A report of a bicameral conference committee on Senate Bill 1840 (the “Law Project“) which covers the amendments to Republic Law No. 8762 (the Law on the Liberalization of Retail Trade or”RTLA“) and lower paid-up capital requirements for foreign retail businesses was approved by the Philippine Senate on September 20, 2021 and by the House of Representatives (“lodge“) On September 21, 2021.
This bill reconciles the contradictory provision of the House version (House Bill No. 59) and several Senate versions (Senate Bill No. 14, 921, 1113 and 1349), which sought to make various amendments to the RTLA. Now that the 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.
If the bill is passed as currently drafted, the significant changes to RTLA, which will be introduced by the bill, include the following:
a) Simplified conditions and reduced paid-up capital requirements for foreign retailers
With the bill, partnerships, associations or companies with foreign capital organized under Philippine laws and registered with the Securities and Exchange Commission (“SECOND“), or individual enterprises with foreign capital registered with the Ministry of Trade and Industry (“DTI“) may engage in or invest in retail business in the Philippines, subject to the following conditions, among others:
I) Minimum paid-up capital
Under the RTLA, the minimum paid-up capital required for foreign-invested retail businesses is currently the Philippine peso equivalent of $ 2.5 million. However, the bill will reduce the required paid-in capital to 25 million pesos (approximately USD 500,000.00) which should be used in actual operations and should be maintained in the Philippines at all times, unless the foreign retailer does. notifies the SEC or DTI (if applicable) of its intention to repatriate capital and cease operations in the Philippines. Failure to meet paid-up capital will subject a foreign retailer to penalties or restrictions on future business or business activities in the Philippines.
The 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, since the RTLA already imposes the same condition.
iii) Investment per store for foreign brands with several physical stores
For foreign retailers engaged in retailing through more than one physical store, the investment per store required will be at least Php 10 million (approximately USD 200,000.00). This is well below the current RTLA per-store investment requirement of $ 830,000.00.
Based on the above, the bill greatly simplifies and reduces the investment requirements for foreign retailers. In particular, it will remove other “prequalification” requirements (for example, a retail background, among others) that are found in the current RTLA, and which required a foreign retailer to separately obtain a prequalification certification. qualification of the Board of Investments.
b) Removal of the requirement for a public offering of shares
The bill will remove the current wording of Article 7 of the RTLA, which requires retail businesses where foreign ownership exceeds 80%, to offer within 8 years from the start of operations a minimum of 30% shares to the public through any share exchange in the Philippines. With this proposed change, existing and newly established foreign retail businesses will be able to remain private businesses.
As with any piece of legislation, legislators must strike a balance between the interests of various sectors and stakeholders. For foreign investors, the bill will finally remove regulatory hurdles that may have discouraged foreign investment in the Philippine retail sector. However, there is also some question as to whether small and medium-sized Filipino-owned retail businesses are ready for entry from foreign players, especially as the Philippine economy is still recovering from the effects of the COVID pandemic. -19.
A few months from the end of the current administration’s mandate, it will be interesting to see whether protectionism will give way to “progress” and competition, and whether the long-awaited RTLA amendments will finally materialize with the passage of law Project.
[Note: This article has been updated as of 1 November 2021]