Atty. Michael J.B. Salva

June 26, 2003 SEC OPINION NO. 34-03 Atty. Michael J.B. Salva 123 G. Diaz.,BF Resort Village 1740 Las Pias City S i r : This refers to your letter requesting confirmation of the matters posed therein. Firstly, whether the Foreign Investments Act (FIA) requirement of US$200,000.00 inward remittance, is applicable to the proposed corporation of your client, who is a foreign national intending to own not more than forty percent (40%) shares in a corporation. Please be advised that Section 3(a) of R.A. 7042 defines the term " Philippine National " as follows: "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;" Based on the foregoing definition and on the assumption that its total foreign equity will not exceed forty percent (40%) of its outstanding capital stock, the proposed corporation will still be classified as a "Philippine National" and therefore, registration under the Foreign Investments Act and the inward remittance of US$200,000.00 or its peso equivalent are not required. IDcAHT A foreign national, may own up to one hundred percent (100%) equity in a domestic corporation (Pretzel Company) intended to be established in the Philippines provided that it is not one of those enumerated in the Foreign Investments Negative List as nationalized or partly nationalized activities; provided further that it complies with the required minimum inward remittance of US$200,000.00 or its peso equivalent. However, for purposes of the Retail Trade Law, "enterprises with paid-up capital of the equivalent in Philippine Pesos of less than two million five hundred thousand US dollars (US$2,500,000.00) shall be reserved exclusively for Filipino citizens and corporations wholly owned by Filipino citizens." On the issue of whether a former natural-born Filipino can qualify as a " Filipino " owning the other sixty percent (60%) equity of the corporation, Section 9 of R.A. 7042, as amended by RA 8179 provides: "Sec. 9. Investment Rights of Former Natural-Born Filipino . For purposes of this Act, former natural-born citizens of the Philippines shall have the same investment rights of a Philippine citizen in Cooperatives under Republic Act No. 6938. Rural Banks under Republic Act 7353, Thrift Banks and Private Development Banks under Republic Act 7906, and Financing Companies under Republic Act No. 5980. These rights shall not extend to activities reserved by the Constitution, including (1) the exercise of profession; (2) in defense related activities under Section 8(b) hereof, unless specifically authorized by the Secretary of National Defense; and (3) activities covered by Republic Act No. 1180 (Retail Trade Act) Republic Act No. 5487 (Security Agency Act) Republic Act No. 7076 (Small Scale Mining Act),Republic Act No. 3018, as amended (Rice and Corn Industry Act) and P.D. 449 (Cockpits Operation and Management)." Further, Section 4, R.A. 8762 otherwise known as the " Retail Trade Liberalization Act of 2000 " explicitly states that "A natural born citizen of the Philippines who has lost his Philippine citizenship but who resides in the Philippines shall be granted the same rights as Filipinos for purposes of this Act" subject to the documentary evidences as stated in Section 2, Rules and Regulations Implementing Republic Act No. 8762. Please be informed that corporate registrations are also subject to the laws, rules and regulations implemented by other concerned government agencies. Hence for any question regarding Franchise Law, Licensing Law, or any rules and regulations on franchises, we advise you to inquire directly with the Department of Trade and Industry and concerned local government units on their specific requirements, if any. Provided further that if subject- corporation is a retailer and it opts to engage in the retail business, the corporation shall comply with the pre-qualification requirements as stated under Rule IV Secs. 1 to 5, Implementing Rules of R.A. 8762. For your information, a company may be wholly-owned by foreigners and classified as "High-End or Luxury Product" provided that it complies with the requirements as set forth by Rules 1(f), of the Implementing Rules and Regulations of the Retail Trade Liberalization Act of 2000, to wit: "High-end or Luxury Goods" shall refer to goods which are not necessary for life maintenance and whose demand is generated in large part by the higher income groups. Luxury goods shall include, but are not limited to, products such as: jewelry, branded or designer clothing and footwear, wearing apparel, leisure and sporting goods, electronics and other personal effects sold in boutique-type stores." For information purposes, a Representative or liaison Office deals directly with the clients of the parent company but does not derive income from the host country and is fully subsidized by its head office. It undertakes activities such as but not limited to information dissemination and promotion of the company's products as well as quality control of products. The amount remitted initially for the establishment of a Representative Office should be at least US$30,000.00 or its peso equivalent. On the other hand, a Branch Office of a foreign corporation carries out the business activities of the head office and derives income from the host country. A foreign inward remittance of at least US$200,000.00 or its peso equivalent is required, subject to the requirements of the Retail Trade Law, in so far as it is applicable. When a foreign corporation is issued a license to do business in the Philippines, it may commence to transact its business in the Philippines and continue to do so in accordance with the purpose/s stated in the license for as long as it retains its authority to act as a corporation under the laws of the country or state of its incorporation without the license being sooner surrendered, revoked, suspended or annulled by the Commission. Within sixty (60) days from issuance of the license to do business, such foreign corporation shall deposit with the SEC, for the benefit of its present and future creditors, Philippine Securities in the actual market value of at least P100,000.00 subject to further deposit of additional securities every six months after each fiscal year equivalent in actual market value of two percent (2%) of the amount by which the foreign corporation's gross income for that fiscal year exceeds P5,000,000.00. Furthermore, the SEC may require further securities in the event the deposit has decreased by at least ten percent (10%) of the actual market value at the time they were deposited (Villanueva, Philippine Corporate Law, p. 786- 187 in relation to Section 126 of the Corporation Code). We hope that we have fully addressed your concerns. Very truly yours, (SGD.) VERNETTE G. UMALI-PACO General Counsel