Philippines Amends Retail Trade Liberalization Act to Attract Foreign Investment
On December 10, 2021, the President of the Philippines approved the final amendments to the Retail Trade Liberalization Act (RTLA), or Republic Act No. 11595. The bill reduces the minimum paid-up capital requirements for foreign retail enterprises, removes the requirement for a certificate of pre-qualification to the Philippine Board of Investments (BOI), and lowers the investment requirements for each store owned by a foreign enterprise.These measures are aimed at attracting greater foreign investment in the retail sector, which before the pandemic, accounted for 23 percent of the total services industry with a total gross value added of PHP 1 trillion (US$ 20 billion). Full recovery of the Philippines consumer and retail sector is expected to occur in 2022, with growth predicted in 2023.
What are the amendments to the act?
Reduction in the minimum paid-up capital requirements
The Philippines’ retail industry was exclusively limited to Filipino citizens until the year 2,000 when the RTLA was first introduced. The RTLA allowed foreign investors to engage in the local retail industry but imposed high minimum paid-up capital requirements.
Under Republic Act No. 11595, a foreign-owned enterprise engaged in the Philippines retail trade now only requires PHP 25 million (US$500,000) as the minimum paid-up capital.
Previously, foreign retailers were classified into four categories, each with its own minimum paid-capital requirements. These were:
- Category A – reserved for Filipinos and must have a minimum paid-up capital of US$2.5 million;
- Category B – foreign enterprises must have a minimum paid-up capital of at least US$2.5 million but below US$7 million;
- Category C – foreign enterprises must have a minimum paid-up capital of at least US$7 million or more; and
- Category D – foreign enterprises specializing in high-end luxury items must have a paid-up capital of at least US$250,000 per store.
The minimum paid-up capital is subject to review every three years by the National Economic and Development Authority (NEDA), the Securities and Exchange Commission (SEC), and the Department of Trade and Industry (DTI).
Certification of pre-qualification is no longer required
There are also no pre-qualification requirements such as providing proof of the company’s track record in retailing which obligated the foreign business to obtain a certification of pre-qualification from the BOI. Republic Act No. 11595 has removed such requirements for foreign enterprises. They only need to have the minimum paid-up capital of PHP 25 million (US$500,000).
Reduction in the minimum investment required for each store
Foreign retailers that want to open more than one physical store must invest a minimum of PHP 10 million (US$200,000) per store. This is a reduction from the previous requirement of US$830,000 per store.This minimum investment covers tangible and intangible assets, such as buildings, furniture, and storage facilities, among others.
Removal of the requirement of the public offering of shares
Retail enterprises that are foreign-owned were required to offer a minimum of 30 percent equity through any stock exchange in the Philippines, within eight years from the start of their operations. This has now been removed under Republic Act No. 11595, meaning newly established foreign retail enterprises can remain privately owned.
Preferential use of Filipino labor
Republic Act No. 11595 mandates that foreign retail enterprises must hire Filipino workers before engaging the services of a foreign national.
Promotion of locally manufactured products
The act encourages foreign retailers to keep a stock inventory of locally manufactured products.
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