There are several industries in the Philippines that are prohibited from establishing wholly-owned foreign corporations, due to a combination of factors, including historical constitutional provisions, protection of domestic industry and citizens, and national security considerations. The table below summarizes the main reasons and the industries covered, followed by a detailed explanation.
| Background and Objectives | Examples of Main Target Industries | Content of Regulations (Foreign Capital Ratio) |
|---|---|---|
| Direct Regulations by the Constitution | Public Relations/Media, Professionals (Lawyers, etc.), Development of Natural Resources, Public Works, Ownership of Private Land | 0% to 40% | Protection of Domestic Small and Medium-Sized Enterprises | Retail Industry (Low Capital) (in some cases), services (domestic) | 0%-40% |
| Maintaining national security and public interest | Critical infrastructure such as defense, energy, transportation, and communications | 40% or less |
| Protecting cultural identity and public interest | Education (primary education, etc.), advertising, mass media | 0%-40% |
📜 Constitutional and Historical Provisions
The 1987 Constitution of the Republic of the Philippines provides for the principle of Filipino ownership and control of certain economic activities.
- Natural Resource Development: The Philippines’ land and marine resources are considered “common property of the people,” and the Constitution provides that their exploration, development, and utilization are reserved for Filipinos or corporations with at least 60% Philippine ownership.
- Operation of Public Utilities: Public utilities directly related to the lives of citizens, such as electricity distribution and water and sewerage systems, have traditionally been managed by Filipinos (however, as described below, some changes are being made).
- Ownership of Private Land: Land ownership is almost exclusively limited to Filipino citizens.
These constitutional provisions are the most fundamental reason for restricting 100% foreign ownership.
🛡️ Protecting Domestic Industry and the National Economy
In the Philippines, domestic micro, small, and medium-sized enterprises (MSMEs) form the backbone of the economy and create numerous jobs.
- Protecting Local Businesses with Less Capital and Scale: If well-capitalized foreign companies freely enter the market, many local small and medium-sized enterprises may be eliminated. For example, restrictions on foreign investment in small retail businesses and restaurants help local businesses survive.
- Employment Security: Maintaining Filipino ownership helps keep jobs in the country and preserves opportunities for the public to enjoy economic benefits.
Based on this concept, the Foreign Investment Negative List (FINL) was created and revised to clarify the industries in which foreign investment is restricted.
🛡️ Maintaining National Security and the Public Interest
- Protecting Critical Infrastructure: The need to limit foreign capital influence is recognized in sectors that are fundamental to national security and the economy, such as national defense, energy, and certain transportation and communications services. For example, electricity transmission and distribution services and water and sewerage services have long been limited to a 40% foreign ownership ratio (however, as discussed below, there have been moves to partially relax this restriction through legal reform).
- Professional Qualifications and Ethics: Professionals, such as lawyers and certified public accountants, are required to be familiar with the Philippine legal system, business practices, and ethical standards. Therefore, the right to practice these professions is reserved for Philippine citizens; foreigners are prohibited from practicing these professions.
🌍 Cultural and Social Considerations
- Media and Advertising: Because mass media (newspapers, television broadcasts, etc.) have a strong influence on shaping public opinion, ownership is reserved for Filipino citizens to prevent the unrestricted infiltration of foreign influences and values into the country. For similar reasons, foreign ownership in the advertising industry is limited (to 30% or less).
- Education: Because primary education and other education systems are related to the formation of basic values, they are generally run by Filipinos (however, higher education and other education systems are open to foreign investment under certain conditions).
💡 Regulatory Exceptions and Trends in Relaxation
In recent years, the Philippines has been focusing on attracting foreign direct investment (FDI) and accelerating economic growth, and there have been moves to relax foreign investment restrictions.
- Export-Oriented Enterprises: Businesses that export more than 60% of their domestically produced goods and services may be established with 100% foreign ownership, as long as they are not on the Foreign Investment Negative List. This is to actively encourage such businesses, which earn foreign currency and create jobs through exports.
- Special Economic Zones (PEZA): Companies located in economic zones certified by the PEZA (Philippine Economic Zone Authority) and conducting export-oriented business are permitted to be 100% foreign-owned. They also enjoy significant preferential treatment, including income tax exemptions and import duty exemptions.
- Meeting Minimum Capital Requirements: Even in industries that fall under the negative list (e.g., retail and some service industries), 100% foreign ownership may be possible if a paid-in capital of at least $200,000 (or $100,000 if certain conditions are met) is met. This is because companies with capital and business volume above a certain level are deemed to bring significant benefits to the local economy (job creation, technology transfer, etc.).
- Deregulation through legal reform: For example, the 2022 amendment to the Public Service Act allows 100% foreign ownership in sectors such as telecommunications, aviation, and railways, which previously had a 40% foreign ownership limit (however, restrictions remain in place for power transmission and distribution, water supply, and sewerage). Changes are also being seen, such as the view that 100% foreign ownership will be permitted in renewable energy businesses (solar, wind, etc.).
🌟 Summary
The reason why some industries in the Philippines do not allow foreigners to establish wholly owned corporations is
- The fundamental idea is that the Constitution reserves ownership rights in certain fields to Filipino citizens.
- Policies aimed at protecting domestic small and medium-sized enterprises and micro-enterprises with less capital and safeguarding jobs and livelihoods for the nation’s citizens.
- Considerations for national security, the public interest, and cultural identity from foreign influence.
These factors all play a part in this policy.
On the other hand, the Philippines also has a strong desire to promote foreign investment and grow its economy, and has practical aspects, such as allowing 100% foreign ownership for export businesses, special economic zones, and large-scale investments.
If you’re considering expanding into the Philippines, it’s important to check whether your company’s industry is subject to regulations and explore available options within the regulatory framework, such as registering as an export company, utilizing a special economic zone, or meeting capital requirements.
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