Long-Term Lease for Foreigners in the Philippines (Everything you need to know as of 25 May 2025)
1. Why “lease” matters: the constitutional backdrop
- No foreign land ownership. Article XII §7 of the 1987 Constitution reserves ownership of land to Filipino citizens and 60 %-Filipino-owned corporations. Foreigners may possess land only “by lease” for a period “as may be provided by law.” (LawPhil)
- What foreigners can own outright. They may acquire condominium units (up to 40 % of the total project; R.A. 4726) and improvements (buildings) erected on leased land; but not the land itself. (RESPICIO & CO.)
2. Ordinary lease law (Civil Code)
| Key rule | Practical effect for foreigners |
|---|---|
| Form – leases > 1 year must be in writing (Statute of Frauds, Art. 1403) | Oral contracts unenforceable beyond one year. (RESPICIO & CO.) |
| Registration – leases > 1 year should be annotated on the Torrens title & recorded with the Register of Deeds | Without annotation, the lease binds only the parties, not third persons. |
| Duration if no term agreed – rural land: period necessary to harvest one crop (Art. 1682); urban land: from month-to-month (Art. 1687) | Tacita reconducción applies when the lessee stays 15 days beyond expiry. (Civil Law Blog) |
| Sub-lease & assignment – allowed unless expressly prohibited in the contract (Art. 1654) | Always put a clear prohibition clause if the owner wants control. |
Tip: For contracts exceeding 20 pages or ₱50 million total rent, have them notarised and consularised if a foreign corporation is party, to avoid later enforceability issues.
3. Flagship statute: R.A. 7652, the “Investors’ Lease Act” (ILA, 1993)
| Element | Requirement | Source |
|---|---|---|
| Who qualifies? | A “foreign investor” that actually remits capital or assets registered with the SEC/DTI | (Jur.ph) |
| Purpose of the lease | Industrial estate, factory, agro-industrial project, tourism estate, commercial or similar “priority productive endeavor” | (Legaldex) |
| Term | Up to 50 years, renewable once for 25 years (aggregate 75 years) | (Jur.ph) |
| Area ceilings | 1,000 ha for large agro-industrial/tourism; smaller limits (often 10,000 m² in highly urbanised areas) set by DTI-BOI; plus any zoning limits | (Legaldex) |
| Minimum investment trigger | Tourism leases need ≥ US$ 5 million, 70 % of which must be infused within 3 years; other sectors follow BOI guidelines | (BusinessWorld Online) |
| Regulators | Lease contract is approved by the DTI or the relevant eco-zone authority; violation allows the Secretary of Trade & Industry to terminate under §6 | (Legaldex) |
| Transferability | Leasehold rights may be sold/assigned, but if buyer is also foreign the same ILA conditions apply; if Filipino, constitutional limits disappear | (Jur.ph) |
| Penalties | Nullity of contract, ₱100k–₱1 M fine, 6 mos–6 yrs imprisonment for exceeding area/term or using the land for an unauthorised purpose | (Jur.ph) |
4. Leases in special jurisdictions
- Eco-zones & freeports (Subic, Clark, PEZA zones). EO 429 harmonises zone leases with R.A. 7652: 50 + 25 years. (LawPhil)
- Bases Conversion Act lands (R.A. 7227). Same 50 + 25 structure, processed by SBMA/CDC, sometimes bundled with fiscal incentives.
- Tourism Enterprise Zones (R.A. 9593). TIEZA may approve leases on government land to foreign operators for up to 75 years, mirroring the ILA.
5. Leasing public (government) land
Commonwealth Act 141 generally confines leases of “public agricultural land” to Filipino citizens, but special statutes (e.g., Mining, Energy) carve out exceptions. Foreign corporations may instead:
- lease from a Filipino who already has a 25-year agricultural lease; or
- form a 40 %-foreign joint venture that bids for a public-land lease. (Respicio & Co.)
6. Residential or small-scale leases outside the ILA
- No statute fixes a maximum term, but parties usually adopt 25 years + 25-year option to avoid the appearance of a de facto sale, mindful of the Supreme Court’s Lui She doctrine voiding a 99-year lease that effectively transferred ownership to an alien. (LawPhil)
- Rent-Control Acts (R.A. 9653 as repeatedly extended) cap annual rent increases—but only for units up to ₱10 k/month in NCR (₱7,500 provincially); most long-term foreign expatriate rentals exceed the cap.
7. Tax, fee & reporting checklist
| Item | Who pays | Rate / reference |
|---|---|---|
| Documentary Stamp Tax (DST) on original lease | Lessee (usually passed on) | ₱6 on first ₱2,000 of rent for Year 1 + ₱2 for every additional ₱1,000; plus ₱6/₱2 on advance rent & security deposits. (Bureau of Internal Revenue) |
| Withholding tax on rent | Lessee-corporation | 5 % (creditable) under Sec. 57(B), NIRC; file BIR Form 1601-EQ monthly |
| VAT or Percentage Tax | Lessor | 12 % VAT if gross rent > ₱3 M per year; otherwise 3 % percentage tax |
| Real-property tax | Lessor (may be passed on) | Local rate (1–2 % of assessed value) |
| Registration & annotation | Lessee | ~ 0.25 % of rental or ₱50 + nominal entry fees at Register of Deeds |
Always ask for the BIR-stamped DST return as proof the tax was paid; it is a common due-diligence item for lenders and buyers of leasehold rights.
8. Recent (2024-2025) legislative movement: the 99-year lease bills
- House Bill 10755 and Senate Bill 2898 won third-reading approval in December 2024; both would stretch the ILA aggregate term from 75 to 99 years and expressly allow sub-leasing. (BusinessWorld Online)
- As of 25 May 2025 the bills are in bicameral conference; Malacañang has tagged them “priority,” but no Republic Act has yet been signed. Monitor the Official Gazette or the DTI for final enactment.
9. Practical due-diligence roadmap for a foreign lessee
- Title & encumbrance check – verify TCT/ OCT with Registry of Deeds; look for liens, adverse claims, agrarian reform notices, ancestral domain claims.
- Zoning & land-use – secure LGU zoning certificate; tourist or agro-industrial projects often need separate land-reclassification or ECC.
- Corporate approvals – board resolutions of both lessor & lessee; SEC proof of authority for signatories.
- Investment registration – lodge application with DTI-BOI or PEZA if using the ILA; obtain Certificate of Registration before signing.
- Contract essentials – term, renewal mechanics, sub-lease rules, rental escalation, repossession, option-to-buy (void if granted to alien!), dispute-resolution clause.
- Tax compliance – calendar all DST and withholding deadlines; lessor’s VAT invoicing must start upon turnover.
- Annotation – bring notarised originals plus BIR DST proof to the Registry; collect Owner’s Duplicate with the lease memorandum annotated.
- Post-closing – register with Barangay & LGU business-permits office; eco-zones require separate locator certificates.
10. Key take-aways
- 75 years remains the ceiling until (and unless) the 99-year amendment becomes law.
- Use R.A. 7652 for big-ticket projects; for residential or modest commercial use, a private lease contract—mindful of Lui She—suffices.
- Formality saves leases. Always reduce to writing, pay DST, and annotate; failure often dooms enforcement or financing.
- Foreign control ≠ ownership. Even a very long lease cannot contain options or clauses that in substance divest the Filipino owner of the land; courts scrutinise such arrangements.
- Tax exposure is manageable with proper structuring (e.g., VAT-registered lessor, input-VAT credits, withholding offset).
Disclaimer: This article is informational, reflects the law and publicly-available bills as of 25 May 2025, and is not a substitute for personalised legal advice. Always consult Philippine counsel before signing or investing.