For foreign companies entering the Philippines or those considering starting a business, one of the most important questions is "in what industries and to what extent can they invest?" The Philippines has a system called the Foreign Investment Negative List (FINL) , which clearly defines industries in which the constitution and laws restrict the percentage of foreign investment. This article focuses on and explains in detail industries where having capital composed solely of foreigners is problematic, i.e. , industries where 100% foreign capital is not allowed.
Basic structure of the negative list (FINL)
The Philippines' negative list is broadly divided into two categories, List A and List B , based on the basis of the regulations.
- List A : Industries in which foreign capital is prohibited or restricted under the Constitution of the Republic of the Philippines or specific laws .
- List B : Industries in which foreign capital entry is restricted for reasons of national security, defense, public health, protection of public order and morals , or protection of small and medium-sized enterprises .
Major industries that cannot be 100% foreign-owned and restrictions
Below is a summary of the main industries in which foreign investment ratios are restricted based on the negative list, and the details of those restrictions.
List A: Industries restricted by the Constitution and laws
| Industry | Maximum foreign capital ratio | Notes/Exceptions |
|---|---|---|
| Mass media | 0% (total ban) | Excludes recording businesses and internet access providers. |
| Various professional occupations | 0% (total ban) | Lawyers, accountants, criminal investigators, radiologists, ship officers, etc. Foreigners are prohibited from practicing these professions, but may be able to be employed . |
| Retail | 0% (total ban) | If the paid-up capital is less than US$2.5 million , foreign capital is prohibited. If the paid-up capital is US$2.5 million or more, 100% foreign capital is permitted. |
| Advertising industry | 30% | |
| construction industry | 40% | This applies to construction and repair of public works projects funded by domestic funds, with exceptions for infrastructure projects under the BOT Law and projects with international bidding. |
| Exploration, development and utilization of natural resources | 40% | Under technical assistance agreements approved by the President, 100% foreign ownership may be permitted. |
| Private land ownership | 40% | In principle, direct land ownership by foreign individuals or foreign-affiliated companies is prohibited, but lease contracts are possible (maximum 50 years). |
| Public utility operations | 40% | However, the 2022 amendment to the Public Service Act now allows for 100% foreign ownership in power generation and transmission businesses (however, the 40% limit remains for power distribution, water supply and sewerage, etc.). |
| Educational institutions | 40% | Exceptions are schools established by religious organizations, schools for the children of diplomats, and informal advanced skills development training centers. |
List B: Other regulated industries
| Industry | Maximum foreign capital ratio | Notes/Exceptions |
|---|---|---|
| Manufacture of firearms and explosives | 40% | Items requiring a Philippine National Police (PNP) permit. |
| military manufacturing | 40% | Items requiring approval from the Department of National Defense (DND). |
| Manufacturing and distribution of dangerous drugs | 40% | |
| Massage clinic, sauna | 40% | Businesses that may have an impact on public health or morality, although wellness facilities may be excluded. |
| Gambling businesses (race tracks, etc.) | 40% | Businesses that have contracts with the Philippine Amusement and Gaming Corporation and are certified by the Philippine Economic Zone Authority (PEZA) are excluded. |
| Domestic market companies | 40% | Companies with paid-up capital of less than US$200,000. If the capital is US$200,000 or more, 100% foreign ownership is possible (see below). |
Important exceptions and capital requirements
In principle, 100% foreign investment is permitted for industries that do not fall under these negative lists.
Furthermore, even in industries that fall under the list, 100% foreign ownership may be permitted if certain conditions are met. The most typical example of this is the requirement for "minimum paid-in capital."
- In principle, a 100% foreign-owned company operating in the domestic market must have paid-up capital of at least US$200,000 .
- However, this requirement is reduced to US$100,000 if any of the following conditions are met:
- It uses advanced technology certified by the Ministry of Science and Technology.
- It is approved as a start-up company .
- Directly employ 15 or more Filipinos (previously 50 or more, but this has been relaxed).
By meeting this capital requirement, it may be realistic to enter a business with 100% foreign capital, even in industries on the negative list (e.g., food and beverage and some service industries).
Other Important Expansion Options
Export Enterprise
Companies that export more than 60% of their product or service sales are allowed 100% foreign ownership and have no minimum capital requirements , unless they are on the negative list.
Expansion into the Special Economic Zone (PEZA)
Companies located in special economic zones managed by the Philippine Economic Zone Authority (PEZA) are allowed to have 100% foreign ownership if they meet certain conditions, such as being an export company, and can also receive significant preferential treatment such as exemptions from income tax and import duties . Many foreign-affiliated companies, including IT-BPO companies, take advantage of this system.
summary
In the Philippines, 100% foreign investment is prohibited or restricted (often to 40% or less) in industries that are reserved for citizens by the Constitution or laws (mass media, professional occupations, etc.) and industries related to national security and public order and morals .
However, the capital requirement (US$200,000 or US$100,000) must be met.
・Register as an export company
– Utilizing the Special Economic Zones (PEZA) <br>By utilizing methods such as these, it is possible to enter industries other than those that are subject to regulations with 100% foreign capital, and in some cases there are ways to effectively enter regulated industries as well.
When considering expanding into the Philippines, the key to success is to first check which category on the negative list your desired industry falls into , and then consider the optimal business structure and capital policy. For the most up-to-date and detailed information, we strongly recommend consulting an expert or checking with public institutions such as the Philippine Securities and Exchange Commission (SEC) .
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