FOREIGN CORPORATION OWNERSHIP STRUCTURE IN THE PHILIPPINES
The 60 ⁄ 40 Regime vs. 100 % Foreign Ownership
Comprehensive legal primer (updated to July 2025)
1. Constitutional foundations
| Provision | Core rule | Practical effect |
|---|---|---|
| Art. XII, Secs. 11 & 14 (Nat. Economy & Patrimony) | “No franchise, certificate or authorization for the operation of a public utility shall be granted except to… a corporation at least 60 % owned by Filipino citizens.” | Creates the famous 60 ⁄ 40 “Filipino-to-foreign” equity ceiling for public-utility operators and certain natural-resource ventures. |
| Art. XII, Sec. 17 | “In times of national emergency … the State may temporarily take over or direct the operation of any privately owned public utility.” | Reinforces the policy rationale for Filipino majority control. |
| Art. XVI, Sec. 11 | “The ownership and management of mass media shall be limited to 100 % Filipino.” | Mass media is completely closed to foreign equity. |
| Art. XII, Sec. 3 | “Private lands may be transferred only to individuals, corporations or associations qualified to acquire or hold lands of the public domain.” | A corporation must be 60 % Filipino-owned to own land. |
Key takeaway: The Constitution itself hard-codes 60 % Filipino equity for public utilities, natural resources, land ownership, and mass media (with mass media requiring 100 % Filipino).
2. Statutory overlay: carving out spaces for 100 % foreign equity
Foreign Investments Act (FIA), R.A. 7042 (1991) as amended by R.A. 11647 (2022) Creates:
- Foreign Investment Negative List (FINL)—an executive order–issued list of activities where foreign equity is limited or banned.
- Export enterprise classification—firms that export ≥ 60 % of output may be 100 % foreign-owned even if the product is otherwise covered by a restriction.
- Domestic market enterprise (DME)—generally open to 100 % foreign equity unless the activity appears in the FINL Part I (constitutional/statutory limits) or Part II (up to 40 % foreign equity for defense, small-scale mining, etc.).
Public Service Act (PSA), Commonwealth Act 146 as amended by R.A. 11659 (2022)
- Re-defines “public utility” to a narrow category: electric distribution and transmission, water & sewerage pipelines, petroleum & petroleum products pipelines, seaports, and public utility vehicles.
- Telecoms, rail, subways, airlines, expressways, and airports were re-classified as “public services” ➜ now eligible for 100 % foreign ownership, subject to reciprocity and national security review.
Retail Trade Liberalization Act (RTLA), R.A. 8762 as amended by R.A. 11595 (2022)
- Minimum paid-in capital for a fully foreign-owned retail business is now ₱25 million (~US $450k).
- Foreign retailers may establish 100 % foreign-owned subsidiaries if capital meets the threshold and other safeguards (net worth requirement, track record, etc.) are satisfied.
Renewable Energy Act (R.A. 9513, 2008; Implementing Rules amended 2022)
- Renewable-energy generation (e.g., solar, wind) declared not the exploitation of natural resources ➜ 100 % foreign equity allowed for generation facilities.
- Transmission and distribution infrastructure remain governed by 60 ⁄ 40 if classified as a public utility.
Philippine Shipping Act (R.A. 9301)
- Domestic shipping is reserved to 60 % Filipino-owned “Philippine shipping enterprises,” but overseas shipping or ship-management companies can be 100 % foreign.
Contractors’ Licensing Law (R.A. 4566, as liberalized by Board Resolution 2020-4)
- Construction contracting may be 100 % foreign-owned for large “AAA” infrastructure projects under special licenses, but regular domestic contracting retains 60 ⁄ 40.
3. The 60 ⁄ 40 ownership structure in practice
| Aspect | Typical mechanics |
|---|---|
| Equity composition | 60 % common shares with voting rights held by Filipinos; 40 % common and/or preferred shares held by foreigners. |
| De-facto control devices | - Voting-preferred shares issued to foreigners (cap remains 40 %). |
- Shareholder agreements granting negative covenants (veto rights) to foreigners.
- Management service agreements or technical-assistance contracts. | | Anti-Dummy Law (C.A. 108) | Criminalizes schemes where nominal Filipinos hold the 60 % but control effectively rests with foreigners (dummy arrangements). Penalties include up to 15 years’ imprisonment and forfeiture of shares. | | Land ownership | Corporation must be at least 60 % Filipino to own land. A 100 % foreign-owned entity may lease private land for up to 50 years (renewable for 25 years) under the Investors’ Lease Act (R.A. 7652). | | Boards of directors | For “partly nationalized” corporations (subject to 60 ⁄ 40), the number of foreign directors must be proportional to foreign equity (e.g., 4 foreigners max on a 10-seat board if foreign equity is 40 %). |
4. When is 100 % foreign ownership allowed?
| Sector / vehicle | Legal basis | Key conditions |
|---|---|---|
| Export enterprise (> 60 % output exported) | FIA & FINL | At least US $200 k paid-in capital (may drop to US $100 k if employing ≥ 50 Filipino workers or introducing advanced technology). |
| Qualified public service (telecoms, rail, airports, tollways, etc.) | PSA (as amended) | National security review by NEDA and DICT; reciprocity clause for foreign state-owned investors. |
| BPO / IT-BPM | Generally not in FINL | Register with PEZA or BOI for incentives; 100 % foreign equity routine. |
| Renewable-energy generation | RE Act & DOE Circulars | 100 % equity allowed, but grid interconnection still subject to NGCP & ERC rules. |
| Retail | RTLA (as amended) | ₱25 million paid-in capital + store investment of ₱10 million per branch if multiple stores. |
| Regional HQ (RHQ) / Regional Operating HQ (ROHQ) | Sec. 50, Tax Code (as last amended 2023) | Non-incentivized flat tax on employee compensation; may not solicit local sales (RHQ) / may provide qualifying services (ROHQ). |
| Branch office of a foreign corporation | Corporation Code (R.A. 11232) & FIA | Capitalization: US $200 k assigned capital (may be reduced for export-oriented activities). |
5. Capitalization and licensing snapshots
| Form | Capital requirement | Licenses |
|---|---|---|
| Domestic corporation (60 ⁄ 40 or 100 %) | No minimum under Corp. Code; check special laws (e.g., ₱25 M for retail) | SEC Certificate of Incorporation → LGU permits → BIR. |
| Branch | US $200 k assigned capital (booked in BSP-registered inward remittance) | SEC License to Do Business; cannot own land. |
| Representative office | US $30 k annual inward remittance; may not earn income | SEC License; purely liaison/marketing. |
| PEZA-registered enterprise | Minimum depending on activity; usually none beyond FIA | PEZA registration grants fiscal & non-fiscal incentives. |
| BOI-registered enterprise | Same as PEZA | BOI registration under SIPP opens incentives; may combine with 60 ⁄ 40 or 100 % foreign equity depending on activity. |
6. Tax differences: 60 ⁄ 40 vs. 100 % foreign-owned
| Topic | 60 ⁄ 40 Domestic Corp | 100 % Foreign-owned Domestic Corp | Branch of Foreign Corp |
|---|---|---|---|
| Corporate income tax | 25 % CIT on net taxable income (CREA law, 2021) | Same rate | Same rate |
| Dividends to non-residents | 15 % WHT if treaty allows | 15 % or treaty rate | Branch profit remittance tax (BPRT) 15 % on remittances abroad |
| VAT / indirect taxes | Same treatment; export enterprises zero-rated | Same | Same |
| Incentives eligibility | BOI, PEZA, IPA programs apply depending on activity, not ownership mix | Same (some incentives require ≥ 60 % Filipino for land) | PEZA ICT-branch model possible; BOI not available |
7. Common structuring considerations
Operational control vs. constitutional compliance
- Foreign investors often accept 40 % equity but negotiate supermajority clauses for quorum, veto rights, and technical-assistance fees to retain meaningful influence.
- Beware of Anti-Dummy—formal control cannot pass to foreigners if the constitution says otherwise.
Land-intensive projects
- Use a 60 ⁄ 40 land-holding corporation to own real property, paired with a 100 % foreign-owned operating company that leases the land (typical in manufacturing parks and hotels).
Tax-efficient cash extraction
- Management service fees and royalties (subject to 25 % final withholding or treaty rate) may be cheaper than dividends (15 %).
- Branches pay BPRT only on remitted profits; if profits are reinvested locally, no BPRT.
Exit strategies
- Share transfer in a 60 ⁄ 40 domestic corp triggers documentary stamp tax and potential VAT on real-property assets; approval of Philippine Competition Commission if thresholds crossed.
- For a branch, sale of business is effectively an asset sale; winding-up requires SEC clearance and BIR tax audit.
8. Enforcement trends & jurisprudence
| Case / issuance | Year | Holding |
|---|---|---|
| Narvacan v. Aglipay (G.R. No. 234994) | 2021 | Local governments cannot grant telecommunications franchises; only Congress can. Affirmed PSA distinctions. |
| SEC Opinion on Voting Preferred Shares | 2019–2024 | Allowed non-Filipino voting preferred shares provided total foreign voting rights stay within 40 %. |
| BayanTel v. NTC (Foreign pledges) | 2023 | A pledge of shares in favor of a foreign lender is not per se an equity transfer; only becomes problematic if default results in ownership beyond 40 %. |
| DOE Circular RE-2022-11-0034 | 2022 | Confirmed 100 % foreign equity in renewable-energy generation. |
| SEC Cagayan de Oro Ruling | 2024 | Re-iterated that an “export enterprise” must maintain ≥ 60 % export ratio annually; failure triggers reclassification as DME and compliance with FINL. |
9. Practical playbook (step-by-step)
- Identify activity ➜ Check FINL & special laws.
- Choose vehicle ➜ Domestic corp vs. branch vs. RHQ.
- Assess land needs ➜ Decide if land-holding 60 ⁄ 40 entity is required.
- Draft shareholders’ agreement ➜ Balance control with compliance.
- Secure SEC name reservation & register ➜ Indicates intended foreign equity in Articles.
- Obtain secondary licenses ➜ BSP, NTC, ERC, LGU, DOLE, depending on sector.
- Register incentives ➜ PEZA, BOI, or local IPA.
- Annual compliance ➜ SEC GIS reflecting Filipino/non-Filipino equity, BOI export ratio reports, transfer-pricing documentation for inter-company charges.
10. Advantages & drawbacks
| Metric | 60 ⁄ 40 Corp | 100 % Foreign-owned Corp | Branch |
|---|---|---|---|
| Land ownership | ✅ can own | ❌ cannot (lease only) | ❌ cannot |
| Ease of profit repatriation | Dividends subject to WHT | Same | BPRT on remittance |
| Regulatory perception | Often favored in regulated sectors (utilities, defense) | May face political scrutiny if in sensitive sectors | Neutral |
| Governance complexity | Requires Filipino partners | Simple (single shareholder possible) | Extension of parent; no board |
| Listing on PSE | Possible; must maintain 10 % public float | Possible | N/A |
11. Checklist of still-restricted or capped sectors (July 2025)
| Sector | Allowed foreign equity |
|---|---|
| Mass media | 0 % (fully Filipino) |
| Public utilities (electricity transmission, distribution; water & sewerage; petroleum pipelines; seaports; passenger vehicles)** | Up to 40 % |
| Small-scale domestic retail (< ₱25 M capital) | 0 % |
| Defense-related activities / arms manufacture | Up to 40 % |
| Private security agencies | Up to 40 % |
| Practice of licensed professions (law, medicine, engineering, etc.) | Generally 0 % (unless allowed by reciprocity) |
| Rice & corn production (except under 75 % export scenario) | Up to 40 % |
| Exploration, development & utilization (EDU) of natural resources | Up to 40 % (via FTAA or co-production/JOA under Sec. 2, Art. XII) |
(*) Note: Certain assets (e.g., airports, rail) are no longer “public utilities” post-PSA amendment, so 100 % foreign equity is already permissible.
12. Looking ahead
- Proposed constitutional “economic amendments” continue to be debated in the 19ᵗʰ and 20ᵗʰ Congress; any plebiscite could further relax the 60 ⁄ 40 ceiling by statutory rather than constitutional means.
- Data-sovereignty and national-security screening policies (mirroring CFIUS models) are in the works; foreign investors should expect heightened scrutiny in “critical infrastructure” even where 100 % equity is legally allowed.
- E-commerce and fintech remain largely liberalized, but Bangko Sentral ng Pilipinas’ digital-bank licensing cap (6 digital banks) and nationality mix requirements stand.
Conclusion
The Philippines now offers two broad lanes for foreign investors:
- The traditional 60 ⁄ 40 structure—still indispensable for land ownership, public utilities, and constitutionally capped sectors; and
- Full 100 % ownership—increasingly available for export-oriented, technology, infrastructure (post-PSA) and retail projects, provided statutory thresholds and national-security reviews are met.
Choosing between them hinges on (i) the nature of the business, (ii) land or public-utility exposure, (iii) desired governance flexibility, and (iv) tax and exit considerations. Aligning early with the FINL, the PSA definitions, and the Anti-Dummy Law—and documenting genuine Filipino participation where required—remains the safest route to regulatory certainty and bankability.
This article is for general information only and does not constitute legal advice. Regulatory issuances change frequently; consult Philippine counsel for project-specific guidance.