The intersection of foreign investment and real estate in the Philippines is governed by a complex web of constitutional mandates, statutory limitations, and administrative regulations. For a foreign-owned company—or a domestic corporation with significant foreign equity—navigating the "Minimum Capitalization" requirements is the first step in ensuring a legally sound acquisition.
I. The 60/40 Equity Rule: A Constitutional Foundation
Before discussing capitalization, one must understand the "60/40 Rule." Under the 1987 Philippine Constitution, the ownership of private lands is restricted to:
- Filipino citizens.
- Corporations or associations where at least 60% of the capital is owned by Filipinos.
If a corporation has more than 40% foreign equity, it is considered a Foreign Corporation and is generally prohibited from owning land. However, these entities can still own "real estate" in the form of:
- Condominium Units: Under the Condominium Act, foreigners can own up to 40% of the units in a condominium project.
- Buildings/Improvements: Foreigners can own the building or structure, provided the land beneath it is leased.
II. Minimum Capitalization for Domestic Corporations
If a company is "Filipino" (at least 60% Filipino-owned) and intends to buy land, it must adhere to the capitalization requirements set by the Securities and Exchange Commission (SEC) and the Foreign Investments Act (FIA).
1. Non-Export/Domestic Market Enterprises
If the company is foreign-owned (exceeding 40% foreign equity) but intends to operate in the Philippines (e.g., buying a condo for office use or leasing land for a factory), it is classified as a Domestic Market Enterprise (DME).
- Standard Requirement: A minimum paid-in capital of US$200,000.00.
- Reduced Requirement: This can be lowered to US$100,000.00 if the enterprise:
- Involves advanced technology (certified by the Department of Science and Technology); or
- Employs at least 50 direct Filipino employees.
2. Export-Oriented Enterprises
If the company exports at least 60% of its goods or services, there is generally no minimum capital requirement beyond the basic SEC incorporation fees (usually Php 5,000.00 unless otherwise specified). However, these companies are still subject to the 40% foreign ownership limit if they wish to own land.
III. Capitalization for Condominium Acquisitions
Foreign-owned corporations (more than 40% foreign equity) often purchase condominium units for commercial or residential use. Since this does not involve land ownership, the primary hurdle is the Paid-in Capital required to register as a branch office or a domestic subsidiary.
- Branch Offices: To register a branch of a foreign corporation that will engage in activities within the Philippines (including purchasing property), the US$200,000.00 capital inward remittance is strictly enforced.
- Representative Offices: These cannot "earn income" and therefore cannot technically own property for commercial exploitation, though they may lease.
IV. The Role of the Anti-Dummy Law
It is vital to note that simply meeting the capitalization requirement does not permit a foreign company to bypass land ownership laws. The Anti-Dummy Law (Commonwealth Act No. 108) penalizes:
- Using Filipino "dummies" to acquire land for a foreign principal.
- Simulated schemes where the 60% Filipino equity is not "beneficially" owned by Filipinos.
The SEC uses the "Grandfather Rule" and the "Control Test" to look past the immediate shareholders and determine the ultimate nationality of the capital.
V. Summary Table of Requirements
| Entity Type | Foreign Equity % | Can Own Land? | Min. Capital (Approx) |
|---|---|---|---|
| Filipino Corporation | 0% to 40% | Yes | Standard SEC (Php 5k+) |
| Foreign DME | 40.1% to 100% | No (Condo Only) | US$ 200,000.00 |
| Foreign DME (Tech/Jobs) | 40.1% to 100% | No (Condo Only) | US$ 100,000.00 |
| Export Enterprise | 40.1% to 100% | No (Condo Only) | No Minimum |
VI. Conclusion
For foreign investors, the "Minimum Capitalization" is less about the property price and more about the right to do business in the Philippines. While a US$200,000 investment grants the ability to operate and own condominium units, the path to owning land remains strictly reserved for entities with 60% Filipino ownership.
Legal Tip: Many foreign investors opt for a Long-Term Lease (authorized under the Investors' Lease Act), which allows a 50-year lease, renewable for another 25 years, without requiring the US$200,000 capitalization associated with domestic market entry.
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