PRESIDENT Rodrigo Duterte has signed into law Republic Act (RA) 11595, which amends certain provisions of the Retail Liberalization Act of 2000 (RTLA). It consolidated House Bill 59 and Senate Bill 1840, which were passed by the House of Representatives and the Senate on September 21 and 20, 2021, respectively.
RA 11595, published in the Official Gazette on January 6, 2021, significantly reduces capital requirements for foreign retailers to engage in retail business in the Philippines.
Retail trade was previously restricted exclusively to Philippine citizens or entities until 2000 when the RTLA was passed. While the law opened up the retail market to foreign retailers, it imposed high capital requirements and classified the retail business into four different categories:
– Category A (enterprises with paid-up capital equivalent to $2.5 million, which are reserved for Filipinos);
– Category B (those with a minimum paid-up capital of at least $2.5 million but less than $7 million);
– Category C (those whose paid-up capital is equivalent to $7 million or more); and
– Category D (those specializing in high-end or luxury products with a share capital equivalent to $250,000, which may be 100% foreign-owned).
RA 11595 removed the above categories and simply required a foreign entity to have a minimum paid up capital of 25 million pesos. Also, RA 11595 reduced the investment requirement per store to at least 10 million pesos per store.
The law also repealed certain requirements imposed by the RTLA on foreign retailers, such as:
– A minimum net worth of $200 million in its parent company for categories B and C and $50 million for category D;
– Five operating retail branches or franchises anywhere in the world unless the retailer has at least one store capitalized at a minimum of $25 million; and
– Five years’ experience in the retail trade abroad.
RA 11595 further repealed the RTLA Section 7 requirement that all Class B and C retail businesses, in which foreign ownership exceeds 80%, must offer a minimum of 30 % to the public through any exchange in the Philippines. within eight years from the start of operations.
RA 11505 maintained the reciprocity requirement that the country of origin of the foreign retailer should not prohibit the entry of Filipino retailers.
Like the RTLA, RA 11595 also subjects the foreign retailer to penalties or restrictions on any future business or commercial activity in the Philippines in the event that they fail to maintain the required paid-up capital. Any violation of the RTLA as amended by RA 11595 shall be punishable by imprisonment for not less than four to six years (previously not less than six years and a day but not more than eight years) and a fine of at least 1 million pesos but not more than 5 million pula (previously not less than 1 million pula but not more than 20 million pula).
In the case of partnerships, associations or corporations, the sanction will be imposed on its partners, president, administrators, managing director and other officers responsible for the violation. If the offender is not a citizen of the Philippines, he will be deported after serving his sentence. If the offender is a Filipino, he or she will, in addition to the penalty, be subject to impeachment and a permanent ban from holding public office.
With regard to registration with the Securities and Exchange Commission (SEC) or the Department of Trade and Industry (DTI), the foreign retailer is required to present a certificate from the Bangko Sentral ng Pilipinas attesting to the payment of its capital investment or other proof that the capital investment is deposited and held in a bank in the Philippines.
It should also be noted that RA 11595 now defines the terms “minimum investment per store”. Accordingly, the “minimum investment per store” includes “the value of gross assets, whether tangible or intangible, including but not limited to buildings, leases, furniture, equipment, inventory and investments and facilities for common use such as administrative offices, warehouses, preparation or storage facilities.
The new Section 3, paragraph 2 also provides that “investment for common use and facilities, as reflected in the financial statements in accordance with accounting standards adopted by the SEC and the DTI, as applicable, will be calculated on a pro rata basis between the number of stores served.” In addition, Article 3(2) states that for the purpose of complying with the per-store investment requirement, paid-up capital may be used to purchase assets.
With the changes made by RA 11595 to the RTLA, we hope that more foreign investors will be encouraged to engage in retail business in the Philippines.
Nica Marsha V. Gasapo is a junior partner at Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is provided for informational purposes only and does not replace professional advice when the facts and circumstances warrant it. If you have any questions or comments regarding this article, you can email the author at [email protected] or visit the MTF website at www.mtfcounsel.com.