The 1987 Philippine Constitution imposes strict limitations on land ownership to preserve national patrimony. Article XII, Section 7 states that, save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain. This rule applies to both public and private lands and forms the foundation of all restrictions on foreign ownership.

Corporations organized under Philippine law may acquire and hold private land only if they meet the qualification standard derived from the same constitutional provision. That standard requires at least sixty percent (60%) of the corporation’s capital stock to be owned by Filipino citizens. The requirement ensures Filipino control over land resources. Any corporation failing to meet this threshold is disqualified from holding title to land.

The 60/40 Equity Rule in Detail

A Philippine corporation qualifies to own land when Filipino citizens own at least 60% of its outstanding capital stock. This percentage applies to the total capital stock and, more critically, to the shares entitled to vote. Filipino ownership must be genuine and beneficial, not merely nominal or simulated through layering or proxy arrangements.

The Securities and Exchange Commission (SEC) registers corporations and monitors compliance. Upon incorporation and throughout the corporation’s existence, the equity structure must reflect the 60% Filipino threshold. Any subsequent transfer of shares that reduces Filipino ownership below 60% renders the corporation unqualified to continue holding land. The land title becomes vulnerable to challenge, cancellation, or escheat proceedings initiated by the government.

Control is not measured solely by share ownership percentages. Philippine jurisprudence and regulatory practice require that Filipinos exercise actual management and decision-making authority over the corporation, particularly with respect to the land asset. Board composition, officer appointments, and corporate resolutions must demonstrate Filipino control. Shareholder agreements or voting trusts that effectively transfer control to foreign shareholders while maintaining nominal Filipino shareholding are scrutinized and may be declared void.

Anti-Dummy Law and Prohibited Arrangements

Commonwealth Act No. 108, as amended (the Anti-Dummy Law), criminalizes the use of Filipino citizens as dummies, nominees, or agents to enable foreigners to evade ownership restrictions. Any scheme in which a Filipino holds shares or positions in name only, while the foreigner exercises full beneficial ownership and control, violates the law. Penalties include fines, imprisonment, forfeiture of the land to the State, and nullification of the transfer documents.

Common prohibited structures include:

Filipino “front” shareholders who receive compensation or side agreements to hold shares for the foreigner’s benefit.
Layered corporate structures designed to obscure ultimate foreign beneficial ownership.
Voting agreements or irrevocable proxies that give foreigners decisive control despite minority shareholding.

These arrangements expose all parties to civil, criminal, and administrative liability. Courts have consistently invalidated land titles acquired through dummy corporations and imposed sanctions on both the foreign principal and the Filipino dummy.

Permissible Corporate Structure for Foreign Participation

A foreigner may hold up to 40% equity in a Philippine corporation that owns land, provided the remaining 60% or more is held by Filipino citizens with genuine ownership and control. The typical compliant structure is a joint-venture corporation in which:

One or more Filipino individuals or Filipino-owned corporations subscribe to and pay for at least 60% of the shares.
The foreigner subscribes to and pays for not more than 40% of the shares.
The articles of incorporation and by-laws reflect standard corporate governance consistent with Filipino majority control.
All corporate records, tax filings, and beneficial ownership disclosures accurately reflect the equity split.

The foreigner’s interest is limited to shareholder rights: entitlement to dividends, liquidation proceeds (subject to the corporation’s assets), and appreciation in share value. The foreigner does not hold direct title to the land; legal and beneficial ownership of the real property remains with the corporation.

The corporation must be validly organized under the Revised Corporation Code (Republic Act No. 11232). It must state in its purpose clause that it may acquire, hold, or develop real property, and its activities must comply with any sectoral foreign equity caps applicable to its primary business. Real estate ownership itself is not treated as a separate “investment area” under the Foreign Investments Act; the constitutional land ownership rule operates independently.

What Foreigners Cannot Do

A corporation that is 100% foreign-owned or that has more than 40% foreign equity cannot acquire or register title to private land. Any purported transfer to such a corporation is invalid from the outset. The Register of Deeds will refuse registration, and any title erroneously issued may later be cancelled.

Foreigners cannot use a series of corporations or trusts to circumvent the 60% rule. The law looks to the ultimate beneficial ownership. Foreign-owned holding companies or offshore entities cannot be interposed to dilute or disguise the foreign interest in a land-owning Philippine corporation.

Special Cases and Exceptions

Condominium units. Under the Condominium Act (Republic Act No. 4726), a condominium unit is classified as personal property. Foreigners may directly acquire and register title to individual condominium units without forming a corporation. The land beneath the condominium building is owned by the condominium corporation or association, which must itself satisfy the 60% Filipino ownership requirement to hold the land title. Foreign ownership of units within a project is generally permitted, subject to any project-specific restrictions in the master deed or house rules.

Buildings and improvements on leased land. A 100% foreign-owned corporation may own buildings, structures, and other improvements erected on land it leases from a qualified Filipino owner or corporation. Because the foreigner or foreign corporation does not own the underlying land, the constitutional restriction is not triggered. Long-term lease arrangements (commonly up to 75 years through successive renewals) are frequently used for this purpose.

Hereditary succession. The constitutional exception for hereditary succession allows a foreigner to acquire private land by inheritance from a Filipino decedent. The foreigner obtains ownership but remains subject to the restriction on subsequent transfers: the land may not be conveyed to another unqualified person. If the foreigner later sells the inherited land, the buyer must be a qualified Filipino citizen or corporation.

Public land. The Public Land Act (Commonwealth Act No. 141) and related laws impose even stricter rules on agricultural and other public lands. Foreigners and corporations with foreign equity generally may only lease public land under specific conditions; outright ownership is reserved for qualified Filipino citizens and corporations.

Ancestral domains and other special lands. Additional statutes protect ancestral domains, forest lands, and lands reserved for specific public purposes. These areas carry heightened restrictions that cannot be overcome through corporate structuring.

Practical and Compliance Requirements

To establish and maintain a land-owning Philippine corporation with foreign equity participation, the following steps and ongoing obligations apply:

Draft articles of incorporation and by-laws that accurately reflect the 60/40 equity split and Filipino control.
Subscribe and pay for shares in accordance with the equity distribution; maintain proper capitalization records.
Register the corporation with the SEC and obtain all necessary licenses and permits for its intended activities.
Execute a shareholders’ agreement that preserves Filipino majority control while protecting the foreigner’s minority rights (economic rights, information rights, and exit mechanisms), without transferring actual control.
Ensure that all subsequent share transfers, corporate actions, and beneficial ownership changes maintain the 60% Filipino threshold.
File annual reports, general information sheets, and beneficial ownership disclosures with the SEC and other regulators.
Comply with tax obligations, including capital gains tax, documentary stamp tax, and local real property taxes on the land.
Conduct regular audits and legal reviews to confirm continued compliance.

Failure to maintain the required equity structure or control can result in the corporation losing its right to hold the land, exposure to penalties, and potential personal liability for directors and officers.

Tax and Estate Planning Implications

Ownership of land through a Philippine corporation converts the foreigner’s interest into shares of stock, which are personal property. Upon the foreigner’s death, the shares form part of the estate and are subject to Philippine estate tax rules (if the decedent is a resident or the shares have situs in the Philippines). Sale of the shares may trigger capital gains tax and other taxes, whereas a direct sale of land by the corporation triggers corporate-level taxes and potential withholding obligations.

Dividend distributions from the corporation to the foreign shareholder are subject to withholding tax. Liquidation proceeds attributable to the land may have additional tax consequences. Proper structuring at the outset, including consideration of tax treaties, is essential to minimize exposure.

Summary of Permissible vs. Impermissible Arrangements

Permissible: Foreigner holds ≤40% equity in a Philippine corporation with ≥60% genuine Filipino ownership and control; the corporation acquires and holds land title.
Impermissible: Foreigner holds >40% equity, or uses dummy Filipino shareholders or simulated arrangements to achieve de facto control over a land-owning corporation.
Permissible alternative: Foreigner or 100% foreign-owned corporation leases land long-term and owns buildings or improvements erected thereon.
Permissible alternative: Foreigner directly acquires condominium units.
Permissible exception: Foreigner acquires land by hereditary succession.

The constitutional and statutory framework has remained stable for decades. Any future legislative or constitutional change would be required to alter the core 60/40 rule for land ownership. Until such change occurs, the rules described above govern all attempts by foreigners to own real estate or land through Philippine corporations.