Eighth 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; and/or transfer relevant
technologies in agriculture, industry and support services. Foreign investments shall be
welcome as a supplement to Filipino capital and technology in those enterprises serving
mainly the domestic market.

As a general rule, there are no restrictions on extent of foreign ownership of export

enterprises. In domestic market enterprises, foreigners can invest as much as one
hundred percent (100%) equity except in areas included in the negative list. Foreign
owned firms catering mainly to the domestic market shall be encouraged to undertake
measures that will gradually increase Filipino participation in their businesses by taking
in Filipino partners, electing Filipinos to the board of directors, implementing transfer of
technology to Filipinos, generating more employment for the economy and enhancing
skills of Filipino workers.

Section 3. Definitions. - As used in this Act:

a) The term "Philippine national" shall mean a citizen of the Philippines or a

domestic partnership or association wholly owned by citizens of the Philippines; or
a corporation organized under the laws of the Philippines of which at least sixty
percent (60%) of the capital stock outstanding and entitled to vote is owned and
held by citizens of the Philippines; or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a Philippine
national and at least sixty (60%) of the fund will accrue to the benefit of the
Philippine nationals: Provided, That where a corporation and its non-Filipino
stockholders own stocks in a Securities and Exchange Commission (SEC) registered
enterprise, at least sixty percent (60%) of the capital stocks outstanding and
entitled to vote of both corporations must be owned and held by citizens of the
Philippines and at least sixty percent (60%) of the members of the Board of
Directors of both corporations must be citizens of the Philippines, in order that the
corporations shall be considered a Philippine national;

b) The term "investment" shall mean equity participation in any enterprise

organized or existing under the laws of the Philippines;
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 c) The term "foreign investment" shall mean as equity investment made by a non-
Philippine national in the form of foreign exchange and/or other assets actually
transferred to the Philippines and duly registered with the Central Bank which shall
assess and appraise the value of such assets other than foreign exchange;

d) The praise "doing business" shall include soliciting orders, service contracts,
opening offices, whether called "liaison" offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any calendar
year stay in the country for a period or periods totalling one hundred eighty (180)
days or more; participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines; and any other act
or acts that imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the exercise of
some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business organization:
Provided, however, That the phrase "doing business: shall not be deemed to
include mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of rights as such
investor; nor having a nominee director or officer to represent its interests in such
corporation; nor appointing a representative or distributor domiciled in the
Philippines which transacts business in its own name and for its own account;

e) The term "export enterprise" shall mean an enterprise which produces goods
for sale, or renders services to the domestic market entirely or if exporting a
portion of its output fails to consistently export at least sixty percent (60%)
thereof; and

g) The term "Foreign Investments Negative List" or "Negative List" shall mean a
list of areas of economic activity whose foreign ownership is limited to a maximum
of forty ownership is limited to a maximum of forty percent (40%) of the equity
capital of the enterprise engaged therein.

Section 4. Scope. - This Act shall not apply to banking and other financial institutions
which are governed and regulated by the General Banking Act and other laws under the
supervision of the Central Bank.

Section 5. Registration of Investments of Non-Philippine Nationals. - Without

need of prior approval, a non-Philippine national, as that term is defined in Section 3 a),
and not otherwise disqualified by law may upon registration with the Securities and
Exchange Commission (SEC), or with the Bureau of Trade Regulation and Consumer
Protection (BTRCP) of the Department of Trade and Industry in the case of single
proprietorships, do business as defined in Section 3 (d) of this Act or invest in a domestic
enterprise up to one hundred percent (100%) of its capital, unless participation of non-
Philippine nationals in the enterprise is prohibited or limited to a smaller percentage by
existing law and/or limited to a smaller percentage by existing law and/or under the
provisions of this Act. The SEC or BTRCP, as the case may be, shall not impose any
limitations on the extent of foreign ownership in an enterprise additional to those
provided in this Act: Provided, however, That any enterprise seeking to avail of
incentives under the Omnibus Investment Code of 1987 must apply for registration with
the Board of Investments (BOI), which shall process such application for registration in
accordance with the criteria for evaluation prescribed in said Code: Provided, finally,
That a non-Philippine national intending to engage in the same line of business as an
existing joint venture in his application for registration with SEC. During the transitory
period as provided in Section 15 hereof, SEC shall disallow registration of the applying
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non-Philippine national if the existing joint venture enterprise, particularly the Filipino
partners therein, can reasonably prove they are capable to make the investment needed
for they are competing applicant. Upon effectivity of this Act, SEC shall effect registration
of any enterprise applying under this Act within fifteen (15) days upon submission of
completed requirements.

Section 6. Foreign Investments in Export Enterprises. - Foreign investment in

export enterprises whose products and services do not fall within Lists A and B of the
Foreign Investment Negative List provided under Section 8 hereof is allowed up to one
hundred percent (100%) ownership.

Export enterprises which are non-Philippine nationals shall register with BOI and submit
the reports that may be required to ensure continuing compliance of the export
enterprise with its export requirement. BOI shall advise SEC or BTRCP, as the case may
be, of any export enterprise that fails to meet the export ratio requirement. The SEC or
BTRCP shall thereupon order the non-complying export enterprise to reduce its sales to
the domestic market to not more than forty percent (40%) of its total production; failure
to comply with such SEC or BTRCP order, without justifiable reason, shall subject the
enterprise to cancellation of SEC or BTRCP registration, and/or the penalties provided in
Section 14 hereof.

Section 7. Foreign Investments in Domestic Market Enterprises. - Non-

Philippine nationals may own up to one hundred percent (100%) of domestic market
enterprises unless foreign ownership therein is prohibited or limited by existing law or
the Foreign Investment Negative List under Section 8 hereof.

A domestic market enterprise may change its status to export enterprise if over a three
(3) year period it consistently exports in each year thereof sixty per cent (60%) or more
of its output.

Section 8. List of Investment Areas Reserved to Philippine Nationals (Foreign

Investment Negative List). - The Foreign Investment Negative List shall have three
(3) component lists: A, B, and C:

a) List A shall enumerate the areas of activities reserved to Philippine nationals by

mandate of the Constitution and specific laws.

b) List B shall contain the areas of activities and enterprises pursuant to law:

1) Which are defense-related activities, requiring prior clearance and

authorization from Department of National Defense (DND) to engage in such
activity, such as the manufacture, repair, storage and/or distribution of
firearms, ammunition, lethal weapons, military ordnance, explosives,
pyrotechnics and similar materials; unless such manufacturing or repair
activity is specifically authorized, with a substantial export component, to a
non-Philippine national by the Secretary of National Defense; or

2) Which have implications on public health and morals, such as the

manufacture and distribution of dangerous drugs; all forms of gambling;
nightclubs, bars, beerhouses, dance halls; sauna and steambath houses and
massage clinics.

Small and medium-sized domestic market enterprises with paid-in equity

capital less than the equivalent of five hundred thousand US dollars
(US$500,000) are reserved to Philippine nationals, unless they involve
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 advanced technology as determined by the Department of Science and
Technology. Export enterprises which utilize raw materials from depleting
natural resources, with paid-in equity capital of less than the equivalent of
five hundred thousand US dollars (US$500,000) are likewise reserved to
Philippine nationals.

Amendments to List B may be made upon recommendation of the Secretary of

National Defense, or the Secretary of Health, or the Secretary of Education, Culture
and Sports, indorsed by the NEDA, or upon recommendation motu propio of NEDA,
approved by the President, and promulgated by Presidential Proclamation.

c) List C shall contain the areas of investment in which existing enterprises already
serve adequately the needs of the economy and the consumer and do not require
further foreign investments, as determined by NEDA applying the criteria provided
in Section 9 of this Act, approved by the President and promulgated in a
Presidential Proclamation.

The Transitory Foreign Investment Negative List established in Sec. 15 hereof shall
be replaced at the end of the transitory period by the first Regular Negative List
to the formulated and recommended by the NEDA, following the process and
criteria provided in Section 8 and 9 of this Act. The first Regular Negative List shall
be published not later than sixty (60) days before the end of the transitory period
provided in said section, and shall become immediately effective at the end of the
transitory period. Subsequent Foreign Investment Negative Lists shall become
effective fifteen (15) days after publication in two (2) newspapers of general
circulation in the Philippines: Provided, however, That each Foreign Investment
Negative List shall be prospective in operation and shall in no way affect foreign
investments existing on the date of its publication.

Amendments to List B and C after promulgation and publication of the first Regular
Foreign Investment Negative List at the end of the transitory period shall not be
made more often than once every two (2) years.

Section 9. Determination of Areas of Investment for Inclusion in List C of the

Foreign Investment Negative List. - Upon petition by a Philippine national engage
therein, an area of investment may be recommended by NEDA for inclusion in List C of
the Foreign Investment Negative List upon determining that it complies with all the
following criteria:

a) The industry is controlled by firms owned at least sixty percent (60%) by

Filipinos;

b) Industry capacity is ample to meet domestic demand;

c) Sufficient competition exists within the industry;

d) Industry products comply with Philippine standards of health and safety or, in
the absence of such, with international standards, and are reasonably competitive
in quality with similar products in the same price range imported into the country;

e) Quantitative restrictions are not applied on imports of directly competing

products;

f) The leading firms of the industry substantially comply with environmental

standards; and
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 g) The prices of industry products are reasonable.

The petition shall be subjected to a public hearing at which affected parties will have the
opportunity to show whether the petitioner industry adequately serves the economy and
the consumer, in general, and meets the above stated criteria in particular. NEDA may
delegate evaluation of the petition and conduct of the public hearing to any government
agency having cognizance of the petitioner industry. The delegated agency shall make
its evaluation report and recommendations to NEDA which retains the right and sole
responsibility to determine whether to recommend to the President to promulgate the
area of investment in List C of the Negative List. An industry or area of investment
included in List C of the Negative List by Presidential Proclamation shall remain in the
said List C for two (2) years, without prejudice to re-inclusion upon new petition, and
due process.

Section 10. Strategic Industries. - Within eighteen (18) months after the effectivity
of this Act, the NEDA Board shall formulate and publish a list of industries strategic to
the development of the economy. The list shall specify, as a matter of policy and not as
a legal requirement, the desired equity participation by Government and/or private
Filipino investors in each strategic industry. Said list of strategic industries, as well as
the corresponding desired equity participation of government and/or private Filipino
investors, may be amended by NEDA to reflect changes in economic needs and policy
directions of Government. The amended list of strategic industries shall be published
concurrently with publication of the Foreign Investment Negative List.

The term "strategic industries" shall mean industries that are characterized by all of the
following:

a) Crucial to the accelerated industrialization of the country,

b) Require massive capital investments to achieve economies of scale for efficient

operations;

c) Require highly specialized or advanced technology which necessitates

technology transfer and proven production techniques in operations;

d) Characterized by strong backward and forward linkages with most industries

existing in the country, and

e) Generate substantial foreign exchange savings through import substitution and

collateral foreign exchange earnings through export of part of the output that will
result with the establishment, expansion or development of the industry.

Section 11. Compliance with Environmental Standards. - 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.

Section 12. Consistent Government Action. - No agency, instrumentality or

political subdivision of the Government shall take any action on conflict with or which
will nullify the provisions of this Act, or any certificate or authority granted hereunder.

Section 13. Implementing Rules and Regulations. - NEDA, in consultation with

BOI, SEC and other government agencies concerned, shall issue the rules and
regulations to implement this Act within one hundred and twenty (120) days after its

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effectivity. A copy of such rules and regulations shall be furnished the Congress of the
Republic of the Philippines.

Section 14. Administrative Sanctions. - A person who violates any provision of this
Act or of the terms and conditions of registration or of the rules and regulations issued
pursuant thereto, or aids or abets in any manner any violation shall be subject to a fine
not exceeding One hundred thousand pesos (P100,000).

If the offense is committed by a juridical entity, it shall be subject to a fine in an amount

not exceeding ½ of 1% of total paid-in capital but not more than Five million pesos
(P5,000,000). The president and/or officials responsible therefor shall also be subject to
a fine not exceeding Two hundred thousand pesos (P200,000).

In addition to the foregoing, any person, firm or juridical entity involved shall be subject
to forfeiture of all benefits granted under this Act.

SEC shall have the power to impose administrative sanctions as provided herein for any
violation of this Act or its implementing rules and regulations.

Section 15. Transitory Provisions. - Prior to effectivity of the implementing rules and
regulations of this Act, the provisions of Book II of Executive Order 226 and its
implementing rules and regulations shall remain in force.

During the initial transitory period of thirty-six (36) months after issuance of the Rules
and Regulations to implement this Act, the Transitory Foreign Investment Negative List
shall consist of the following:

A. List A:

1. All areas of investment in which foreign ownership is limited by mandate

of Constitution and specific laws.

B. List B:

1. Manufacture, repair, storage and/or distribution of firearms, ammunitions,

lethal weapons, military ordinance, explosives, pyrotechnics and similar
materials required by law to be licensed by and under the continuing
regulation of the Department of National Defense; unless such
manufacturing or repair activity is specifically authorized with a substantial
export component, to a non-Philippine national by the Secretary of National
Defense;

2. Manufacture and distribution of dangerous drugs; all forms of gambling;

nightclubs, bars, beerhouses, dance halls; sauna and steam bathhouses,
massage clinic and other like activities regulated by law because of risks they
may pose to public health and morals;

3. Small and medium-size domestic market enterprises with paid-in equity

capital or less than the equivalent of US$500,000, unless they involve
advanced technology as determined by the Department of Science and
Technology, and

4. Export enterprises which utilize raw materials from depleting natural

resources, and with paid-in equity capital of less than the equivalent
US$500,000.

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 C. List C:

1. Import and wholesale activities not integrated with production or

manufacture of goods;

2. Services requiring a license or specific authorization, and subject to

continuing regulations by national government agencies other than BOI and
SEC which at the time of effectivity of this Act are restricted to Philippine
nationals by existing administrative regulations and practice of the regulatory
agencies concerned: Provided, That after effectivity of this Act, no other
services shall be additionally subjected to such restrictions on nationality of
ownership by the corresponding regulatory agencies, and such restrictions
once removed shall not be reimposed; and

3. Enterprises owned in the majority by a foreign licensor and/or its affiliates

for the assembly, processing or manufacture of goods for the domestic
market which are being produced by a Philippine national as of the date of
effectivity of this Act under a technology, know-how and/or brand name
license from such licensor during the term of the license agreement:
Provided, That, the license is duly registered with the Central Bank and/or
the Technology Transfer Board and is operatively in force as of the date of
effectivity of this Act.

NEDA shall make the enumeration as appropriate of the areas of the investment covered
in this Transitory Foreign Investment Negative List and publish the Negative List in full
at the same time as, or prior to, the publication of the rules and regulations to implement
this Act.

The areas of investment contained in List C above shall be reserved to Philippine

nationals only during the transitory period. The inclusion of any of them in the regular
Negative List will require determination by NEDA after due public hearings that such
inclusion is warranted under the criteria set forth in Section 8 and 9 hereof.

Section 16. Repealing Clause. - Articles forty-four (44) to fifty-six (56) of Book II of
Executive Order No. 226 are hereby repealed.

All other laws or parts of laws inconsistent with the provisions of this Act are hereby
repealed or modified accordingly.

Section 17. Separability. - If any part or section of this Act is declared

unconstitutional for any reason whatsoever, such declaration shall not in any way affect
the other parts or sections of this Act.

Section 18. Effectivity. - This Act shall take effect fifteen (15) days after approval and
publication in two (2) newspaper of general circulation in the Philippines.

Approved: June 13, 1991