Fund
A bicameral conference committee report on Senate Bill No. 1840 (the “Bill”) which covers amendments to Republic Act No. 8762 (the Retail Liberalization Act or ” RTLA”) and lowers paid-up capital requirements for foreign retail businesses was approved by the Philippine Senate on September 20, 2021 and by the House of Representatives (“House”) on September 21, 2021.
This bill reconciles the contradictory provision of the House version (House Bill 59) and several Senate versions (Senate Bills 14, 921, 1113 and 1349), which sought to make various changes to the RTLA. Now that the proposed bill has been approved by both the House and the Senate, it is expected that the registered bill will soon be prepared and forwarded to the President for signature or veto.
Planned changes
If the proposed bill passes as currently drafted, the significant changes to the RTLA, which will be introduced by the proposed bill, include the following:
a) Simplified conditions and reduced paid-up capital requirements for foreign retailers
With the proposed bill, foreign-invested partnerships, associations, or corporations organized under Philippine laws and registered with the Securities and Exchange Commission (“SEC”), or foreign-invested sole proprietorships registered with the Department of Commerce and Industry (“DTI”) may engage in or invest in retail business in the Philippines, subject to meeting the following conditions, among others:
i) Minimum paid-up capital
Under the RTLA, the minimum paid-up capital requirement for foreign-invested retail businesses is currently the Philippine peso equivalent of USD 2.5 million. However, the bill will reduce the paid-up capital requirement to Php 25 million (approx. foreigner notifies the SEC or DTI (as applicable) of its intention to repatriate capital and cease operations in the Philippines. Failure to maintain paid-up capital will expose a foreign retailer to penalties or restrictions on future business or business activities in the Philippines.
ii) Reciprocity
The proposed bill requires that the laws of the foreign retailer’s home country also allow entry for Filipino retailers. However, this reciprocity requirement is not new, the RTLA already imposing the same condition.
iii) Investment per store for overseas retailers with more than one physical store
For foreign retailers engaged in retail business through more than one physical store, the investment requirement per store will be at least Php 10 million (approximately USD 200,000.00). This amount is well below the current per-store investment requirement of $830,000.00 imposed by the RTLA.
Based on the above, the bill significantly simplifies and reduces investment requirements for foreign retailers. In particular, it will remove other “pre-qualification” requirements (e.g., retail background, etc.) found in the current RTLA, which required a foreign retailer to obtain certification separately. pre-qualification from the Board of Investments. .
b) Abolition of the public offering requirement
The Bill will remove the current wording of Section 7 of the RTLA, which requires retail businesses where foreign ownership exceeds 80%, to offer within 8 years of commencement of operations a minimum of 30% equity to the public through any stock exchange in the Philippines. With this proposed amendment, existing and newly created foreign-controlled retail companies will be able to remain private companies.
Conclusion
As with any piece of legislation, legislators need to balance the interests of different sectors and stakeholders. For foreign investors, the bill will finally remove regulatory barriers that may have discouraged foreign investment in the Philippine retail sector. However, there are also questions about whether the Philippine small and medium retail businesses are ready for the entry of foreign players, especially as the Philippine economy is still recovering from the effects of the COVID-19 pandemic.
With months to go until the end of the current administration’s term, it will be interesting to see whether protectionism gives way to “progress” and competition, and whether the long-awaited changes to the RTLA finally materialize in passage of the proposed bill.
