Republic of the Philippines
Congress of the Philippines
Metro ManilaEighth Congress
Republic Act No. 7042 June 13, 1991
AN ACT TO PROMOTE FOREIGN INVESTMENTS, PRESCRIBE THE PROCEDURES FOR REGISTERING ENTERPRISES DOING BUSINESS IN THE PHILIPPINES, AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled::
Section 1. Title. - This Act shall be known as the, "Foreign Investments Act of 1991".
Section 2. Declaration of Policy. - It is the policy of the State to attract, promote and welcome productive investments from foreign individuals, partnerships, corporations, and governments, including their political subdivisions, in activities which significantly contribute to national industrialization and socioeconomic development to the extent that foreign investment is allowed in such activity by the Constitution and relevant laws. Foreign investments shall be encouraged in enterprises that significantly expand livelihood and employment opportunities for Filipinos; enhance economic value of farm products; promote the welfare of Filipino consumers; expand the scope, quality and volume of exports and their access to foreign markets;...
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Republic Acts
FOREIGN INVESTMENTS ACT OF 1991
Republic Act No. 7042
Summary of the Foreign Investments Act of 1991
Declaration of Policy (Section 2):
- Attract and promote productive foreign investments that contribute to national industrialization and socioeconomic development.
- Encourage foreign investments in enterprises that expand livelihood, enhance economic value of farm products, promote consumer welfare, expand exports, and transfer relevant technologies.
- Allow 100% foreign ownership in export enterprises as a general rule.
- In domestic market enterprises, allow up to 100% foreign ownership except in areas included in the negative list.
- Encourage foreign-owned domestic market enterprises to increase Filipino participation over time.
Definitions (Section 3):
- "Philippine national" is defined, including requirements for corporations to be considered Philippine nationals.
- "Investment" means equity participation in enterprises organized under Philippine laws.
- "Foreign investment" means equity investment made by a non-Philippine national in the form of foreign exchange or other assets transferred to the Philippines.
- "Doing business" is defined, including activities that constitute "doing business" and exceptions.
- "Export enterprise" is defined based on the percentage of output exported.
- "Foreign Investment Negative List" or "Negative List" is defined as a list of areas where foreign ownership is limited to a maximum of 40%.
Scope and Exclusions (Section 4):
- The Act does not apply to banking and other financial institutions governed by the General Banking Act and other laws under the Central Bank's supervision.
Registration of Foreign Investments (Section 5):
- Non-Philippine nationals can register with the SEC or BTRCP to do business or invest up to 100% in a domestic enterprise, unless prohibited or limited by existing laws or this Act.
- The SEC or BTRCP cannot impose additional limitations on foreign ownership beyond those provided in this Act.
- Enterprises seeking incentives under the Omnibus Investment Code of 1987 must apply for registration with the BOI.
- During the transitory period, the SEC shall disallow registration of a non-Philippine national if an existing joint venture enterprise can reasonably prove capability to make the investment.
- The SEC shall effect registration within 15 days upon submission of complete requirements.
Foreign Investments in Export Enterprises (Section 6):
- Foreign investment in export enterprises not included in Lists A and B of the Negative List is allowed up to 100% ownership.
- Export enterprises must register with the BOI and submit reports to ensure compliance with export requirements.
- The BOI shall advise the SEC or BTRCP of non-complying export enterprises, which may be ordered to reduce domestic sales or face cancellation of registration or penalties.
Foreign Investments in Domestic Market Enterprises (Section 7):
- Non-Philippine nationals may own up to 100% of domestic market enterprises unless prohibited or limited by existing laws or the Negative List.
- A domestic market enterprise may change its status to an export enterprise if it consistently exports 60% or more of its output over a 3-year period.
Foreign Investment Negative List (Section 8):
- The Negative List has three component lists: A, B, and C.
- List A enumerates areas reserved for Philippine nationals by the Constitution and specific laws.
- List B contains areas related to defense, public health, and morals, as well as small and medium-sized domestic market enterprises and export enterprises using depleting natural resources with paid-in equity capital less than US$500,000.
- List C contains areas where existing enterprises adequately serve the economy and consumer needs, as determined by NEDA based on specified criteria.
- The Transitory Negative List shall be replaced by the first Regular Negative List at the end of the transitory period, formulated and recommended by NEDA.
- Subsequent Negative Lists shall be published and become effective 15 days after publication, but shall not affect existing foreign investments.
- Amendments to Lists B and C shall not be made more often than once every two years.
Determination of Areas for Inclusion in List C (Section 9):
- Upon petition by a Philippine national, NEDA may recommend an area for inclusion in List C if it meets specified criteria, including industry control by Filipino-owned firms, ample capacity, sufficient competition, compliance with standards, absence of import restrictions, environmental compliance, and reasonable prices.
- The petition shall be subjected to a public hearing, and NEDA may delegate the evaluation and hearing to a relevant government agency.
- NEDA retains the responsibility to determine whether to recommend the area for inclusion in List C by Presidential Proclamation.
- Areas included in List C shall remain for two years, subject to re-inclusion upon new petition and due process.
Strategic Industries (Section 10):
- Within 18 months after the Act's effectivity, NEDA shall formulate and publish a list of industries strategic to economic development, specifying the desired equity participation by the government and/or private Filipino investors.
- The list of strategic industries and desired equity participation may be amended by NEDA to reflect changes in economic needs and policy directions.
- "Strategic industries" are defined based on criteria such as being crucial for industrialization, requiring massive capital investments, needing advanced technology, having strong linkages with other industries, and generating substantial foreign exchange savings and earnings.
Compliance with Environmental Standards (Section 11):
- All industrial enterprises, regardless of nationality of ownership, shall comply with existing rules and regulations to protect and conserve the environment and meet applicable environmental standards.
Consistent Government Action (Section 12):
- No government agency, instrumentality, or political subdivision shall take any action in conflict with or nullify the provisions of this Act or any certificate or authority granted under it.
Implementing Rules and Regulations (Section 13):
- NEDA, in consultation with BOI, SEC, and other concerned agencies, shall issue the implementing rules and regulations within 120 days after the Act's effectivity.
Administrative Sanctions (Section 14):
- Violations of the Act, terms and conditions of registration, or implementing rules and regulations shall be subject to fines not exceeding P100,000 for individuals and up to P5,000,000 or 0.5% of paid-in capital for juridical entities.
- Responsible officials may also be fined up to P200,000.
- Violators shall be subject to forfeiture of benefits granted under the Act.
- The SEC has the power to impose administrative sanctions for violations.
Transitory Provisions (Section 15):
- Prior to the effectivity of the implementing rules and regulations, the provisions of Book II of Executive Order 226 and its implementing rules and regulations shall remain in force.
- During the initial 36-month transitory period, the Transitory Foreign Investment Negative List shall consist of:
- List A: Areas where foreign ownership is limited by the Constitution and specific laws.
- List B: Defense-related activities, activities involving public health and morals, small and medium-sized domestic market enterprises with paid-in equity capital less than US$500,000 (unless involving advanced technology), and export enterprises using depleting natural resources with paid-in equity capital less than US$500,000.
- List C: Import and wholesale activities not integrated with production or manufacture, services requiring licenses or specific authorization and subject to continuing regulation by national government agencies other than BOI and SEC (existing restrictions at the time of effectivity), and enterprises owned by a foreign licensor and/or affiliates for assembly, processing or manufacture of goods for the domestic market under a technology, know-how and/or brand name license from the licensor (existing licenses at the time of effectivity).
- NEDA shall enumerate and publish the Transitory Negative List along with the implementing rules and regulations.
- Areas in List C shall be reserved for Philippine nationals only during the transitory period.
Repealing Clause (Section 16):
- Articles 44 to 56 of Book II of Executive Order No. 226 are repealed.
- All other laws or parts of laws inconsistent with this Act are repealed or modified accordingly.
Separability Clause (Section 17):
- If any part or section of this Act is declared unconstitutional, it shall not affect the other parts or sections.
Effectivity (Section 18):
- The Act shall take effect 15 days after approval and publication in two newspapers of general circulation in the Philippines.
Declaration of Policy (Section 2):
- Attract and promote productive foreign investments that contribute to national industrialization and socioeconomic development.
- Encourage foreign investments in enterprises that expand livelihood, enhance economic value of farm products, promote consumer welfare, expand exports, and transfer relevant technologies.
- Allow 100% foreign ownership in export enterprises as a general rule.
- In domestic market enterprises, allow up to 100% foreign ownership except in areas included in the negative list.
- Encourage foreign-owned domestic market enterprises to increase Filipino participation over time.
Definitions (Section 3):
- "Philippine national" is defined, including requirements for corporations to be considered Philippine nationals.
- "Investment" means equity participation in enterprises organized under Philippine laws.
- "Foreign investment" means equity investment made by a non-Philippine national in the form of foreign exchange or other assets transferred to the Philippines.
- "Doing business" is defined, including activities that constitute "doing business" and exceptions.
- "Export enterprise" is defined based on the percentage of output exported.
- "Foreign Investment Negative List" or "Negative List" is defined as a list of areas where foreign ownership is limited to a maximum of 40%.
Scope and Exclusions (Section 4):
- The Act does not apply to banking and other financial institutions governed by the General Banking Act and other laws under the Central Bank's supervision.
Registration of Foreign Investments (Section 5):
- Non-Philippine nationals can register with the SEC or BTRCP to do business or invest up to 100% in a domestic enterprise, unless prohibited or limited by existing laws or this Act.
- The SEC or BTRCP cannot impose additional limitations on foreign ownership beyond those provided in this Act.
- Enterprises seeking incentives under the Omnibus Investment Code of 1987 must apply for registration with the BOI.
- During the transitory period, the SEC shall disallow registration of a non-Philippine national if an existing joint venture enterprise can reasonably prove capability to make the investment.
- The SEC shall effect registration within 15 days upon submission of complete requirements.
Foreign Investments in Export Enterprises (Section 6):
- Foreign investment in export enterprises not included in Lists A and B of the Negative List is allowed up to 100% ownership.
- Export enterprises must register with the BOI and submit reports to ensure compliance with export requirements.
- The BOI shall advise the SEC or BTRCP of non-complying export enterprises, which may be ordered to reduce domestic sales or face cancellation of registration or penalties.
Foreign Investments in Domestic Market Enterprises (Section 7):
- Non-Philippine nationals may own up to 100% of domestic market enterprises unless prohibited or limited by existing laws or the Negative List.
- A domestic market enterprise may change its status to an export enterprise if it consistently exports 60% or more of its output over a 3-year period.
Foreign Investment Negative List (Section 8):
- The Negative List has three component lists: A, B, and C.
- List A enumerates areas reserved for Philippine nationals by the Constitution and specific laws.
- List B contains areas related to defense, public health, and morals, as well as small and medium-sized domestic market enterprises and export enterprises using depleting natural resources with paid-in equity capital less than US$500,000.
- List C contains areas where existing enterprises adequately serve the economy and consumer needs, as determined by NEDA based on specified criteria.
- The Transitory Negative List shall be replaced by the first Regular Negative List at the end of the transitory period, formulated and recommended by NEDA.
- Subsequent Negative Lists shall be published and become effective 15 days after publication, but shall not affect existing foreign investments.
- Amendments to Lists B and C shall not be made more often than once every two years.
Determination of Areas for Inclusion in List C (Section 9):
- Upon petition by a Philippine national, NEDA may recommend an area for inclusion in List C if it meets specified criteria, including industry control by Filipino-owned firms, ample capacity, sufficient competition, compliance with standards, absence of import restrictions, environmental compliance, and reasonable prices.
- The petition shall be subjected to a public hearing, and NEDA may delegate the evaluation and hearing to a relevant government agency.
- NEDA retains the responsibility to determine whether to recommend the area for inclusion in List C by Presidential Proclamation.
- Areas included in List C shall remain for two years, subject to re-inclusion upon new petition and due process.
Strategic Industries (Section 10):
- Within 18 months after the Act's effectivity, NEDA shall formulate and publish a list of industries strategic to economic development, specifying the desired equity participation by the government and/or private Filipino investors.
- The list of strategic industries and desired equity participation may be amended by NEDA to reflect changes in economic needs and policy directions.
- "Strategic industries" are defined based on criteria such as being crucial for industrialization, requiring massive capital investments, needing advanced technology, having strong linkages with other industries, and generating substantial foreign exchange savings and earnings.
Compliance with Environmental Standards (Section 11):
- All industrial enterprises, regardless of nationality of ownership, shall comply with existing rules and regulations to protect and conserve the environment and meet applicable environmental standards.
Consistent Government Action (Section 12):
- No government agency, instrumentality, or political subdivision shall take any action in conflict with or nullify the provisions of this Act or any certificate or authority granted under it.
Implementing Rules and Regulations (Section 13):
- NEDA, in consultation with BOI, SEC, and other concerned agencies, shall issue the implementing rules and regulations within 120 days after the Act's effectivity.
Administrative Sanctions (Section 14):
- Violations of the Act, terms and conditions of registration, or implementing rules and regulations shall be subject to fines not exceeding P100,000 for individuals and up to P5,000,000 or 0.5% of paid-in capital for juridical entities.
- Responsible officials may also be fined up to P200,000.
- Violators shall be subject to forfeiture of benefits granted under the Act.
- The SEC has the power to impose administrative sanctions for violations.
Transitory Provisions (Section 15):
- Prior to the effectivity of the implementing rules and regulations, the provisions of Book II of Executive Order 226 and its implementing rules and regulations shall remain in force.
- During the initial 36-month transitory period, the Transitory Foreign Investment Negative List shall consist of:
- List A: Areas where foreign ownership is limited by the Constitution and specific laws.
- List B: Defense-related activities, activities involving public health and morals, small and medium-sized domestic market enterprises with paid-in equity capital less than US$500,000 (unless involving advanced technology), and export enterprises using depleting natural resources with paid-in equity capital less than US$500,000.
- List C: Import and wholesale activities not integrated with production or manufacture, services requiring licenses or specific authorization and subject to continuing regulation by national government agencies other than BOI and SEC (existing restrictions at the time of effectivity), and enterprises owned by a foreign licensor and/or affiliates for assembly, processing or manufacture of goods for the domestic market under a technology, know-how and/or brand name license from the licensor (existing licenses at the time of effectivity).
- NEDA shall enumerate and publish the Transitory Negative List along with the implementing rules and regulations.
- Areas in List C shall be reserved for Philippine nationals only during the transitory period.
Repealing Clause (Section 16):
- Articles 44 to 56 of Book II of Executive Order No. 226 are repealed.
- All other laws or parts of laws inconsistent with this Act are repealed or modified accordingly.
Separability Clause (Section 17):
- If any part or section of this Act is declared unconstitutional, it shall not affect the other parts or sections.
Effectivity (Section 18):
- The Act shall take effect 15 days after approval and publication in two newspapers of general circulation in the Philippines.