The Philippine legal landscape governing foreign investments has undergone a paradigm shift in recent years. Traditionally characterized by a protective "60-40" ownership rule rooted in the 1987 Constitution, the country has transitioned toward an "open-door" policy through landmark legislative amendments. This article outlines the current rules, restrictions, and compliance mechanisms for foreign ownership of corporations and domestic companies as of 2026.
I. The Constitutional Foundation and the 60-40 Rule
The bedrock of investment restriction is Article XII of the 1987 Constitution, which reserves the exploration, development, and utilization of natural resources, as well as the operation of public utilities, to Filipino citizens or corporations at least 60% owned by Filipinos.
While the Constitution sets the floor, the Foreign Investments Act (FIA) of 1991, as amended by Republic Act No. 11647, provides the broader framework. Under this law, 100% foreign ownership is generally allowed in domestic market enterprises and export-oriented businesses unless specifically restricted by the Regular Foreign Investment Negative List (FINL).
II. Key Legislative Reforms and Liberalization
Recent statutes have significantly narrowed the scope of "nationalized" activities, opening previously restricted sectors to full foreign equity.
1. The Public Service Act (RA No. 11659)
Perhaps the most significant reform, this law redefined "Public Utility," a term that previously mandated 60% Filipino ownership for nearly all infrastructure.
- Public Utilities (Restricted to 40% Foreign Equity):
- Distribution and Transmission of Electricity.
- Petroleum and Petroleum Products Pipeline Transmission Systems.
- Water Pipeline Distribution and Wastewater Pipeline Systems.
- Seaports.
- Public Utility Vehicles (PUVs).
- Public Services (Up to 100% Foreign Equity Allowed):
- Telecommunications.
- Airlines and Domestic Shipping.
- Railways and Subways.
- Expressways and Tollways.
Note: Critical infrastructure (e.g., telecommunications) is subject to a reciprocity requirement, meaning the investor's home country must grant similar rights to Philippine nationals.
2. Retail Trade Liberalization Act (RA No. 11595)
The barriers to entry for foreign retailers were drastically lowered:
- Minimum Paid-Up Capital: Reduced from $2.5 million to PHP 25 million (approx. $446,000).
- Investment Per Store: Reduced to at least PHP 10 million.
- Qualification: The requirement for a five-year track record and multiple existing branches was repealed.
3. Renewable Energy (DOE Circular No. 2022-11-0034)
Following a legal opinion from the Department of Justice, the Department of Energy opened the Renewable Energy (RE) sector—including solar, wind, and tidal energy—to 100% foreign ownership. This removed the previous 40% cap that applied to the "utilization of natural resources."
III. The Regular Foreign Investment Negative List (FINL)
The 12th FINL (and subsequent updates) categorizes restrictions into two lists:
List A: Constitutional and Specific Law Restrictions
| Restriction | Sectors |
|---|---|
| 0% Foreign Equity | Mass Media (except internet/recording), Practice of Professions (except reciprocity), Small-scale Mining, Security Agencies, Cockpits. |
| 25% Foreign Equity | Private Recruitment, Defense-related Construction. |
| 30% Foreign Equity | Advertising. |
| 40% Foreign Equity | Land Ownership, Natural Resources (except RE), Educational Institutions (non-religious), Deep-sea Fishing, Government Procurement. |
List B: Security, Health, and MSME Protection
Foreign equity is limited to 40% for:
- Manufacture/distribution of firearms, explosives, and military hardware.
- Massage clinics, saunas, and gambling (unless regulated by PAGCOR).
- Domestic Market Enterprises with paid-in capital of less than $200,000.
- Exception: The threshold is lowered to $100,000 if the enterprise utilizes advanced technology, is a certified startup, or employs at least 15 Filipino workers.
IV. Determining Nationality: The Control Test vs. Grandfather Rule
To determine if a corporation is "Filipino" for purposes of the 60/40 rule, the Securities and Exchange Commission (SEC) applies two tests:
- The Control Test: A corporation is considered Filipino if at least 60% of its capital (both in terms of voting shares and total outstanding shares) is owned by Filipinos.
- The Grandfather Rule: If the 60% Filipino ownership is in doubt (e.g., through complex corporate layering), the SEC "looks through" the investing corporation to determine the ultimate citizenship of the individual stockholders. This is applied when the Filipino equity in the investing corporation is less than 60%.
V. Land and Real Estate Ownership
- Land: Foreigners and foreign-owned corporations are strictly prohibited from owning private land.
- Condominiums: Foreigners may own 100% of a condominium unit, provided that the foreign interest in the entire condominium project does not exceed 40%.
- Leasing: Foreigners may enter into long-term leases of land for up to 50 years, renewable for another 25 years under the Investors' Lease Act.
VI. Compliance and Risks: The Anti-Dummy Law
The Anti-Dummy Law (Commonwealth Act No. 108) prohibits foreigners from intervening in the management, operation, administration, or control of a nationalized business. Violations can lead to:
- Criminal prosecution and imprisonment.
- Forfeiture of the business assets in favor of the State.
- Fines and deportation.
Foreigners are, however, permitted to have representation on the Board of Directors of nationalized corporations in proportion to their allowable share in the capital.