Ownership Structure for Joint-Venture Businesses with Foreign Partners in the Philippines
(A comprehensive legal primer – July 2025)
Disclaimer: This article is for information only and is not legal advice. Philippine rules change frequently; always confirm details with counsel and the relevant regulators.
1. Why Joint Ventures?
Foreign investors often prefer a joint-venture (JV) vehicle in the Philippines to:
- gain access to sectors subject to foreign-ownership caps;
- leverage Filipino partners’ on-the-ground expertise, landholdings, or regulatory track-record;
- qualify for government procurement or public-private partnership (PPP) projects that require local participation; and
- enjoy fiscal incentives available only to “Philippine nationals” or to enterprises with a specific export or domestic-market profile.
2. Sources of Law and Policy
| Instrument | Key Impact on Ownership | Latest Material Changes |
|---|---|---|
| 1987 Constitution (Art. XII) | Reserves exploitation of natural resources, public lands and utilities, mass media, etc. to “Philippine nationals” (≥60 % Filipino ownership). | None (constitutional). |
| Foreign Investments Act (FIA) – Republic Act (RA) 7042, as amended by RA 11647 (2022) | Creates the Foreign Investment Negative List (FINL); everything not on the list is open up to 100 %. | 12th FINL (Oct 2022) and new “strategic investments” regime. |
| Public Service Act (PSA) – RA 11659 (2022) | Redefines “public utility”; telecoms, railways, airlines, shipping, tollways are now public services and can be up to 100 % foreign-owned. | |
| Retail Trade Liberalization Act – RA 11595 (2022) | Lowers minimum paid-in capital for foreign retailers to PHP 25 million (~USD 450k). | |
| Renewable Energy Act – RA 9513 & DOE Circular 2022-11-0034 | Allows 100 % foreign equity in renewable-energy generation (solar, wind, hydro, geothermal, ocean). | |
| Anti-Dummy Law – Commonwealth Act 108 | Criminalises circumvention of nationality caps; imposes Filipino-board majority where required. | |
| CREATE Act – RA 11534 (2021) | Modernises fiscal incentives; companies register with the Fiscal Incentives Review Board (FIRB) or investment promotion agencies (e.g., PEZA, BoI). | |
| Philippine Competition Act (PCA) – RA 10667 | JV that meets size-of-party or size-of-transaction thresholds needs PCC merger clearance. |
3. Forms of Joint Venture Vehicles
| Form | Legal Personality | Typical Use-Case | Ownership/Control Considerations |
|---|---|---|---|
| Incorporated JV (domestic stock corporation) | Yes | Long-term operating businesses, PPP SPVs | Follows Revised Corporation Code (RCC) and nationality rules on voting shares; minimum of 2 incorporators (may be juristic persons). |
| Partnership (general or limited) | Yes | Professional services, small projects | For limited partnerships, general partner must be Filipino if activity is partly nationalised. |
| Unincorporated/Contractual JV | No separate personality (except for tax) | Construction consortiums, one-off EPC projects | Typically taxed as a corporation if “in the exercise of trade or business” > 2 years. |
| Consortium under BOT/PPP Law | Varies (may evolve into SPV) | Infrastructure & government procurement | Nationality requirements under BOT Law, PPP Code, or sectoral law. |
4. Determining Nationality: Two Tests
| Test | Rule | When Applied |
|---|---|---|
| Control Test | A corporation is “Philippine national” if ≥60 % of its voting stock is held by Filipinos. | Default for FIA, PSA, etc. |
| Grandfather (Look-Through) Rule | When the immediate 60/40 mix is the result of multi-layered entities, trace Filipino ownership down the chain to determine beneficial Filipino equity. | Applied by SEC and courts where the industry is partly or fully reserved and there is doubt of “true” Filipino control (e.g., mining, public land, mass media). |
Tip: When structuring multi-tier JVs, run both tests to ensure compliance and avoid future SEC scrutiny.
5. Board- and Officer-Level Requirements
- In activities partly nationalised (e.g., advertising, land-holding, mineral exploration), the board of directors must be at least 60 % Filipino, mirroring the equity cap.
- President or CEO need not be Filipino unless required by sectoral law or the Anti-Dummy Law (i.e., for public-utility franchises remaining under the 40 % cap).
- Corporate secretaries must be residents and citizens of the Philippines under the RCC.
6. Sector-Specific Foreign-Equity Limits (Snapshot, July 2025)
| Sector / Activity | Max. Foreign Equity | Notes |
|---|---|---|
| Mass media, except recording | 0 % | Constitution. |
| Educational institutions | 40 % | Except schools established by religious groups or mission boards (permitting up to 100 %). |
| Advertising | 30 % | Constitution. |
| Public utilities (narrow definition after RA 11659 – electricity distribution, water pipelines, sewerage, public utility vehicles) | 40 % | “Public services” excluded from definition are now 100 %. |
| Natural-resource exploration, utilization & development | 40 % | Requires Financial or Technical Assistance Agreement (FTAA) if >40 %. |
| Land ownership | 40 % | Foreigners may lease land (25 + 25 + 25 years) or own condo units up to 40 % of project. |
| Renewable-energy generation | 100 % | DOE Circular 2022. |
| Telecommunications, railways, airlines, shipping, expressways | 100 % | Re-classified as “public services”. |
| Retail trade (store-based) | 100 % with PHP 25 M paid-in capital | Lower capital if 🇵🇭 partners own ≥15 %. |
| Domestic market enterprise outside Negative List | 100 % | Subject to minimum capital: USD 200k (≈PHP 11 M) or USD 100k if employing ≥15 Filipinos. |
| Export-enterprise (≥60 % output sold abroad) | 100 % | Minimal capital requirements; qualifies for PEZA incentives. |
7. Land and Real-Property Considerations
- Direct ownership limited to 40 % foreign equity.
- Lease: Up to 75 years (initial 50 + renewal 25) under the Investors’ Lease Act (RA 7652).
- Condominiums: Foreigners may own units, provided the building’s aggregate foreign ownership of the common areas & land title does not exceed 40 %.
- Industrial parks & ecozones: PEZA or other zone authorities hold land; locators sign sub-leases.
8. Incentive Regimes for JV Vehicles
| Regime | Eligibility | Principal Benefits (post-CREATE) |
|---|---|---|
| Board of Investments (BoI) – Domestic or Pioneer | Projects in Investment Priorities Plan (IPP) or Strategic IPP | 4–6 yrs income-tax holiday (ITH) + 5–10 yrs special corporate income tax (SCIT) or enhanced deductions (ED). |
| PEZA (Ecozones/IT Parks) | Export or IT-BPO locators | Duty-free importation; VAT zero-rating; ITH + SCIT/ED. |
| Clark / Subic / Freeport, AFAB, CEZA | Zone-registered enterprises | Tax- and duty-free importation; 5 % gross-income tax (in lieu of all national & local taxes). |
| Renewable-Energy Developers | DOE registration | 7-yr ITH; duty-free import of machinery; zero-VAT sale of power; real-property tax exemptions. |
9. Merger-Control and Competition Issues
A joint-venture counts as an acquisition under the PCA if it will be a new legal entity and assets or contribution values exceed:
- Size-of-Party Test: PHP 6 billion (approx. USD 108 m) in annual PH turnover or asset value of each Ultimate Parent Entity; and
- Size-of-Transaction Test: Contribution or acquired assets into the JV worth ≥PHP 2.4 billion (approx. USD 43 m).
Philippine Competition Commission (PCC) notification must be filed before completion; waiting period is 30 days (extendable).
Even below thresholds, parties must avoid conduct amounting to abuse of dominant position or anti-competitive agreements.
10. Government Joint Ventures & PPPs
- Build-Operate-Transfer (BOT) Law / PPP Code (RA 11966, 2023) governs most infrastructure projects; qualification often requires the JV vehicle to be a “Philippine national” unless the sector is fully liberalised.
- NEDA JV Guidelines (2023) apply where a JV is formed with a government entity outside BOT. Minimum Filipino equity: 51 % unless justified.
- GOCC JV Guidelines (Governance Commission for GOCCs) mirror NEDA rules for state-owned corporations.
11. Step-by-Step Roadmap to Forming a JV
| Phase | Key Actions | Typical Timeline |
|---|---|---|
| 1. Feasibility & Partner Selection | Check FINL, sectoral caps; run nationality tests; sign confidentiality & term sheet. | 1–2 months |
| 2. Structuring & Tax Planning | Choose vehicle (corp/contractual); map equity layers; model CREATE incentives; anticipate PCC filing. | 1–3 months |
| 3. Documentation | Draft Joint-Venture Agreement, Shareholders’ Agreement, Articles & By-Laws, IP/tech-transfer contracts, land/lease instruments. | Parallel |
| 4. Regulatory Approvals | SEC registration (corporation) or notarised Contractual JV; BoI/PEZA/FIRB application; sectoral license (e.g., mining, financial, energy); PCC notice if required. | 1–6 months depending on sector |
| 5. Post-Incorporation Compliance | BIR registration, mayor’s permit, social-security registrations, annual SEC filings, nationality-compliance reports. | Ongoing |
12. Common Structuring Pitfalls
- Token Filipino shareholders with minimal economic stake trigger Anti-Dummy liability.
- Ignoring Grandfather Rule in multi-layer structures results in SEC revocation of license.
- Over-reliance on nominee director arrangements without true control transfer is illegal.
- Failure to notify PCC can void the transaction and incur fines up to 5 % of PH turnover.
- Landholding via foreign-majority JV disguised as lease invites cancellation of titles.
- Assuming all PPP sectors are liberalised—public-utility elements may still be capped.
13. Recent Trends & Outlook (2024-2025)
| Development | Impact |
|---|---|
| Full liberalisation of telecoms & transport services after PSA amendments | Surge in 100 % foreign-owned JVs with local conglomerates for 5G rollout, inter-island shipping, airline expansion. |
| Aggressive renewables push (DOE Green Energy Auction, offshore-wind roadmap) | Foreign energy developers form JVs with Filipino landowners and EPC contractors to satisfy local content in construction. |
| CREATE Act sunset for ITH (transition rules end 2029) | JVs hurry to register projects to lock-in longer ITH periods. |
| Digital banking & fintech liberalised (BSP circulars) | Mixed-equity JVs seek BSP digital-bank license; 40 % cap still applies only if classified as “public utility”. |
| Public Utility Vehicle Modernization Program | Foreign bus manufacturers entering 60/40 JVs to assemble e-buses domestically. |
14. Practical Tips for Foreign Entrants
- Run parallel incorporation and incentive-board processes to shorten lead time.
- Allocate Filipino equity to a single strategic partner rather than sprinkling shares among passive nominees; this facilitates board control compliance.
- Use common vs preferred share classes—issue non-voting preferred shares to foreigners if you need economic upside beyond the 40 % voting cap (subject to dividend & redemption clauses).
- Document real governance rights (veto matters, deadlock mechanisms) transparently; secret side letters can violate Anti-Dummy Law.
- Obtain long-term land/facility leases early; land restrictions remain one of the biggest bottlenecks.
- Budget for PCC and LGU timelines; merger review and local permits often delay project closing more than SEC processing.
15. Conclusion
Creating a Philippine joint venture with foreign partners is no longer the labyrinth it was a decade ago: sweeping liberalisation under RA 11659, RA 11647, RA 11595 and renewable-energy rules means entire sectors are now open to 100 % foreign ownership. Yet nationality caps persist in public utilities, land, natural-resources, education and mass media, and the Anti-Dummy Law is rigorously enforced. Meticulous structuring—observing both the control and grandfather tests—combined with timely competition-law and incentive-board filings, remains critical. For investors who navigate these rules well, the Philippine JV continues to be a powerful platform for accessing one of Southeast Asia’s fastest-growing markets.