One of the most important questions for foreign companies and entrepreneurs entering the Philippines is “What type of business can I invest in and to what extent? The Philippines has a system called the “Foreign Investment Negative List (FINL),” which clearly defines the industries in which foreign investors are restricted by the Constitution and laws. This article focuses on industries in which it is problematic to have a capital structure consisting solely of foreigners, in other words, industries in which 100% foreign investment is not allowed.
Basic Structure of the Negative List (FINL)
The Philippine Negative List is broadly classified into two categories, List A and List B, according to the basis of its regulation.
- List A: Industries in which the entry of foreign capital is prohibited or restricted under theConstitution of the Republic of the Philippines or certain laws.
- List B: Industries in which the entry of foreign capital is restricted for reasons of security, defense, public health, protection of public order and morals, or protection of small and medium enterprises.
Major industries in which 100% foreign investment is not allowed and the restrictions
Below is a summary of the main industries in which foreign capital participation is restricted based on the Negative List and the details of these restrictions.
List A: Industries Restricted by Constitution and Law
| Industry | Maximum Foreign Investment Ratio | Remarks/Exceptions |
|---|---|---|
| Mass media | 0% (Completely prohibited) | Excluding recording businesses and Internet access providers. |
| Various professions | 0% (Completely prohibited) | Lawyers, accountants, criminal investigators, radiological technicians, ship’s officers, etc. Foreigners are prohibited from opening these professions, but may be employed. |
| Retail Trade | 0% (Completely prohibited) | Foreign capital is prohibited if paid-in capital is less than US$2.5 million. If paid-in capital is US$2.5 million or more, 100% foreign investment is allowed. |
| Advertising | 30% (completely prohibited) | |
| Construction | 40%. | Applies to construction and repair of public works projects financed domestically, with the exception of infrastructure projects under the BOT law and internationally tendered projects. |
| Exploration, development and exploitation of natural resources | 40% | 100% foreign capital may be allowed under technical assistance agreements approved by the President. |
| Private land ownership | 40%. | Direct land ownership by foreign individuals or foreign companies is generally not allowed. Lease agreements are possible (up to 50 years). |
| Public utility operations | 40%. | However, power generation and transmission projects are allowed to have 100% foreign investment due to the 2022 amendment to the Public Service Law (however, power distribution, water supply and sewerage, etc. continue to be limited to 40%). |
| Educational institutions | 40%. | Exceptions are schools established by religious organizations, schools for children of diplomats, and informal advanced skills development training centers. |
List B: Other Regulated Industries
| Industry | Maximum foreign investment ratio | Remarks/Exceptions |
|---|---|---|
| Manufacture of firearms, explosives, etc. | 40%. | Items requiring a permit from the Philippine National Police (PNP). |
| Manufacture of munitions | 40% (of the total number of items) | Items requiring a permit from the Department of National Defense (DND). |
| Manufacture and distribution of dangerous drugs | 40% (of which items require a permit from the Department of National Defense (DND)) | |
| Massage clinics and saunas | 40% | Businesses that may affect public health or morals. However, wellness facilities may be exempt. |
| Gambling businesses (e.g., racetracks) | 40%. | Businesses that have a contract with the Philippine Entertainment and Gaming Corporation and are certified by the Philippine Economic Zone Authority (PEZA) are excluded. |
| Domestic Market Enterprises | 40% (excluding those with a paid-in capital of less than US$200,000) | Companies with paid-up capital of less than US$200,000. 100% foreign capital is allowed if paid-in capital is US$200,000 or more (see below). |
Important Exceptions and Capital Requirements
In principle, 100% foreign capital investment is allowed in industries that do not fall under these negative lists.
In addition, even for industries that fall under the list, there are cases where 100% foreign investment is allowed if certain conditions are met. The most representative of these conditions is the “minimum paid-in capital” requirement.
- In principle, a minimum paid-in capital of US$200,000 is required to conduct a business for the domestic market with 100% foreign capital.
- However, this requirement is reduced to US$100,000 if one of the following conditions is met
- The company uses advanced technology approved by the Ministry of Science and Technology.
- It is an approved start-up company.
- It directly employs at least 15 Filipinos (previously 50 or more, but this was relaxed).
By meeting these capitalization requirements, it may be realistically possible to expand with 100% foreign capital, even if the business is in a negative-listed industry (e.g., food and beverage and some service industries).
Other important expansion options
Export Enterprise
Enterprises that export more than 60% of their sales of products or services are eligible for 100% foreign capital, as long as they are not on the negative list, and there is no minimum capital requirement.
Expansion into a Special Economic Zone (PEZA)
Many foreign companies, including IT-BPO companies, take advantage of this system . IT-BPO companies and other foreign companies are taking advantage of this system.
Conclusion
In the Philippines, 100% foreign investment is prohibited or restricted (mostly 40% or less) in industries that areconsidered to be reserved for the people by the Constitution and laws (mass media, professionals, etc.) and in industries related to security and public order and morals.
However, it is possible to meet the capital requirement (US$200,000 or US$100,000).
Register as an exporting company
Register as an exporting company
By taking advantage of these methods, it is possible to expand with 100% foreign capital in industries other than those subject to the regulations, and in some cases, there are avenues for substantial entry even in regulated industries.
When considering expansion into the Philippines, the key to success is to first confirm which category of business you wish to enter and then consider the most appropriate business form and capital policy. For the most up-to-date and detailed information, we strongly recommend consulting with experts and checking with public agencies such as the Philippine Securities and Exchange Commission (SEC ).
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