REPUBLIC ACT NO.

7042

Foreign Investment Act 1991

Quasi Anotated by
Glenn Subia
 AN ACT TO PROMOTE FOREIGN
INVESTMENTS, PRESCRIBE THE
PROCEDURES FOR REGISTERING
ENTERPRISES DOING BUSINESS IN
THE PHILIPPINES AND FOR OTHER
PURPOSES
 Section 1. Title
 
This Act shall be known as the
"Foreign Investments Act of
1991."
Section 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 socio-economic
development
that foreign investment is allowed in such
activity by the Constitution and relevant
laws. Foreign investments shall be
encouraged in the 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
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; of 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 corporation organized abroad and
registered as doing business in the
Philippines under the Corporation Code of
which one hundred percent (100%) of the
capital stock outstanding and entitled to
vote is wholly owned by Filipinos 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 stock outstanding and entitled to vote of
each 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 each of both corporations
must be citizens of the Philippines, in order that
the corporation, shall be considered a
"Philippine national." [as amended by Republic
Act No. 8179]
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 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 totaling 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 per cent (60%) or more of
such purchases;
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 per cent (60%) or
more of such purchases; 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
consistency export at least sixty percent (60%)
thereof; and
f.  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 the SEC. 
During the transitory period as provided in
Section 15 hereof, 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 the
Constitution and existing law or the
Foreign Investment Negative List under
Section 8 hereof. [as amended by Republic
Act No. 8179]
SEC. 8. List of Investment Areas Reserved to
Philippine Nationals [Foreign Investment
Negative List]. - The Foreign Investment
Negative List shall have two [2] component
lists: A and B:
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 the
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 ordnance, 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, beer houses, 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 Two hundred
thousand US dollars [US$200,000.00], are
reserved to Philippine nationals: Provided,
That if:  [1] they involve advanced technology
as determined by the Department of Science
and Technology; or [2] they employ at least
fifty [50] direct employees, then a minimum
paid-in capital of One hundred thousand US
dollars [US$100,000.00] shall be allowed to
non-Philippine nationals.
SEC. 9. Investment Rights of Former Natural-
Born Filipinos. - 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. No. 7353,
Thrift Banks and Private Development Banks
under Republic Act No. 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. 5187
[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. No. 449 [Cockpits Operation and
Management]. [as amended by Republic Act
No. 8179]
SEC. 10. Other Rights of Natural-Born Citizen
Pursuant to the Provisions of Article XII,
Section 8 of the Constitution. - Any natural-
born citizen who has lost his Philippine
citizenship and who has the legal capacity to
enter into a contract under Philippine laws may
be a transferee of a private land up to a
maximum area of five thousand [5,000] square
meters in the case of urban land or three [3]
hectares in the case of rural land to be used by
him for business or other purposes. In the case
of married couples, one of them may avail of
the privilege herein granted:
Provided, That if both shall avail of the
same, the total area acquired shall not
exceed the maximum herein fixed.
In case the transferee already owns urban
or rural land for business or other
purposes, he shall still be entitled to be a
transferee of additional urban or rural
land for business or other purposes which
when added to those already owned by
him shall not exceed the maximum areas
herein authorized.
A transferee under this Act may acquire not
more than two [2] lots which should be
situated in different municipalities or cities
anywhere in the Philippines: Provided, That
the total land area thereof shall not exceed five
thousand [5,000] square meters in the case of
urban land or three [3] hectares in the case of
rural land for use by him for business or other
purposes. A transferee who has already
acquired urban land shall be disqualified from
acquiring rural land and vice versa. [as
amended by Republic Act No. 8179]
SEC. 11. Compliance with Environmental
Standards. - All industrial enterprises
regardless of nationality shall comply with
existing rules and regulations to protect
and conserve the environment and meet
applicable environmental standards.
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].
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
substantial export component, to a non-
Philippine national by the Secretary of National
defense;
B.  List B:

2.  Manufacture and distribution of

dangerous drugs; all forms of gambling;
nightclubs, bars, beer houses, 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;
B.  List B:
3.  Small and medium-sized domestic market
enterprises with paid-in equity capital less than
the equivalent of Two hundred thousand US
dollars [US$200,000.00], are reserved to
Philippine nationals: Provided, That if: [1] they
involve advanced technology as determined by
the Department of Science and Technology, or
[2] they employ at least fifty [50] direct
employees, then a minimum paid-in capital of
One hundred thousand US dollars
[US$100,000.00] shall be allowed to non-
Philippine nationals.
Thank you very much