Atty. Jose Oscar M. Salazar

November 27, 2003 SEC OPINION NO. 64-03 Atty. Jose Oscar M. Salazar Bormaheco Condominium, Metropolitan Ave., 1205 Makati City S i r : This refers to your letter requesting opinion on the citizenship of corporations and whether your client will be allowed to amend its principal purpose to operate a fast food restaurant similar to Jollibee, Figaro's, etc. We would like to inform you that the control test enunciated in Far Southeast Gold applies to cases where the 60-40 Filipino- alien equity ownership in a particular natural resource corporation is not in doubt. 1 For your information, the Commission, pursuant to the opinion of the Department of Justice, did not abandon the Grandfather rule articulated in the case of Palting vs. San Jose Oil Petroleum case. 2 The rule is still applicable in certain cases provided for by special law or in nationalized industries requiring the maintenance of effective control in the hands of the Filipino citizens. TSaEcH Anent your query on retail, the Department of Justice consistently held that to constitute a retail business under the Act, the following requisites must be present; (1) habitually selling merchandise, commodities or goods; (2) direct to the general public, and; (3) for consumption. 3 Under R.A. 8762 (act liberalizing the retail trade business) and its implementing rules, restaurant business is considered a retail business. However, an exemption is allowed under Rule 1, Sec. 2, paragraph (c), which excludes sales arising from restaurant operations by a hotel owner or innkeeper irrespective of the amount of capital, provided, that the restaurant is incidental to the hotel business. Pursuant to the abovementioned law, "partnerships, associations, corporations, partially or wholly-owned by foreigners, formed and organized under the laws of the Philippines may engage or invest in the retail trade business, subject to the following categories: "Sec. 5. Foreign Equity Participation. xxx xxx xxx Category B Enterprises with a minimum paid-up capital of the equivalent in the Philippine Pesos of Two Million Five Hundred US Dollars (US$2,500,00.00) but less than Seven Million Five Hundred Thousand US Dollars (US$7,500,000.00) may be wholly owned by foreigners except for the first two (2) years after the effectivity of this Act wherein foreign participation shall be limited to not more than sixty percent (60%) of total equity. HTCIcE Category C Enterprises with a paid-up capital of the equivalent in the Philippine Pesos of Seven Million Five Hundred Thousand US Dollars (US$7,500,000.00) or more may be wholly owned by foreigners. Provided, however, that in no case shall the investments for establishing a store in categories B and C be less than equivalent in the Philippine Pesos of Eight Hundred Thirty Thousand US dollars (US$830,000.00)" Your query therefore is answered in the affirmative subject to the categories above-cited. It is however advised that you refer to R.A. 8762 for matters concerning the retail trade business. IEHScT Very truly yours, (SGD.) VERNETTE G. UMALI-PACO General Counsel Footnotes 1. Department of Justice Opinion No. 018, s. 1989, dated 19 January 1989. 2. G.R. No. L-14441, dated 17 December 1966. 3. Department of Justice opinion, No. 178, S. 1983.