I. Introduction

Foreign investors are increasingly drawn to the Philippines’ construction sector, driven by demand for infrastructure, housing, and commercial development. For a foreign entity, however, one of the first questions is: how much of a construction company can we legally own if we register it with the Securities and Exchange Commission (SEC)?

The answer is not found in one law, but in a web of constitutional provisions, the Foreign Investments Act, the Foreign Investments Negative List (FINL), the Contractors’ License Law, government procurement rules, and SEC regulations on corporate structuring and nationality.

This article walks through the legal framework governing foreign ownership of construction companies registered with the SEC in the Philippine setting, distinguishing between:

Type of company (private vs engaged in public works);
Type of projects (private construction, public works, PPPs, ODA-funded projects, etc.);
Type of entity (Philippine corporation, foreign branch, JV); and
Licensing and compliance (PCAB license, Anti-Dummy Law, SEC disclosure).

II. Core Legal Framework

Constitutional Background
- The 1987 Philippine Constitution imposes foreign ownership limits on specific activities, notably:
  - Exploitation of natural resources (maximum 40% foreign equity);
  - Public utilities (maximum 40% foreign equity);
  - Ownership of private lands (maximum 40% foreign equity through a corporation).
- Construction, as such, is not expressly classified as a public utility or natural resource activity.
- However, construction companies may be affected indirectly, e.g.:
  - If they own land (landholding corporation capped at 40% foreign equity); or
  - If they themselves operate as a public utility (unlikely, but possible for special cases where construction is bundled with operation of a public utility).
Foreign Investments Act (FIA) – Republic Act No. 7042 (as amended by RA 8179)
- Governs entry and regulation of foreign investments in domestic market enterprises.
- Establishes the Foreign Investments Negative List (FINL), which enumerates areas where foreign equity is restricted or prohibited.
- General rule under FIA:
  - If an enterprise is not in the FINL, it can be up to 100% foreign-owned, subject to minimum capital rules.
- Construction is generally open, except where limited by the FINL (e.g., certain public works construction).
Foreign Investments Negative List (FINL)
- A periodically updated list (e.g. 11th FINL) enumerating activities with foreign ownership caps.
- For construction, the key entry usually concerns:
  - “Construction and repair of public works” – subject to foreign equity limitations, with exceptions for:
    - Infrastructure/development projects covered by the Build-Operate-Transfer (BOT) Law / PPP Law; and
    - Projects that are foreign-funded or assisted where international bidding is required by treaty or agreement.
- Conclusion from the FINL pattern:
  - Purely private construction (e.g., building private residential, commercial, industrial projects) is generally not restricted and can be up to 100% foreign-owned.
  - Locally funded government public works can be partially nationalized, with foreign equity limited (commonly to 25%) unless within an exception category.
Contractor’s License Law – RA 4566 and PCAB Regulations
- RA 4566 requires any contractor engaging in construction in the Philippines to secure a license from the Philippine Contractors Accreditation Board (PCAB).
- PCAB issues:
  - Regular License – for contractors allowed to operate continuously and engage in multiple projects;
  - Special License – typically per project basis, often used historically by foreign contractors.
- Historically, PCAB’s implementing regulations required at least 60% Filipino ownership for Regular Licenses; foreign-owned companies were limited to Special Licenses on a per-project basis.
- The Supreme Court’s ruling in PCAB v. Manila Water (G.R. No. 217590) essentially struck down the 60-40 nationality requirement for Regular Licenses as being beyond RA 4566. This opened the door in principle for 100% foreign-owned construction corporations to obtain Regular Licenses, subject to other laws such as the FINL and sector-specific restrictions.
- PCAB has since adjusted its licensing rules to align with this decision, recognizing foreign-owned corporations within the bounds of other applicable foreign ownership restrictions (e.g., in certain public works).
Revised Corporation Code (RCC) – RA 11232
- Governs the SEC registration and corporate structure of domestic corporations.
- Allows one-person corporations (OPCs), more flexible capital structuring, no minimum authorized capital for most corporations (separate from foreign capital minima under FIA).
- For partially nationalized activities, at least 60% of outstanding capital stock entitled to vote must be owned by Filipino citizens to be considered a “Philippine national.”

III. Types of Construction Companies and Foreign Ownership Limits

To understand the foreign ownership limits, it helps to classify construction companies by what they do rather than just what they are.

A. Private Construction Companies (Purely Private Projects)

Examples:

Building private residential subdivisions, condominiums (as a contractor, not as a land developer/owner);
Constructing malls, industrial plants, offices for private owners;
Fit-out and interior works.

Foreign ownership rule:

No specific equity cap under the Constitution or FINL purely on the basis of being a construction contractor for private projects.
Therefore, a construction corporation registered with the SEC may be up to 100% foreign-owned, provided:
- It complies with minimum capital requirements for foreign-owned domestic market enterprises; and
- It obtains a PCAB license (Regular or Special) to legally operate as a contractor.

Minimum capital requirement (under FIA):

For a foreign-owned domestic market enterprise (i.e., more than 40% foreign equity, primarily serving the Philippine market):
- Generally, USD 200,000 equivalent paid-in capital is required;
- This can be reduced to USD 100,000 if:
  - The enterprise uses advanced technology, or
  - It employs at least 50 direct Filipino employees.
The SEC typically requires proof of paid-in capital upon incorporation.

Key point:

A 100% foreign-owned construction company doing only private-sector projects is generally allowed and can be registered with the SEC as a domestic corporation or branch, subject to capital and licensing rules.

B. Construction Companies Engaged in Public Works (Locally Funded Government Projects)

Examples:

Construction of local roads, bridges, school buildings, public markets, government offices, etc., funded by Philippine government funds, not under BOT/PPP arrangements and not foreign-assisted.

This is where the FINL typically imposes foreign equity limits.

Foreign ownership rule (as patterned in FINL):

The construction and repair of public works funded wholly or partly by the government (other than exceptions) is an area where foreign equity is restricted.
Often, this is limited to 25% foreign equity, meaning:
- The construction company doing such public works must be at least 75% Filipino-owned if it wants to operate freely in this sphere (unless it falls under an exception, e.g., BOT/PPP or foreign-assisted projects).

Impact on SEC-registered construction companies:

A construction corporation registered with the SEC that wishes to engage in regular, locally funded public works:
- Should be structured as a Philippine national with foreign equity not exceeding the limit (e.g., 25% foreign equity, depending on the FINL version in force).
- If owned beyond that, it may be barred or limited from participating in these projects as a prime contractor.

PCAB licensing and classification:

PCAB may require classification of contractors based on types of projects and may cross-reference nationality requirements where FINL applies.
A foreign-majority-owned contractor may still get a PCAB license, but its participation in certain public works projects may be limited or subject to joint ventures/subcontract arrangements with Filipino-owned firms.

C. PPP/BOT and Other Infrastructure Projects (RA 6957 as amended by RA 7718, “BOT Law”)

For Build-Operate-Transfer (BOT), PPP, and similar project structures:

The BOT Law and its implementing rules are generally more liberal toward foreign ownership, particularly for infrastructure or development projects.
The FINL typically exempts from strict foreign equity limits:
- Infrastructure/development projects covered by the BOT Law (now generally under the PPP framework); and
- Projects that are foreign-funded/assisted requiring international competitive bidding.

Foreign ownership rule:

A project company (SPV) implementing a BOT/PPP project may be up to 100% foreign-owned, depending on the sector (though caps still apply if the project company is considered a public utility or landowner).
The construction arm or affiliate can also be heavily foreign-owned, especially if:
- It is merely the contractor, and
- The specific activity is not categorized as a partially nationalized area under the FINL.

Practical structure:

Common structuring:
- A project company (SPV) that may be majority foreign-owned, registered with the SEC;
- A separate construction company, also SEC-registered, which could be:
  - A wholly owned subsidiary;
  - A joint venture with a Filipino contractor; or
  - A foreign contractor licensed by PCAB, sometimes via special rules for foreign-assisted or PPP projects.

D. ODA-Funded and Internationally Bid Projects

For projects funded by Official Development Assistance (ODA) or multilateral agencies (e.g., JICA, World Bank, ADB), the underlying agreements often require international competitive bidding and open participation to foreign contractors.

In such cases:

The FINL typically allows foreign contractors more flexibility.
Foreign construction firms (including 100% foreign-owned entities) may participate, usually via:
- A PCAB Special License, or
- A Regular License if allowed, as long as nationality restrictions in sectoral laws are not violated.

The ownership of the construction company itself remains subject to:

The general rule (foreign ownership allowed) unless it is engaging in restricted public works outside the exemption; and
Standard FIA and SEC requirements.

IV. Forms of Presence and SEC Registration

Foreign construction firms can participate in the Philippine market through different SEC-registered forms:

A. Domestic Corporation (Incorporated in the Philippines)

A Philippine company incorporated under the RCC, with at least 1 incorporator (which can be a natural or juridical person).
Can be:
- Up to 100% foreign-owned if it is not engaged in a partially nationalized activity;
- Subject to foreign equity caps (e.g., 25% or 40%) if operating in restricted sectors, such as certain public works.

Advantages:

Treated as a Philippine corporation;
Easier access to Regular PCAB License after the PCAB v. Manila Water ruling;
Can build up local track record.

Key SEC points:

Articles and By-Laws must clearly indicate share structure and nationality of shareholders;
The company’s classification as a “Philippine national” (for purposes of partially nationalized activities) is based on at least 60% Filipino-owned capital, if needed.

B. Branch Office of a Foreign Corporation

A foreign corporation may apply to the SEC for a license to do business in the Philippines and establish a branch office.
The branch is 100% foreign-owned by definition (it is not a separate legal entity but an extension of the foreign corporation).

Conditions:

The activity of the branch must be allowed for foreign ownership (i.e., not in the FINL restricted list).
It must comply with capitalization requirements for branch offices, often similar to or greater than USD 200,000 in actual inward remittance, especially if engaging in domestic market activities.

For construction:

A branch can, in principle, engage in construction activities open to foreign participation, but:
- It must obtain a PCAB license (Regular or Special);
- For restricted public works, it may be limited, or may participate only in exempted projects (PPP/ODA) or as a subcontractor.

C. Representative Office

A representative office may be set up for marketing, liaison, and coordination, but not to derive income from Philippine sources.
It cannot itself engage in contracting or construction works.
Not suitable as the primary vehicle for construction operations, but can be used as a front-end market development office while a separate operating entity (branch or corporation) handles the actual projects.

D. Joint Ventures (JVs)

Foreign investors frequently structure their presence through joint ventures with Filipino partners, either:

As a joint venture corporation (a domestic corporation with mixed shareholding); or
As a unincorporated joint venture or consortium, recognized under Philippine law and eligible to bid for certain projects under procurement rules.

Reasons to use JVs:

To comply with nationality caps for restricted activities (e.g., public works).
To leverage local track record, licenses, and relationships.
To distribute risk and investment.

A common pattern:

For public works where foreign equity is capped:
- Form a JV corporation with foreign equity at or below the cap (e.g., 25% foreign equity; 75% Filipino).
- Alternatively, form an unincorporated JV where the lead local contractor holds the requisite PCAB license and fulfills nationality requirements.

V. PCAB Licensing and Its Interaction with SEC and Foreign Ownership

Even if the SEC allows a company to exist with a particular foreign equity structure, without a PCAB license it generally cannot lawfully engage in contracting.

Key points:

License Types
- Regular License: For contractors permanently established as Philippine or foreign corporations/branches; allows them to undertake multiple projects.
- Special License: Typically issued for a specific project, often used for foreign contractors in major projects (PPP, ODA-funded, etc.).
Impact of PCAB v. Manila Water
- The Supreme Court invalidated PCAB’s unilateral imposition of a 60% Filipino ownership requirement for Regular Licenses where the law (RA 4566) itself did not provide such nationality limitations.
- Result:
  - 100% foreign-owned corporations can now, in principle, obtain Regular Licenses, subject to meeting technical, financial, and experience requirements and respecting sectoral foreign ownership caps (e.g., for particular public works).
Alignment with FINL and Sectoral Laws
- PCAB cannot authorize foreign participation beyond what the FINL or special laws allow.
- Even with a PCAB license, a foreign-owned contractor may be restricted from serving as a prime contractor in areas where foreign equity is capped, unless:
  - It operates through a JV with appropriate Filipino shareholding; or
  - The project falls under an exemption (e.g., BOT/PPP, foreign-funded with required international bidding).
Category and Project Size Limitations
- PCAB classifies contractors into categories (e.g., “AAA” downwards) based on financial capacity, experience, and net worth.
- These categories influence the maximum project cost a contractor may undertake, separate from foreign ownership concerns.

VI. Anti-Dummy Law and Nominee Structures

Because certain construction activities (especially public works) may impose foreign ownership caps, some parties are tempted to use “dummy” arrangements—i.e., appointing Filipino “nominee” shareholders to hold title while ceding actual control to foreigners.

This runs into the Anti-Dummy Law (Commonwealth Act No. 108, as amended), which:

Prohibits circumvention of nationality restrictions through:
- Nominee arrangements;
- Side agreements that give actual ownership/control to foreigners despite Filipino shareholding on record;
- Filipino directors who merely act on behalf of foreign interests.

Penalties may include:

Criminal liability (imprisonment and fines);
Disqualification from doing business;
Possible cancellation of permits, licenses (including PCAB), and SEC sanctions.

Practical implication:

Where foreign equity is capped by law (e.g., in restricted public works), compliance must be substantive, not merely on paper.
Foreign investors should avoid arrangements where Filipino shareholders are “on paper only” and do not bear genuine risk and economic participation.

VII. Land Ownership and Its Impact on Construction Companies

While construction per se is generally open to foreign ownership, land ownership is not:

Private land ownership is limited to corporations with at least 60% Filipino ownership.
A 100% foreign-owned construction company cannot own land; it can:
- Lease land (e.g., long-term lease for up to 50 years, renewable for 25 years) under the Civil Code and special laws;
- Enter into lease or development agreements with Filipino landowners.

This separation often leads to structures such as:

A Filipino landholding corporation (at least 60% Filipino-owned) owning the project site, and
A foreign-owned or JV construction company contracted to build on that land.

VIII. Practical Structuring Scenarios

To put the foregoing into a more concrete format, consider these typical scenarios:

100% Foreign-Owned Contractor for Private Projects Only
- SEC: Register a domestic corporation or branch, 100% foreign-owned.
- Capital: Meet the USD 200,000 capital requirement (or reduced requirements if applicable).
- PCAB: Apply for a Regular License (post–PCAB v. Manila Water) or Special License.
- Projects: Limit operations to private-sector projects, or to exempted PPP/ODA projects if allowed.
Foreign Investor Wanting to Participate in Local Public Works
- If targeting locally funded government projects not covered by BOT/PPP or ODA:
  - Incorporate a Philippine corporation with foreign equity not exceeding the FINL cap (e.g., 25% foreign, 75% Filipino).
  - Ensure genuine Filipino control and compliance with Anti-Dummy Law.
  - Apply for a PCAB Regular License in the name of the JV corporation.
PPP/BOT Toll Road or Railway with Foreign Sponsors
- Form a project company (SPV)—possibly majority foreign-owned, subject to public utility and land ownership rules.
- The SPV may own project assets and enter into a concession with the government.
- A separate construction company, possibly also foreign-owned, is engaged under an EPC contract, with:
  - PCAB license;
  - Qualification under BOT/PPP rules and procurement guidelines.
Foreign Contractor for ODA-Funded Bridge Project
- Use a foreign corporation with a Philippine branch or a domestic corporation.
- Obtain a PCAB Special License for the specific ODA-funded bridge project.
- Structure equity according to any special conditions in the ODA agreement and procurement rules; often, full or majority foreign control is permissible.

IX. Compliance and Regulatory Considerations

Foreign investors forming or acquiring a construction company registered with the SEC should pay close attention to:

Accurate Nationality Disclosure
- Proper documentation of shareholder citizenship;
- Clear classification of the corporation as a Philippine national (if applicable) or foreign-owned.
Capitalization and Inward Remittance
- Proof of capital remittance for foreign shareholders (e.g., via banking channels);
- Recording of such capital in SEC filings and audited financial statements.
Alignment of Corporate Purpose with Activities
- The primary purpose clause in the Articles of Incorporation should properly state “construction” and related activities.
- If the company plans to engage in public works or PPP/ODA projects, this may need to be reflected in its corporate purpose.
PCAB, DOLE, and LGU Compliance
- PCAB licensing and renewal;
- Labor compliance under DOLE regulations (including minimum wages, safety standards);
- Local business permits and tax registrations.
Tax Structuring
- Consideration of tax implications of using a branch vs domestic corporation;
- Withholding tax issues on cross-border services;
- VAT treatment of construction services, especially for government projects.

X. Summary and Takeaways

General Rule:
- Construction as a business is largely open to foreign ownership. A construction company registered with the SEC may be up to 100% foreign-owned, particularly when focused on private construction projects and exempt categories (PPP/ODA).
Key Restrictions:
- Certain public works (especially locally funded) appear on the Foreign Investments Negative List, limiting foreign equity (commonly to around 25%) unless the project falls under BOT/PPP or is foreign-assisted under specific international agreements.
- Land ownership is restricted to corporations that are at least 60% Filipino-owned; foreign-owned construction companies must rely on leases or project development arrangements.
- The Anti-Dummy Law prohibits circumvention of nationality caps through sham nominee arrangements.
Licensing:
- Regardless of foreign equity, any contractor must secure a PCAB license. Post–PCAB v. Manila Water, foreign-owned corporations can obtain Regular Licenses, but their ability to participate in restricted public works is still governed by the FINL and sectoral laws.
Structuring Strategy:
- For private projects: a 100% foreign-owned corporation or branch is generally viable.
- For restricted public works: investors typically use joint ventures with Filipino partners to comply with foreign equity limitations.
- For PPP/ODA projects: more liberal foreign equity rules often apply, allowing flexible structuring for both the project company and the construction contractor.

Finally, because investment, construction, and infrastructure policy in the Philippines evolves through new legislation, updated FINLs, and regulatory issuances, it’s prudent for foreign and local stakeholders to regularly review the latest laws, regulations, and court decisions, and to seek jurisdiction-specific legal advice before committing capital or signing project documents.