In short
On December 10, 2021, President Rodrigo Duterte signed into law Republic Act No. 11595 (“AR 11595“), otherwise known as “An Act to Amend Republic Act No. 8762 or the Retail Liberalization Act of 2000 (RTLA), by Lowering the Paid-up Capital Requirement for Retail Businesses foreign retail and other purposes”.
RA 11595 removes the requirement for a prequalification certificate and the need to demonstrate compliance with the prequalification criteria under the RTLA to the Philippine Board of Investments (BOI), before a foreign retailer can invest or engage in a retail business in the Philippines.
RA 11595 also sets a one-time minimum paid-up capital requirement of PHP 25 million for all foreign-owned retail businesses and lowers the minimum investment requirement per store to PHP 10 million.
RA 11595 was published in the Official Gazette on January 6, 2022 and will come into force fifteen (15) days after publication or on January 21, 2022.
Foreign retailers who have invested in or are engaging in retail business in the Philippines are advised to (1) familiarize themselves with the changes to requirements and procedures brought about by RA 11595, (2) closely monitor future developments regulations to be issued under RA 11595, and (3) review the impact of changes made by RA 11595 (and regulations to be issued) on the terms and conditions, and their obligations under the prequalification certificate issued in their favor by the BOI.
Foreign retailers looking to enter retail or invest in a retail business in the Philippines can also take the enactment of RA 11595 and the reduction of requirements previously imposed by the RTLA as an opportunity to proceed with establishing their retail operations in the Philippines. The Philippines.
Republic Act No. 11595 relaxes the requirements for foreign retailers to invest or engage in retail business in the Philippines, as follows:
- Removes pre-qualification categories and reduces minimum paid-up capital requirement. RA 11595 removes prequalification categories under RTLA1 and sets a single minimum paid-up capital for all types of foreign-invested retail enterprises.
Under RTLA Category B, foreign companies engaged in retail must have a paid-up capital of at least USD 2.5 million, while under Category D, foreign retail companies engaging in for the sale of high-end or luxury goods the goods must have a paid-up capital of at least USD 250,000 per store.
Under RA 11595, all foreign-invested retail businesses must have a minimum paid-up capital of at least PHP 25 million (approximately USD 500,000).
The new minimum paid-up capital requirement is subject to review by the Department of Commerce and Industry (DTI), the Securities and Exchange Commission (SEC) and the National Economic Development Authority (NEDA) every three (3 ) years from the entry into force of the law. effectiveness.
- Removes the requirement for a prequalification certificate issued by the BOI. Under the RTLA, overseas retailers are required to obtain a prequalification certificate from the BOI upon proof that they meet the following prequalification requirements:
- a minimum net worth requirement of $200 million;
- has five (5) operating retail branches or franchises worldwide (unless it has at least one (1) store capitalized at a minimum of 25 million USD),
- has five (5) years of retail experience, and
- a national or legal entity incorporated or incorporated in countries that allow entry for Filipino retailers.
RA 11595 removes the requirement for a certificate of prequalification and compliance with the above prequalification requirements. Under RA 11595, corporations, partnerships, and sole proprietorships owned by foreigners may invest or engage in a retail business, subject to the following conditions:
- the overseas retailer must have a minimum paid-up capital of PHP 25 million;
- the country of origin of the foreign retailer does not prohibit the entry of Filipino retailers; and
- in the case of foreign retailers doing retail business in more than one (1) physical store, the minimum investment per store must be at least PhP 10 million.
The requirement under (c) above does not apply to foreign investors and foreign retailers who are legitimately engaged in retail business and who were not required to comply with the minimum investment per store at the time the entry into force of RA 11595.
- Reduces investment requirement per store. RA 11595 lowers the minimum investment requirement per store for foreign controlled retail businesses from USD 830,000 per store to PHP 10 million (or approximately USD 200,000).
Under RA 119595, “minimum investment per store” covers gross, tangible or intangible assets, including but not limited to buildings, leases, furniture, equipment, inventory and common-use investments and facilities such as administrative offices, warehouses, preparation or storage facilities. Investments for common use and facilities, as reflected in the financial statements in accordance with accounting standards adopted by the SEC and the DTI, will be pro-rated by the number of stores served.
- Removes requirement for public offering of shares. Retail businesses that are more than eighty percent (80%) foreign-owned are no longer required to offer a minimum of thirty percent (30%) of their equity to the public through a scholarship in the Philippines within eight (8) years of their establishment. of operations.
- Promotion of locally made products. RA 11595 encourages foreign retailers to have stock inventory made in the Philippines.
- Preferential use of Filipino labor. RA 1195 requires compliance with the provisions of the Philippine Labor Code on determining the non-availability of a competent, capable, and willing Philippine citizen before engaging the services of a foreign national.
- Change of executing agency. Foreign retailers that have formed or will form corporations, associations, or partnerships engaged in the retail business are now subject to oversight and regulation by the SEC, instead of the DTI. The DTI will retain its regulatory authority over foreign retailers that have established or will establish sole proprietorships in the Philippines.
The DTI, in coordination with the SEC and NEDA, is mandated to issue rules and regulations to implement the provisions of RA 11595 within ninety (90) days of its approval.
- Reduces penalties. RA 11595 reduces the penalties under the RTLA for violating its provisions from imprisonment of six (6) to eight (8) years to four (4) to six (6) years, and a fine of PHP 1 million to 20 PHP million to PHP 1 million to PHP 5 million.
1 Under the RTLA, foreign-owned partnerships, associations, and corporations incorporated and organized under the laws of the Philippines may, upon registration with the Philippine Securities and Exchange Commission (SEC) and the Department of Trade and Industry ( DTI), or in the case of sole proprietorships owned by foreigners, with the DTI, engage or invest in retail, subject to the minimum capital requirements below.
• Category A: reserved for Philippine citizens or companies 100% owned by Philippine citizens – Less than 2,500,000 USD
• Category B: foreign equity is permitted (up to 100%) – USD 2,500,000 and above
• Category D: foreign capital is allowed up to 100% for companies specializing in high-end or luxury products – USD 250,000 per store
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