Retail Trade: Foreign Investors: Sec Opinion No. 35-04

June 14, 2004
SEC OPINION NO. 35-04

Retail Trade: Foreign Investors
Tutuban Properties, Inc.

Prime Orion Philippines, Inc.
c/o 20/F LKG Tower,
6801 Ayala Avenue,
Makati City
ATTENTION: Atty. Daisy L. Parker
Authorized Representative
Madam :
This refers to your letter dated 23 February 2004 requesting opinion on

the following queries:
1. Whether or not Tutuban Properties Inc. (TPI), can engage in retail
trade;
2. Whether or not TPI is considered a foreign investor and therefore
exempt from the prequalification requirements under RA 8762 and
its Implementing Rules and Regulations.
In another letter dated 19 April 2004, the following additional queries
were posed:
a. Whether POPI (parent company of TPI, a publicly listed holding
company, which is 26.72% foreign owned is qualified to
engage in retail trade; and
b. Whether POPI may also be considered as a foreign investor
and exempt from the pre-qualification requirements of
Section 5, Rule IV of the Implementing Rules of the Retail
Trade Law, as amended.
As alleged, TPI is a duly registered corporation under Philippine laws
engaged in real estate business, with a paid-up capital of P200M or
US$3,571,428. * TPI is wholly owned by Orion Land Inc. (OLI), a domestic
holding company which in turn is 100% owned by Prime Orion Philippines,
Inc. ("POPI"). The latter corporation is a publicly listed company of which
26.72% of its outstanding capital is owned by foreigners as of 31 January
2004. As of 19 April 2004, POPI's paid-up capital amounted to P2.896B or
US$51,714,285M. * ACTEHI
It is further alleged that TPI corporation is engaged in the business of

leasing commercial stalls and intends to diversify its operation by establishing
a department store or supermarket while POPI, as earlier stated, is a publicly
listed investment company.
It appearing that TPI and POPI are domestic corporations partially owned
by foreigners, engaged in their respective real estate business and investment
company business, not in retail trade, with a paid-up capital of P200M way
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beyond the required capital under RA 8762 of only US$2,500,000.00 for
Category B or P140,000,000.00 and US$7,500,000.00 for Category C or
P420,500,000.00, * more or less, said corporations may engage in retail trade
subject to the conditions set forth under Sec. 5 of Retail Trade Liberalization
Act of 2000 or R.A. 8762, as well as its implementing rules and regulations.
Section 5 of the aforesaid law states:
"Section 5. Foreign Equity Participation. — Foreign-owned
partnerships, associations and corporations formed and organized
under the laws of the Philippines may, upon registration with the
Securities and Exchange Commission (SEC) and the Department of
Trade and Industry (DTI), or in case of foreign-owned single
proprietorships, with the DTI, engage or invest in the retail trade
business, subject to the following categories: SaTAED
xxx xxx xxx

Category B — Enterprises with a minimum paid-up capital of the
equivalent in Philippine Pesos of Two million five hundred thousand US
dollars (US2,500,000.00) but less than Seven million five hundred
thousand US dollars (US$7,500,000.00) may be wholly owned by
foreigners except for the first two (2) years after the effectivity of this
Act wherein foreign participation shall be limited to not more than sixty
percent (60%) of total equity.
Category C — Enterprises with a paid-up capital of the equivalent
in Philippine Pesos of Seven million five hundred thousand US Dollars
(US$7,500,000.00) or more may be wholly owned by foreigners:
Provided, however, That in no case shall the investments for
establishing a store in Categories B and C shall be less than the
equivalent in Philippine Pesos of Eight hundred thirty thousand US
dollars (US$830,000.00).
xxx xxx xxx
The foreign investor shall be required to maintain in the Philippines
the full amount of the prescribed minimum capital unless the foreign
investor has notified the SEC and the DTI of its intention to repatriate its
capital and cease operations in the Philippines. The actual use in
Philippine operations of the inwardly remitted minimum capital
requirement shall be monitored by the SEC.
Failure to maintain the full amount of the prescribed minimum
capital prior to notification of the SEC and the DTI, shall subject the
foreign investor to penalties or restrictions on any future trading
activities/business in the Philippines."
Relative to the query on whether TPI is a "foreign investor" and
therefore exempt from pre-qualification requirements under Section 1 of RA
8762 and Sections 1 and 2, Rule IV of its Implementing Rules and Regulations,
the Commission is of the belief that TPI may be considered as a "domestic
corporation partially owned by foreigner". The foreigner holding interest or
shares in the domestic corporation intending to engage in retail trade is
deemed a "foreign investor." The same interpretation holds true in the case of
POPI.
The two corporations, nonetheless, are not considered as a "foreign
retailer" defined under Sections 8 of the cited law which means "an individual
who is not a Filipino citizen, or a corporation, partnership, association or entity
that is not wholly owned by Filipinos, engaged in retail trade". 1 TPI and POPI,
not being foreign retailers, need not comply with Sec. 5 of subject rules, the
pertinent portion of which provides and we quote:
Foreign investors which are not foreign retailers. — Foreign
investors which are not foreign retailers shall not be required to satisfy
the pre-qualification requirements under Rule IV hereof. IDAESH
The replies therefore to the foregoing queries are in the affirmative

subject to certain qualifications or conditions such as capital and reciprocity 2
requirements laid down under RA 8752 and its implementing rules and
regulations.
Please be advised, however, that TPI should amend its articles of
incorporation to include the intended "retail trade business" in its purpose
clause. POPI need not amend its articles considering that "retail trade" may be
covered in paragraph 3, Secondary Purpose of its articles of incorporation. 3
Very truly yours,
(SGD.) VERNETTE G. UMALI-PACO

General Counsel
Footnotes
* US$ 1.00=P56.00.
1. Rule IV, Sec. 5, Pre-qualification of Foreign Retailers, Rules and Regulations

Implementing Republic Act No. 8762.
2. R.A. 8762 Sec. 8 [d] "Only nationals from or juridical entities formed or
incorporated in countries which allow the entry of Filipino retailers shall be
allowed to engage in retail trade in the Philippines."
* Reciprocity rights, on the other hand, denote the relation between two states
when each of them, by their respective laws, or by treaty, gives the citizens or
nationals of the other certain privileges, as in the undertaking of retail trade
activities, on condition that its own citizens or nationals shall enjoy similar
privileges in the latter state.
Notwithstanding the law allowing one hundred percent foreign ownership of retail
activities subject to the capitalization requirements, a foreign retailer shall be
allowed only to own up to the extent of the foreign ownership allowed for
retailing in its home country. (Rule 1, Sec. 1 [n], Rules and Regulations
Implementing Republic Act No. 8762)
3. To deal in, engage and transact, directly or indirectly, all forms of mercantile acts
and transactions concerning all kinds of real or personal property, movables,
semi-movables, goods, wares, chattels, choses in action, tangible and
intangible property, technical and industrial equipment and machinery,
personal and real rights, commercial papers and documents, securities,
evidences of indebtedness or representative of value or other forms of
obligations, services, and all things, including future ones, which are not
excluded from the commerce of man or which are not contrary to law or
good morals, excluding however, financing business.

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June 14, 2004

SEC OPINION NO. 35-04

Tutuban Properties, Inc.

This refers to your letter dated 23 February 2004 requesting opinion on

It is further alleged that TPI corporation is engaged in the business of

xxx xxx xxx

The replies therefore to the foregoing queries are in the aﬃrmative

Very truly yours,

(SGD.) VERNETTE G. UMALI-PACO

1. Rule IV, Sec. 5, Pre-qualiﬁcation of Foreign Retailers, Rules and Regulations

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