Philippines amends retail trade liberalization law to attract foreign investment

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On December 10, 2021, the President of the Philippines approved final amendments to the Retail Business Liberalization Act (RTLA), or Republic Act No. 11595. The bill reduces minimum paid-up capital requirements for foreign retail companies, removes the requirement for a pre-qualification certificate with the Philippine Board of Investments (BOI), and reduces investment requirements for each store owned by a foreign company.

These measures aim to attract more foreign investment in the retail sector, which before the pandemic accounted for 23% of the entire service industry with a total gross value added of PHP 1 trillion ( $20 billion). The full recovery of the Philippine consumer and retail sector is expected to take place in 2022, with growth expected in 2023.

What are the amendments to the law?

Reduced minimum paid-up capital requirements

The retail industry in the Philippines was exclusively for Filipino citizens until the year 2000 when the RTLA was first introduced. The RTLA allowed foreign investors to engage in local retail, but imposed high minimum paid-up capital requirements.

Under Republic Act No. 11595, a foreign company engaged in retail business in the Philippines now only needs PHP 25 million (US$500,000) as minimum paid-up capital.

Previously, overseas retailers were categorized into four categories, each with its own minimum paid-up capital requirements. They were:

  • Class A – reserved for Filipinos and must have a minimum paid-up capital of US$2.5 million;
  • Category B – foreign companies must have a minimum paid-up capital of at least US$2.5 million but less than US$7 million;
  • Category C – foreign companies must have a minimum paid-up capital of at least US$7 million or more; and
  • Category D – foreign companies specializing in high-end luxury items must have a paid-up capital of at least USD 250,000 per store.

The minimum paid-up capital is reviewed every three years by the National Economic Development Authority (NEDA), the Securities and Exchange Commission (SEC) and the Department of Trade and Industry (DTI).

Pre-qualification certification is no longer required

There are also no pre-qualification requirements such as proof of the company’s track record in retail, which required the foreign company to obtain pre-qualification certification from the BOI. Republic Act 11595 removed these requirements for foreign companies. They only need a minimum paid-up capital of PHP 25 million (USD 500,000).

Reduced minimum investment required for each store

Foreign retailers wishing to open more than one physical store must invest a minimum of PHP 10 million (USD 200,000) per store. This is a reduction from the previous requirement of US$830,000 per store.

This minimum investment covers tangible and intangible assets, such as buildings, furniture and storage facilities, among others.

Abolition of the requirement for a public offering of shares

Foreign-owned retail companies were required to offer a minimum of 30% equity through any stock exchange in the Philippines, within eight years of commencing operations. This has now been removed under Republic Act No. 11595, which means newly established foreign retail businesses can remain private.

Preferential use of Filipino labor

Republic Act No. 11595 states that foreign retail businesses must hire Filipino workers before engaging the services of a foreign national.

Promotion of locally made products

The law encourages foreign retailers to maintain an inventory of locally manufactured products.

This article was originally published on May 31, 2021 and has been republished on January 26, 2022, according to the latest updates.

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