A comprehensive guide for investors, counsel, and compliance officers

1) Executive summary

Foreign trusts may hold shares in Philippine corporations, but the legal analysis is never just “can a trust buy stock?” It turns on: (i) constitutional and statutory foreign-ownership caps by industry; (ii) how Philippine law attributes nationality to shares held through trustees and nominees; (iii) anti-dummy and beneficial-ownership transparency rules; (iv) licensing and “doing business” pitfalls; and (v) tax, exchange control, and governance mechanics. This article unpacks each of those layers, with practical checklists and structuring tips.

2) Trusts, legal personality, and who “owns” the shares

Trust concept (Philippine setting). The Philippines recognizes trusts under the Civil Code and special laws, but—unlike some common-law jurisdictions—a trust is generally not a separate juridical person. Title to trust property is in the trustee; equitable/beneficial interests are with the beneficiaries; the settlor (trustor) creates the arrangement. Corporate trustees are typically trust departments of banks or trust corporations, and individuals may also serve.

Practical consequence. When shares in a Philippine corporation are registered “ABC Bank, as Trustee of the XYZ Trust,” the registered owner is the trustee. However, for several regulatory tests (nationality attribution, anti-dummy analysis, beneficial-ownership reporting, AML/CFT), authorities may look through the trustee to the natural persons who ultimately own or control the interest.

3) Where the real constraints come from

3.1 Constitutional & statutory foreign-ownership limits

Certain sectors are constitutionally or statutorily reserved in whole or in part to Filipino citizens or to corporations that are at least 60% Filipino-owned (often expressed as a 60-40 split). Headliners include:

Land ownership: private land may not be owned by foreigners; corporations that own land must be at least 60% Filipino-owned. Foreigners may hold long-term leases.
Mass media: limited to citizens of the Philippines or corporations wholly owned and managed by such citizens.
Public utilities vs. public services: the Constitution caps foreign ownership of public utilities at 40%. Recent legislation narrowed what counts as a “public utility,” liberalizing many “public services,” but specific carve-outs still carry caps.
Exploration, development, and utilization of natural resources: generally reserved to the State through co-production/joint venture or to Filipino-owned corporations within constitutional bounds.
Educational institutions (except those established by religious groups and mission boards), private security, and others with bespoke limits.
Condominiums: foreigners may own condo units so long as foreign equity in the condominium corporation does not exceed 40%.

Key point for trusts: If shares are held through a foreign trust/foreign trustee, the shares are counted as foreign unless you can clearly establish Filipino beneficial ownership under the rules summarized below. You cannot use a trust to “relabel” foreign equity as Filipino.

3.2 The “control test” and the “grandfather rule”

Control test (primary rule). For corporations, nationality is generally determined by where at least 60% of the capital is owned by Filipinos. If the immediate corporate owner passes the 60% Filipino threshold, its holdings are typically treated as Filipino.
Grandfather rule (tracing). If there is doubt as to the true Filipino ownership—e.g., multi-layered structures, voting or economic rights skewed by preferences, side agreements, or trustee/nominee arrangements—the regulator may trace ownership through each layer down to natural persons and recompute the genuine Filipino equity. Case law has endorsed this look-through when indicia of circumvention exist.

Trust overlay. Shares in the name of a trustee can trigger look-through: regulators may attribute nationality to the beneficial owners (or even the settlor or person exercising control), not just the trustee of record—especially if the arrangement appears to skirt ownership caps.

3.3 Anti-Dummy Law (ADL) & nominee prohibitions

The Anti-Dummy Law penalizes arrangements that allow foreigners to evade ownership restrictions, such as:

Putting shares in Filipino nominees (or a local trust) while foreigners exercise control (e.g., through side letters, voting arrangements, profit guarantees, management domination).
Allowing foreigners to intervene in the management, operation, administration, or control of a nationalized activity beyond what their equity legally allows.
Using simulated structures—trusts, voting proxies, irrevocable powers—that transfer control while leaving title with a Filipino.

Penalties include fines, imprisonment, corporate sanctions, and—for foreign offenders—possible deportation. Any trust or nominee arrangement must survive an ADL scrutiny focused on substance over form.

4) Beneficial-ownership (BO) transparency & AML/CFT

4.1 Corporate disclosures

Philippine corporate regulators require corporations to identify and record their beneficial owners, generally the natural persons who ultimately own or control (often using thresholds like 25% ownership or other control indicators). Where shares are held by a trust, disclosures typically require identifying:

the trustee,
the settlor (trustor),
the beneficiaries or any class of beneficiaries, and
any protector or person exercising ultimate effective control.

Expect obligations at incorporation, on annual filings, and upon changes in BO. Non-compliance risks administrative penalties, possible suspension/revocation, and AML referrals.

4.2 AML obligations (covered persons)

Banks, trust entities, securities brokers, and many corporate service providers are covered persons subject to customer due diligence (CDD), enhanced due diligence for higher risk customers (e.g., foreign trusts, PEP connections), and record-keeping. Trusts are classic “legal arrangements” of interest to AML regimes: expect requests for governing instruments, identification of all natural-person parties, and source-of-funds/wealth documentation.

Practical tip: If a foreign trust is the subscriber or transferee, build a BO pack (trust deed or extracts, trustee certification, IDs of settlor/beneficiaries/protector, organizational chart) aligned with local BO and AML checklists.

5) Can a foreign trust be a shareholder?

Yes—unless the target corporation or its line of business is restricted. The main gatekeepers are:

Industry caps (see §3.1): If the company owns land or operates in a capped sector, shares held through a foreign trust generally count toward the foreign bucket. If that pushes the company beyond the cap, the issuance/transfer is impermissible.
Nationality attribution & ADL (see §3.2–3.3): Even if an industry is open, any arrangement that masks true control can be void or penalized.
Corporate housekeeping: The corporation’s articles/bylaws, shareholder agreements, ROFR/ROFO, and foreign investment registrations might impose additional conditions.

6) Doing business, licensing, and investment registration

Owning shares ≠ doing business. Mere shareholding, receiving dividends, or appointing directors typically does not constitute “doing business.” Active, continuous commercial acts in the Philippines may.
Foreign corporate trustees: If the trustee is a foreign corporation actively carrying on fiduciary services in the Philippines, local licensing issues can arise. Passive holding of stock generally avoids this, but use local custodians and agents as needed.
Foreign investment registration (FIR). Although not required to legally own shares, registering foreign investment with the Philippine central bank (through authorized agent banks) is often advisable to ensure repatriation of capital/dividends in foreign currency through the banking system.
Securities law compliance. Primary issuances to a trust may be exempt/private placement or require registration, depending on the facts. Secondary transfers must respect transfer restrictions and reporting thresholds (e.g., substantial shareholder disclosures for public companies).

7) Corporate governance mechanics with a trustee-shareholder

Who votes? The trustee, as legal owner, votes the shares—subject to the trust deed. If the deed grants beneficiaries a say (or requires directions), keep documentary evidence in the corporate records to defend BO and ADL compliance.
Board seats & management contracts. Foreign participation in board and management must respect the equity cap and ADL limits. In capped sectors, at least 60% of the board (and officer positions reserved to Filipinos) must be Filipino where required.
Proxies & powers. Long-term, irrevocable proxies in favor of foreigners where equity is Filipino-labeled are ADL red flags.

8) Tax considerations for foreign trusts investing in Philippine corporations

Important: Philippine tax outcomes for trusts depend on residence, character of the trust (revocable/irrevocable; grantor/non-grantor), who is taxed (trustee, trust, or beneficiaries), treaty positions, and whether the investee is a domestic or resident foreign corporation.

8.1 Dividend withholding

Dividends from a Philippine domestic corporation to a nonresident foreign corporation (NRFC) are subject to final withholding tax at the statutory rate, potentially reduced by tax treaty (subject to “beneficial owner” tests and administrative relief conditions).
If the registered shareholder is an individual nonresident alien (NRA) acting as trustee, different NRA dividend rates may apply.
Where the beneficial owner is a different person from the registered payee (e.g., trustee of record vs. nonresident beneficiary), treaty relief requires showing beneficial ownership and residence in the treaty jurisdiction.

8.2 Capital gains on share transfers

Shares in a domestic corporation: Generally subject to capital gains tax (or stock transaction tax if publicly listed and traded through the local exchange). Transfers by or through a trust are taxable events unless specifically exempt.
Donor’s/estate tax: Gratuitous transfers of Philippine-situs property (including shares in a domestic corporation) are generally within Philippine donor’s or estate tax, depending on the donor/decedent’s status and situs rules.

8.3 Withholding and reporting by the corporation

Issuers must withhold and remit final taxes on dividends to nonresidents and maintain documentary support (e.g., treaty relief documents, BO certifications, taxpayer IDs where applicable). Expect requests for tax residency certificates and beneficial ownership declarations from foreign trusts.

9) FX, funding, and repatriation

Funding subscriptions: Foreign currency remittances should pass through authorized agent banks with proper inward remittance documentation tagged to the investment.
Repatriation: Dividends and capital repatriation are generally permitted in foreign currency through the banking system, especially if the investment is registered. Keep copies of investment registration and bank certificates.

10) Land, real estate, and condominium structures

A corporation that owns land must be at least 60% Filipino-owned. Foreign trusts (and foreign beneficiaries) count as foreign for this purpose unless you can robustly prove that the beneficial ownership is Filipino and consistent with ADL.
Condominiums: A foreign trust may hold condo unit shares if the condominium corporation’s foreign equity stays ≤ 40%. Developers and condo corps monitor compliance at the issuance and resale stages.

11) Documentation & diligence playbook (for counsel and corporates)

For the issuing/transferee Philippine corporation

Sector screen: Identify applicable ownership caps (and any special board/officer nationality requirements).
Nationality test: Apply control test; if any doubt, run a grandfather computation (trace through layers, including trusts and nominees).
Anti-Dummy review: Check for red flags (nominee side letters, profit guarantees, de facto control).
BO capture: Obtain BO forms identifying trustee, settlor, protector, beneficiaries (or class) and any person with ultimate effective control.
AML/CDD: Collect KYC pack; classify risk; escalate for PEP or complex structure indicators.
Tax & treaty: Determine withholding profile; collect treaty documents if applicable.
FX registration: Coordinate with an authorized agent bank if FIR is desired.
Corporate records: Ensure share register reflects trustee capacity (e.g., “as trustee of…”), lodge proxies consistent with the trust deed.

For the foreign trust/trustee

Trust deed: Clarify voting, direction powers, revocability, protector rights, and distribution mechanics.
Capacity: Confirm the trustee is permitted (under its home law/charter) to hold foreign equities.
BO transparency: Prepare certifications listing the natural persons who own/control; expect updates if beneficiaries are a class (e.g., discretionary trust).
Tax position: Analyze who is the taxable person and whether treaty relief is available; obtain residency and beneficial ownership documents.
Regulatory footprint: Avoid activities that could be construed as doing business in the Philippines absent a license.

12) Common structuring scenarios

Open sectors (100% foreign-owned allowed) A foreign trust may subscribe directly or via a foreign holding company. Still comply with BO and AML, and plan for dividend WHT/treaty relief.
Capped sectors (e.g., landholding, certain utilities)
- Do not rely on Filipino nominees or local trusts if control remains with foreigners—this is a classic ADL issue.
- If genuine Filipino control and beneficial ownership exist, document it thoroughly and be prepared for grandfathering review.
Publicly listed investee Use local custodians; monitor foreign ownership ceilings (some listed issuers impose caps due to business mix). Substantial shareholder and tender-offer rules can be triggered by accumulation.
Employee/management equity pools If any participant is foreign (or through a foreign trust), re-run sector caps and BO/ADL analyses before issuance.

13) Red flags & enforcement risk indicators

Shareholders of record labeled “trustees,” “nominees,” or “custodians” holding large blocks in capped sectors.
Voting agreements, profit-participation, or management contracts that concentrate control in foreigners beyond permitted levels.
Irrevocable proxies or side letters overriding Filipino directors/officers.
Refusal or inability to disclose beneficial owners and control persons.
Capital funded from abroad without proper bank documentation or BO/AML trails.

14) Practical FAQs

Q: Can a foreign trust help a foreigner own land through a “Filipino” corporation? No. If effective control/economic benefits remain foreign, regulators can look through to the beneficial owners and apply the grandfather rule and ADL.

Q: Whose nationality counts when shares are in a trustee’s name? Expect regulators to look to the beneficial owners or persons exercising ultimate control, not merely the trustee of record.

Q: Do we need a local license if a foreign trustee just holds shares? Generally no. Passive ownership typically is not “doing business.” Active solicitation/operations can change that analysis.

Q: Will treaty rates apply to dividends paid to a foreign trustee? Only if the beneficial owner is a resident of the treaty partner and procedural requirements are met. The mere presence of a trustee of record does not guarantee treaty relief.

15) Counsel’s closing checklist

Industry/sector cap cleared (or structure redesigned).
Nationality computation done (control test + grandfather if needed).
ADL risk assessment completed; no nominee/side-control instruments.
Beneficial owners identified (trustee, settlor, protector, beneficiaries, UBOs).
AML/CDD pack complete; risk-rating documented.
Tax analysis (dividends, capital gains, donor/estate, treaty) finalized; forms obtained.
FX/investment registration plan set with bank.
Corporate records (share register, voting directions/proxies) aligned with trust deed.
Ongoing monitoring plan (changes in beneficiaries/control; FINL or sectoral rule updates).

16) Final notes

The Foreign Investment Negative List and sectoral rules are periodically updated, and recent legislation has liberalized some activities while preserving core constitutional caps. Always verify the current status of your particular industry and the investee’s actual activities (not just its corporate purpose).
Because trusts concentrate compliance complexity (BO, ADL, tax, AML) into one vehicle, early engagement with local counsel, tax advisors, and an authorized agent bank saves costly re-papering later.

This article provides a framework for analyzing foreign trust ownership of Philippine corporations. For specific transactions, obtain advice tailored to the exact trust deed, investor profile, industry, and timing.