 GOVPH

 Philippine Standard Time:

Tuesday, September 29, 2020 10:22:15 AM
source: PAGASA



OFFICIAL GAZETTE OF THE

REPUBLIC OF THE PHILIPPINES
DITED AT THE OFFICE OF THE PRESIDENT OF THE
PHILIPPINES UNDER COMMONWEALTH ACT NO.
638

Republic Act No. 7042

June 13, 1991
REPUBLIC OF THE PHILIPPINES
CONGRESS OF THE PHILIPPINES
Fourth Regular Session

REPUBLIC ACT NO. 7042

AN ACT TO PROMOTE FOREIGN INVESTMENTS, PRESCRIBE THE

PROCEDURES FOR REGISTERING ENTERPRISES DOING BUSINESS IN THE
PHILIPPINES, AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in Congress

assembled:

SECTION 1. Title.—This Act shall be known as the “Foreign Investments Act of 1991”.

SEC. 2. Declaration of Policy.—It is the policy of the State to attract, promote and
welcome productive investments from foreign individuals, partnerships, corporations,
and governments, including their political subdivisions, in activities which significantly
contribute to national industrialization and socioeconomic development to the extent that
foreign investment is allowed in such activity by the Constitution and relevant laws.
Foreign investments shall be encouraged in enterprises that significantly expand
livelihood and employment opportunities for Filipinos; enhance economic value of farm
products; promote the welfare of Filipino consumers; expand the scope, quality and
volume of exports and their access to foreign markets; and/or transfer relevant
technologies in agriculture, industry and support services. Foreign investments shall be
welcome as a supplement to Filipino capital and technology in those enterprises serving
mainly the domestic market.

As a general rule, there are no restrictions on extent of foreign ownership of export

enterprises. In domestic market enterprises, foreigners can invest as much as one hundred
percent (100%) equity except in areas included in the negative list. Foreign owned firms
catering mainly to the domestic market shall be encouraged to undertake measures that
will gradually increase Filipino participation in their businesses by taking in Filipino
partners, electing Filipinos to the board of directors, implementing transfer of technology
to Filipinos, generating more employment for the economy and enhancing skills of
Filipino workers.

SEC. 3. Definitions.—As used in this Act:

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 percent (60%) of the
fund will accrue to the benefit of 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
corporation shall be considered a Philippine national;

b) The term “investment” shall mean equity participation in any enterprise organized or
existing under the laws of the Philippines;

c) The term “foreign investment” shall mean an equity investment made by a non-
Philippine national in the form of foreign exchange and/or other assets actually
transferred to the Philippines and duly registered with the Central Bank which shall
assess and appraise the value of such assets other than foreign exchange;

d) The phrase “doing business” shall include soliciting orders, service contracts, opening
offices, whether called “liaison” offices or branches; appointing representatives or
distributors domiciled in the Philippines or who in any calendar year stay in the country
for a period or periods totalling one hundred eighty (180) days or more; participating in
the management, supervision or control of any domestic business, firm, entity or
corporation in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the business
organization: Provided, however, That the phrase “doing business” shall not be deemed
to include mere investment as a shareholder by a foreign entity in domestic corporations
duly registered to do business, and/or the exercise of rights as such investor; nor having a
nominee director or officer to represent its interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines which transacts business in its
own name and for its own account;

e) The term “export enterprise” shall mean an enterprise wherein a manufacturer,

processor or service (including tourism) enterprise exports sixty percent (60%) or more of
its output, or wherein a trader purchases products domestically and exports sixty percent
(60%) or more of such purchases;

f) the term “domestic market enterprise” shall mean an enterprise which produces goods
for sale, or renders services to the domestic market entirely or if exporting a portion of its
output fails to consistently export at least sixty percent (60%) thereof; and

g) The term “Foreign Investments Negative List” or “Negative List” shall mean a list of
areas of economic activity whose foreign ownership is limited to a maximum of forty
percent (40%) of the equity capital of the enterprises engaged therein.

SEC. 4. Scope.—This Act shall not apply to banking and other financial institutions
which are governed and regulated by the General Banking Act and other laws under the
supervision of the Central Bank.

SEC. 5. Registration of Investments of Non-Philippine Nationals.—Without need of prior

approval, a non-Philippine national, as that term is defined in Section 3(a), and not
otherwise disqualified by law may, upon registration with the Securities and Exchange
Commission (SEC), or with the Bureau of Trade Regulation and Consumer Protection
(BTRCP) of the Department of Trade and Industry in the case of single proprietorships,
do business as defined in Section 3(d) of this Act or invest in a domestic enterprise up to
one hundred percent (100%) of its capital, unless participation of non-Philippine
nationals in the enterprise is prohibited or limited to a smaller percentage by existing law
and/or under the provisions of this Act. The SEC or BTRCP, as the case may be, shall not
impose any limitations on the extent of foreign ownership in an enterprise additional to
those provided in this Act: Provided, however, That any enterprise seeking to avail of
incentives under the Omnibus Investment Code of 1987 must apply for registration with
the Board of Investments (BOI), which shall process such application for registration in
accordance with the criteria for evaluation prescribed in said Code: Provided, finally,
That a non-Philippine national intending to engage in the same line of business as an
existing joint venture, in which he or his majority shareholder is a substantial partner,
must disclose the fact and the names and addresses of the partners in the existing joint
venture in his application for registration with SEC. During the transitory period as
provided in Section 15 hereof, the SEC shall disallow registration of the applying non-
Philippine national if the existing joint venture enterprise, particularly the Filipino
partners therein, can reasonably prove they are capable to make the investment needed
for the domestic market activities to be undertaken by the competing applicant. Upon
effectivity of this Act, SEC shall effect registration of any enterprise applying under this
Act within fifteen (15) days upon submission of completed requirements.

SEC. 6. Foreign Investments in Export Enterprises.—Foreign investment in export

enterprises whose products and services do not fall within Lists A and B of the Foreign
Investment Negative List provided under Section 8 hereof is allowed up to one hundred
percent (100%) ownership.

Export enterprises which are non-Philippine nationals shall register with BOI and submit
the reports that may be required to ensure continuing compliance of the export enterprise
with its export requirement. BOI shall advise SEC or BTRCP, as the case may be, of any
export enterprise that fails to meet the export ratio requirement. The SEC or BTRCP shall
thereupon order the non-complying export enterprise to reduce its sales to the domestic
market to not more than forty percent (40%) of its total production; failure to comply
with such SEC or BTRCP order, without justifiable reason, shall subject the enterprise to
cancellation of SEC or BTRCP registration, and/or the penalties provided in Section 14
hereof.

SEC. 7. Foreign Investments in Domestic Market Enterprises.—Non-Philippine nationals

may own up to one hundred percent (100%) of domestic market enterprises unless
foreign ownership therein is prohibited or limited by existing law or the Foreign
Investment Negative List under Section 8 hereof.

A domestic market enterprise may change its status to export enterprise if over a three
(3)–year period it consistently exports in each year thereof sixty percent (60%) or more of
its output.

SEC. 8. List of Investment Areas Reserved to Philippine Nationals (Foreign Investment

Negative List).—The Foreign Investment Negative List shall have three (3) component
lists: A, B, and C:

a) List A shall enumerate the areas of activities reserved to Philippine nationals by

mandate of the Constitution and specific laws.

b) List B shall contain the areas of activities and enterprises regulated pursuant to law:

1) Which are defense-related activities, requiring prior clearance and authorization from
Department of National Defense (DND) to engage in such activity, such as the
manufacture, repair, storage and/or distribution of firearms, ammunition, lethal weapons,
military ordnances, explosives, pyrotechnics and similar materials, unless such
manufacturing or repair activity is specifically authorized, with a substantial export
component, to a non-Philippine national by the Secretary of National Defense; or
2) Which have implications on public health and morals, such as the manufacture and
distribution of dangerous drugs, all forms of gambling; nightclubs, bars, beerhouses,
dance halls; sauna and steam bathhouses and massage clinics.

Small and medium-sized domestic market enterprises, with paid-in equity capital less
than the equivalent of Five hundred thousand US dollars (US$500,000) are reserved to
Philippine nationals, unless they involve advanced technology as determined by the
Department of Science and Technology. Export enterprises which utilize raw materials
from depleting natural resources, with paid-in equity capital of less than the equivalent of
Five hundred thousand US dollars (US$500,000) are likewise reserved to Philippine
nationals.

Amendments to List B may be made upon recommendation of the Secretary of National

Defense, or the Secretary of Health, or the Secretary of Education, Culture and Sports,
indorsed by the NEDA, or upon recommendation motu proprio of NEDA, approved by
the President, and promulgated by a Presidential Proclamation.

c) List C shall contain the areas of investment in which existing enterprises already serve
adequately the needs of the economy and the consumer and do not require further foreign
investments, as determined by NEDA applying the criteria provided in Section 9 of this
Act, approved by the President and promulgated in a Presidential Proclamation.

The Transitory Foreign Investment Negative List established in Section 15 hereof shall
be replaced at the end of the transitory period by the first Regular Negative List to be
formulated and recommended by the NEDA, following the process and criteria provided
in Sections 8 and 9 of this Act. The first Regular Negative Lists shall be published not
later than sixty (60) days before the end of the transitory period provided in said section,
and shall become immediately effective at the end of the transitory period. Subsequent
Foreign Investment Negative Lists shall become effective fifteen (15) days after
publication in two (2) newspapers of general circulation in the Philippines: Provided,
however, That each Foreign Investment Negative List shall be prospective in operation
and shall in no way affect foreign investments existing on the date of its publication.

Amendments to Lists B and C after promulgation and publication of the first Regular
Foreign Investment Negative List at the end of the transitory period shall not be made
more often than once every two (2) years.

SEC. 9. Determination of Areas of Investment for Inclusion in List C of the Foreign

Investment Negative List.—Upon petition by a Philippine national engaged therein, an
area of investment may be recommended by NEDA for inclusion in List C of the Foreign
Investment Negative List upon determining that it complies with all the following
criteria:

a) The industry is controlled by firms owned at least sixty percent (60%) by Filipinos;
b) Industry capacity is ample to meet domestic demand;

c) Sufficient competition exists within the industry;

d) Industry products comply with Philippine standards of health and safety or, in the
absence of such, with international standards, and are reasonably competitive in quality
with similar products in the same price range imported into the country;

e) Quantitative restrictions are not applied on imports of directly competing products;

f) The leading firms of the industry substantially comply with environmental standards;
and

g) The prices of industry products are reasonable.

The petition shall be subjected to a public hearing at which affected parties will have the
opportunity to show whether the petitioner industry adequately serves the economy and
the consumer, in general, and meets the above stated criteria in particular. The NEDA
may delegate evaluation of the petition and conduct of the public hearing to any
government agency having cognizance of the petitioner industry. The delegated agency
shall make its evaluation report and recommendations to NEDA which retains the right
and sole responsibility to determine whether to recommend to the President to
promulgate the area of investment in List C of the Negative List. An industry or area of
investment included in List C of the Negative List by Presidential Proclamation shall
remain in the said List C for two (2) years, without prejudice to re-inclusion upon new
petition, and due process.

SEC. 10. Strategic Industries.—Within eighteen (18) months after the effectivity of this
Act, the NEDA Board shall formulate and publish a list of industries strategic to the
development of the economy. The list shall specify, as a matter of policy and not as a
legal requirement, the desired equity participation by Government and/or private Filipino
investors in each strategic industry. Said list of strategic industries, as well as the
corresponding desired equity participation of government and/or private Filipino
investors, may be amended by NEDA to reflect changes in economic needs and policy
directions of the Government. The amended list of strategic industries shall be published
concurrently with publication of the Foreign Investment Negative List.

The term “strategic industries” shall mean industries that are characterized by all of the
following:

a) Crucial to the accelerated industrialization of the country;

b) Require massive capital investments to achieve economies of scale for efficient

operations;
c) Require highly specialized or advanced technology which necessitates technology
transfer and proven production techniques in operations;

d) Characterized by strong backward and forward linkages with most industries existing
in the country; and

e) Generate substantial foreign exchange savings through import substitution and

collateral foreign exchange earnings through export of part of the output that will result
with the establishment, expansion or development of the industry.

SEC. 11. Compliance with Environmental Standards.—All industrial enterprises

regardless of nationality of ownership shall comply with existing rules and regulations to
protect and conserve the environment and meet applicable environmental standards.

SEC. 12. Consistent Government Action.—No agency, instrumentality or political

subdivision of the Government shall take any action in conflict with or which will nullify
the provisions of this Act, or any certificate or authority granted hereunder.

SEC. 13. Implementing Rules and Regulations.—The NEDA, in consultation with BOI,

SEC and other government agencies concerned, shall issue the rules and regulations to
implement this Act within one hundred and twenty (120) days after its effectivity. A copy
of such rules and regulations shall be furnished the Congress of the Republic of the
Philippines.

SEC. 14. Administrative Sanctions.—A person who violates any provision of this Act or
of the terms and conditions of registration or of the rules and regulations issued pursuant
thereto, or aids or abets in any manner any violation shall be subject to a fine not
exceeding One hundred thousand pesos (P100,000).

If the offense is committed by a juridical entity, it shall be subject to a fine in an amount

not exceeding 1/2 of 1% of total paid-in capital but not more than Five million pesos
(P5,000,000). The president and/or officials responsible therefor shall also be subject to a
fine not exceeding Two hundred thousand pesos (P200,000).

In addition to the foregoing, any person, firm or juridical entity involved shall be subject
to forfeiture of all benefits granted under this Act.

The SEC shall have the power to impose administrative sanctions as provided herein for
any violation of this Act or its implementing rules and regulations.

SEC. 15. Transitory Provisions.—Prior to effectivity of the implementing rules and

regulations of this Act, the provisions of Book II of Executive Order No. 226 and its
implementing rules and regulations shall remain in force.
During the initial transitory period of thirty-six (36) months after issuance of the Rules
and Regulations to implement this Act, the Transitory Foreign Investment Negative List
shall consist of the following:

A. List A:

1. All areas of investment in which foreign ownership is limited by mandate of

Constitution and specific laws.

B. List B:

1. Manufacture, repair, storage and/or distribution of firearms, ammunition, lethal

weapons, military ordnance, explosives, pyrotechnics and similar materials
required by law to be licensed by and under the continuing regulation of the
Department of National Defense; unless such manufacturing or repair activity is
specifically authorized, with a substantial export component, to a non-Philippine
national by the Secretary of National Defense;
2. Manufacture and distribution of dangerous drugs; all forms of gambling;
nightclubs, bars, beerhouses, dance halls; sauna and steam bathhouses, massage
clinics and other like activities regulated by law because of risks they may pose to
public health and morals;
3. Small and medium-sized domestic market enterprises with paid-in equity capital
of less than the equivalent of US$500,000, unless they involve advanced
technology as determined by the Department of Science and Technology, and
4. Export enterprises which utilize raw materials from depleting natural resources,
and with paid-in equity capital of less than the equivalent of US$500,000.

C. List C:

1. Import and wholesale activities not integrated with production or manufacture of

goods;
2. Services requiring a license or specific authorization, and subject to continuing
regulation by national government agencies other than BOI and SEC which at the
time of effectivity of this Act are restricted to Philippine nationals by existing
administrative regulations and practice of the regulatory agencies
concerned: Provided, That after effectivity of this Act, no other services shall be
additionally subjected to such restrictions on nationality of ownership by the
corresponding regulatory agencies, and such restrictions once removed shall not
be reimposed; and
3. Enterprises owned in the majority by a foreign licensor and/or its affiliates for the
assembly, processing or manufacture of goods for the domestic market which are
being produced by a Philippine national as of the date of effectivity of this Act
under a technology, know-how and/or brand name license from such licensor
during the term of the license agreement: Provided, That, the license is duly
 registered with the Central Bank and/or the Technology Transfer Board and is
operatively in force as of the date of effectivity of this Act.

The NEDA shall make the enumeration as appropriate of the areas of investment covered
in this Transitory Foreign Investment Negative List and publish the Negative List in full
at the same time as, or prior to, the publication of the rules and regulations to implement
this Act.

The areas of investment contained in List C above shall be reserved to Philippine

nationals only during the transitory period. The inclusion of any of them in the regular
Negative List will require determination by NEDA after due public hearings that such
inclusion is warranted under the criteria set forth in Sections 8 and 9 hereof.

SEC. 16. Repealing Clause.—Articles forty-four (44) to fifty-six (56) of Book II of

Executive Order No. 226 are hereby repealed.

All other laws or parts of laws inconsistent with the provisions of this Act are hereby
repealed or modified accordingly.

SEC. 17. Separability Clause.—If any part or section of this Act is declared

unconstitutional for any reason whatsoever, such declaration shall not in any way affect
the other parts or sections of this Act.

SEC. 18. Effectivity Clause.—This Act shall take effect fifteen (15) days after approval
and publication in two (2) newspapers of general circulation in the Philippines.

Approved, June 13, 1991.

Source: Presidential Museum and Library

RESOURCES

 [PDF] Republic Act No. 7042, June 13, 1991

This entry was posted under Laws and Issuances, Republic Acts. Bookmark
the permalink.

REPUBLIC OF THE PHILIPPINES

All content is in the public domain unless otherwise stated.

Feedback Form

ABOUT GOVPH

Learn more about the Philippine government, its structure, how government works and the people behind it.
 GOV.PH
 Official Gazette
 Open Data Portal

GOVERNMENT LINKS

 The President
 Office of the President
 Office of the Vice President
 Senate of the Philippines
 House of Representatives
 Supreme Court
 Court of Appeals
 Sandiganbayan

Managed by EDP/IT Division of the Presidential Communications Operations Office (PCOO)