.
9(g) Work Visa: For employees of foreign-owned firms.
Treaty Trader Visa: For nationals of countries with treaties (e.g., US, Japan).

Non-compliance can lead to deportation under Republic Act No. 562 (Alien Registration Act).

Taxation Implications

Income Tax: 25% corporate tax (reduced under CREATE Act, Republic Act No. 11534); 30% for non-residents.
Value-Added Tax (VAT): 12% on gross sales.
Withholding Taxes: On dividends (15-30%) and royalties.
Property Taxes: As mentioned earlier.

Double taxation treaties (e.g., with the US) provide relief.

Challenges and Enforcement

Enforcement is handled by agencies like the SEC, DTI, and Bureau of Immigration. Common issues include "dummy" arrangements, leading to fines up to PHP 100,000 and imprisonment. Recent reforms under Republic Act No. 11659 (Public Service Act amendments) liberalize some sectors but not land or retail. Investors should consult lawyers for Anti-Money Laundering Act compliance (Republic Act No. 9160).

Conclusion

Foreigners cannot own land in the Philippines but can engage in long-term leases, own condominiums (up to 40% in a project), and fully own restaurants if meeting capitalization requirements and avoiding restricted lists. These rules balance attracting foreign capital with protecting sovereignty. Prospective investors should seek legal counsel to navigate complexities, ensure compliance, and maximize incentives. The landscape may evolve with economic policies, but constitutional amendments would require a referendum for fundamental changes.