Ms. Andrea Laban

June 2, 2003 SEC OPINION NO. 28-03 Ms. Andrea Laban Unit 907 Cityland 10 Tower I H.V. Dela Costa Street, Salcedo Village Makati City SUBJECT : Philippine Retail Trade Nationalization L a w M a d a m : This refers to your letter dated 26 April 2003 requesting guidance on the queries posed therein. First, Republic Act No. 1180, as amended, (Philippine Retail Trade Nationalization Law) was repealed by Republic Act No. 8762, otherwise known as Retail Trade Liberalization Act of 2000, which was signed into law on 7 March 2000. Republic Act No. 8762 prescribes qualifications for foreign retailers before being allowed to do business in the country. However, the restriction on foreign ownership under aforesaid law does not apply to enterprises operating within Subic Special Economic Zone where you intend to operate. Under Section 13 of Republic Act No. 7227, as amended, the Subic Bay Metropolitan Authority (SBMA) may accept any local or foreign investment, business or enterprise, subject only to such rules and regulations promulgated by the SBMA without prejudice to the nationalization requirements provided for in the Constitution. Subic Special Economic Zone is managed as a separate customs territory and provides special tax and duty free privileges. Further, SBMA grants working visas and permanent resident status to qualified investors, foreign executives and technicians. Inasmuch as you plan to operate duty-free store within Subic Special Economic Zone, we advise you to inquire from SBMA about the regulations pertinent to your business plan. In case, you put up another duty-free store in Clark Special Economic Zone, we suggest you request information from Clark Development Corporation which is the governing body for said zone. Second, should you pursue retail business in Metro Manila, as you stated, RA 8762 sets four categories of enterprises as follows: 1. Category A or enterprises with paid-up capital of equivalent in Philippine Pesos of less than US$2.5 million shall be reserved exclusively for Filipino citizens and corporations wholly owned by Filipino citizens. 2. Category B or enterprises with a minimum paid-up capital of Philippine Peso equivalent of US$2.5 million but less than US$7.5 million may be wholly owned by foreigners except for the first two (2) years after the effectivity of the law wherein foreign participation shall be limited to not more than 60% of total equity. 3. Category C or enterprises with a paid-up capital of Philippine Peso equivalent of US$7.5 million or more may be wholly owned by foreigners. 4. Category D or enterprises specializing in high-end or luxury products with a paid-up capital of Philippine Peso equivalent of US$250,000.00 per store may be wholly owned by foreigners. Moreover, the law provides the following major qualifications for a foreign retailer before being allowed to do business in the country: a. A minimum of US$200 million net worth in its parent corporation for categories B and C, and US$50 million net worth in its parent corporation for category D; b. Five retailing branches or franchises in operation anywhere around the world unless such retailer has at least one store capitalized at a minimum of US$25 million; c. Five year track record in retailing; 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. According to your letter, the available amount for investment of your foreign principal is US$10,000.00 to US$100,000.00. With such amount alone, a foreigner will not be allowed to engage in retail business as the required paid-up capital is not less than US$2.5 million. But note that for purposes of investment, a corporation with sixty percent (60%) Filipino and forty percent (40%) foreign equity ownership is considered a Philippine national. On the notion to use dummy, we enjoin your foreign principal not to employ dummy in forming corporation which will engage in retail business. Commonwealth Act No. 108, as amended, (Anti-Dummy Law) penalizes Filipino who allows his name or citizenship to be used for the purpose of evading any constitutional or legal provision which requires Philippine citizenship as a requisite for the exercise or enjoyment of a right, franchise of privilege. And, any foreigner who profits thereby are likewise penalized. This office is not competent to render opinion on entitlement to tax privileges and necessity of filing income tax return. We suggest you write the Bureau of Internal Revenue (BIR) on this matter. Regarding visa requirements, there are nationals from certain countries (ASEAN, Japan & USA) who are allowed to enter the Philippines without visas for a limited stay. The Department of Foreign Affairs (DFA) issues entry visas for admission of non-nationals to the country. For particulars, please direct your query to the Visa Division of DFA. For qualified foreign investors who are still abroad, Special Investor's Resident Visa is issued by DFA upon endorsement by the Board of Investments (BOI), Department of Trade and Industry. This type of visa is applied for and issued at the Philippine Embassy or Consulate in the applicant's home country or place of residence. An investor who is already in the Philippines may file the application with the BOI. HTAEIS Finally, the Department of Labor and Employment (DOLE) regulates the employment of resident aliens and non-resident aliens in the country. Hence, we advise you to address your query to said agency. Further, you have to secure permit if you are going to employ foreign nationals in a wholly or partially nationalized business. The Department of Justice (DOJ) processes said permit. We hope we satisfactorily answered your query. (SGD.) VERNETTE G. UMALI PACO General Counsel