Foreign retail trade rules eased

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By next week or January 21, the country’s retail industry will open its doors more widely to more businesses and foreign investment.

This, after President Duterte signed into law Republic Act 11595 on Dec. 10, 2021, which amends the Retail Trade Liberalization Act (RTLA) and reduces the amount of investment required of retail businesses owned by corporations. strangers.

The new law provides for a minimum paid-up capital requirement of 25 million pesos for all retail businesses and lowers the minimum investment requirement per store to 10 million pesos. It also removes the prequalification categories set out in RA 8762 or the Retail Nationalization Act (RTNA).

Previously, under RA 8762, foreign-invested partnerships, associations, corporations, and sole proprietorships incorporated and organized under the laws of the Philippines that will engage or invest in retail business are grouped into four categories.

Category A or companies with a paid-up capital of less than $2.5 million are reserved exclusively for Philippine citizens and companies that are 100% owned by Philippine citizens.

Category B is for companies with a minimum paid-up capital of $2.5 million, but less than $7.5 million, which may be wholly foreign-owned, while Category C or those with a paid-up capital of of $7.5 million or more can be wholly owned by foreigners. , provided that the investments per store in categories B and C are not less than $830,000.

Meanwhile, Category D, which is for businesses specializing in high-end or luxury goods, can also be 100% foreign-owned, but must have a paid-up capital of $250,000 per store.

RA 11595 reduces the minimum investment per store required to just $200,000 or about 10 million pesos.

Retail companies more than 80% foreign-owned will no longer be required to offer a minimum of 30% of their capital to the public through the local stock exchange within eight years of commencing operations.

Similarly, the new law provides that foreign retailers who have established or will establish companies, associations or partnerships engaged in retail trade will now be supervised and regulated by the Securities and Exchange Commission instead of the Department of Commerce and Industry. ‘Industry, although the DTI will continue to regulate foreign retailers that are sole proprietorships.

It also reduces the penalties for violating the provisions of the law. Instead of six to eight years of imprisonment and a fine ranging from 1 to 20 million pesos, it will now be four to six years of imprisonment and a fine of 1 to 5 million pesos. In the case of partnerships, associations or corporations, the sanction will be imposed on its partners, president, administrators, managing director and other officers responsible for the violation.

The new minimum paid-up capital requirements, however, are subject to review by the DTI, SEC and NEDA every three years after the law takes effect.

Previously, foreign retailers were required to obtain a prequalification certificate from the Board of Investments upon proof that they met prequalification requirements, such as a minimum net worth requirement of $200 million, the presence of five branches or operating retail franchises around the world unless they have at least one store capitalized at a minimum of $25 million, five years’ retail experience, and they must be a national or legal entity formed or incorporated in countries that allow entry for Filipino retailers.

RA 11595 removes the requirement for this certificate, as well as compliance with said prequalification requirements. Instead, they are now required to have a minimum paid-up capital of 25 million pesos, that the foreign retailer’s home country does not prohibit the entry of Filipino retailers, and a minimum investment per store of at least 10 million pesos in the case of foreign retailers. retailers engaged in retail business through more than one physical store.

The last requirement will not apply to those who were not required to meet the minimum investment per store when the new law came into effect.

The recently enacted law also encourages foreign retailers to have stock inventories done in the Philippines and requires compliance with the Labor Code provisions on hiring foreign nationals, but only if a competent person is not available. , able and willing to do so. Filipino citizen.

According to Senate Minority Leader Franklin Drilon, the new law easing restrictions on the entry of foreign retail businesses into the country will help improve the portfolio of retail investments here, whether it described as very poor. In 2021, he said there were only 46 foreign retail companies registered with the DTI, a growth of two retailers per year since 2000, when the retail sector was first liberalized. times under RA 8762.

That remains to be seen. It has been observed that the lower paid-up capital requirements under the new law are even higher compared to those imposed under the retail laws of other countries.

Will the new law protect Filipino-owned retail businesses?

The old law restricted retail businesses with paid-up capital of less than $2.5 million, or approximately 125 million pesos, exclusively to Philippine citizens and corporations. Under the new law, foreign-owned retail businesses must have a minimum paid-up capital of 25 million pesos. So now, only those with a paid up capital of less than 25 million pesos are reserved for Filipino nationals.

Nor do the restrictions provided by law apply to sales by a manufacturer, processor, worker or laborer, to the general public the products manufactured, processed or produced by him if his capital does not exceed 100,000 pesos, sales by a farmer or a farmer selling the products of his farm, sales in catering operations by a hotelier or innkeeper regardless of the amount of capital: provided that the restaurant is ancillary to the hotel business; and sales that are limited to products manufactured, processed or assembled by a manufacturer, processed or assembled by a manufacturer through a single point of sale, regardless of their capitalization, are not covered by the law since they do not constitute not a retail trade, which means any act, occupation or profession of customarily selling goods, merchandise or consumer goods directly to the general public, except those specifically excluded as mentioned above.

Marikina City Rep. Stella Quimbo, author of the new retail law in Congress, observed that only medium and large establishments will be directly affected by increased foreign competition under these changes, and they represent less than one percent of all establishments. However, the 1% may face stiffer competition from foreign retail companies. She said the effect of lowering the minimum paid-up capital would increase and large companies and monopolies would face stiff competition.

As Drilon pointed out, small and medium retail businesses would continue to be protected.

Prior to 2000, retail trade in the country was nationalized under RA 1180 or an Act to Regulate Retail Trade, which meant that only Filipinos could engage in such activities. After RA 1180 came into effect in 2000, brands like Watsons, Zara, Forever 21, Mango, Uniqlo, luxury brands Louis Vuitton and Hermès, and recently Ikea, opened stores in the Philippines. Some entered into partnerships with Filipino companies, while others were entirely foreign-owned.

In 2019, there was a report that retail giant Walmart would establish stores in the Philippines, specifically in Muntinlupa, Alabang and New Manila in Quezon City.

Let’s see if the new thresholds will indeed encourage more foreign stores to invest in the Philippines. The more the merrier, the better for us consumers.

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