Greater participation of foreign retailers in the Philippine retail sector is expected, as barriers to their entry have effectively been relaxed in amendments to the Retail Liberalization Act (RA 11595).
The Retail Trade Liberalization Act of 2000 was enacted under the administration of President Joseph Estrada to attract and promote consumer welfare by attracting productive investment. It also aimed to empower the Filipino consumer through lower prices, higher quality products, better services and wider choices.
In an article presented by Atty. Romeo Duran, former president of the Tax Management Association of the Philippines (TMAP), said the amendments to RA 11595, which were signed into law by President Rodrigo Duterte on December 10, 2021, primarily (i) removed categories for foreign equity participation in retail trade; (ii) removal of “pre-qualification” requirements; and (iii) reduced capitalization requirements.
It introduced significant changes by removing “entry barriers”, so to speak, to the entry of foreign retailers. However, to protect MSMEs in the retail sector, a minimum paid-up capital is still required, albeit at a significantly reduced amount.
The categories of minimum paid-in capital requirements have been removed and replaced with a single amount.
To engage or invest in retail, a foreign retailer: (a) must have a minimum paid-up capital of P25 million (formerly $2.5 million); (b) its country of origin does not prohibit the entry of Filipino retailers; and (c) in the case of foreign retailers retailing in more than one physical store, the minimum investment per store has been reduced to at least P10 million (previously $830,000).
RA 11595 changed the definition of “high-end or luxury goods” (since the type of business is no longer important) to “minimum investment per store” as including “the value of gross assets, whether tangible or intangible , including but not limited to buildings, leases, furniture, equipment, inventory and common use investments and facilities such as administrative offices, warehouses, preparation or storage facilities.
Investment in common-use facilities, as reflected in the financial statements in accordance with accounting standards accepted by the SEC or DTI, as applicable, will be pro-rated by the number of stores served. The paid-up capital can be used to purchase assets for the purpose of complying with the investment requirement per store. The definition of “minimum investment per store”, given the breadth of its coverage, makes it even easier for foreign retailers to comply with the required investment of 10 million pesos per store.
Pre-qualification requirements, which to some extent functioned as barriers to entry, have been removed. Foreign retailers need only comply with the above conditions.
The requirement for retail companies with more than 80% foreign ownership to offer at least 30% of their capital to the public within eight years of doing business has been removed.
RA 11595 included labor policy that the employment of foreign nationals by foreign retailers must comply with applicable provisions of the Labor Code on the determination of non-availability of a competent, capable, and willing Philippine citizen prior to employment. engage the services of a foreign national, with due regard to state policy under the Constitution to promote the preferential use of Filipino labour.
Foreign retailers are encouraged to stock products made in the Philippines.
The DTI, SEC, and Neda will review the required minimum paid-up capital every three years and each report their recommendation to Congress.
Penalties for violations have been reduced to imprisonment for at least four to six years and a fine of at least 1 million pesos but not more than 5 million pesos.
The amendments, which effectively lowered barriers to entry for foreign retailers, are expected to encourage foreign retailers to participate more in the Philippine retail sector.
This will pave the way for a wider range of consumer products to enter the domestic Philippine market, which will provide a wider range of choices for Filipino consumers, and with this, the continued introduction of networks and global supply chain technologies in the Philippine market. .
There is no doubt that this improvement in retail law presents significant business opportunities for foreign retailers.
Given the nature of the Philippine economy as a consumer-driven economy fueled by a young, dynamic, creative and growing population, it is hoped that this will lead to a larger market for consumers, further stimulate domestic demand , will promote employment and contribute to the continued growth of the country’s gross domestic product.
Atti. Dennis R. Gorecho heads the seafarers division of the law firm Sapalo Velez Bundang Bulilan. For comments, e-mail firstname.lastname@example.org, or call 09175025808 or 09088665786)