On December 10, 2021, President Rodrigo Duterte enacted Republic Law No. 11595 (“RA 11595“), otherwise known as” An Act to amend Republic Act No. 8762 or the Retail Trade Liberalization Act 2000 (RTLA), lowering the paid-up capital requirement for retail businesses. foreign retail and other purposes. “
RA 11595 removes the requirement for a prequalification certificate and the need to prove compliance with prequalification criteria under RTLA to the Philippine Investment Council (BOI), before a foreign retailer can invest or commit in a retail business in the Philippines.
RA 11595 also sets a one-time minimum paid-up capital requirement of PHP 25 million for all foreign-invested retail businesses, and lowers the minimum investment requirement per store to PHP 10 million. RA 11595 was published in the Official Journal on January 6, 2022 and will take effect fifteen (15) days after its publication or on January 21, 2022.
Foreign retailers who have invested or are engaging in retail business in the Philippines are urged to (1) familiarize themselves with the changes in requirements and procedures brought by RA 11595, (2) closely monitor future developments regulations to be published in accordance with RA 11595, and (3) consider the impact of changes made by RA 11595 (and regulations to be published) to the terms and conditions, and their obligations under the prequalification certificate issued to them by the BOI.
Foreign retailers looking to engage in retail or invest in a retail business in the Philippines can also take advantage of the enactment of RA 11595 and the reduction in requirements previously mandated by RTLA as an opportunity to proceed to establish their retail operations in The Philippines.
More in detail
Republic Law 11595 relaxes the requirements for foreign retailers to invest or engage in retail business in the Philippines, as follows:
- Eliminate prequalification categories and reduce minimum capital requirement. RA 11595 removes prequalification categories under RTLA1 and sets a single minimum paid-up capital for all types of foreign-invested retail businesses.
In RTLA category B, foreign-invested companies engaged in retail business must have paid-up capital of at least US $ 2.5 million, while in category D, retail companies with foreign capital engaged in the sale of high-end or luxury goods the goods must have a paid-up capital of at least $ 250,000 per store.
Under RA 11595, all foreign-invested retail companies must have a minimum paid-up capital of at least PHP 25 million (or approximately USD 500,000).
The new minimum paid-up capital requirement is subject to review by the Department of Trade and Industry (DTI), the Securities and Exchange Commission (SEC) and the National Economic and Development Authority (NEDA) every three (3) years from the entry into force of the law. effectiveness.
- Removes the requirement for a prequalification certificate issued by the BOI. Under the RTLA, foreign retailers are required to obtain a prequalification certificate from the BOI upon proof that they meet the following prequalification requirements:
- a minimum net worth requirement of $ 200 million;
- has five (5) operating retail branches or franchises worldwide (unless it has at least one (1) store capitalized to a minimum of $ 25 million),
- has five (5-) years of retail experience, and
- a national or legal entity formed or incorporated in countries that allow entry of Filipino retailers.
RA 11595 removes the requirement for a prequalification certificate and compliance with the above prequalification requirements. Under RA 11595, foreign companies, partnerships and sole proprietorships can invest or engage in a retail business, subject to the following conditions:
- the foreign retailer must have a minimum paid-up capital of PHP 25 million;
- the country of origin of the foreign retailer does not prohibit the entry of Filipino retailers; and
- in the case of foreign retailers engaged in retail trade through more than one (1) physical store, the minimum investment per store must be at least PhP 10 million.
The requirement under (c) above does not apply to foreign investors and foreign retailers who are legitimately engaged in the retail business and were not required to comply with the minimum investment per store at the time of the entry into force of RA 11595.
- Reduces investment per store requirement. RA 11595 lowers the minimum investment requirement per store for foreign-invested retail businesses from $ 830,000 per store to PHP 10 million (or approximately $ 200,000).
Under RA 119595, “minimum investment per store” covers gross assets, 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. Common use investments and facilities, as reflected in the financial statements in accordance with accounting standards adopted by the SEC and DTI, will be prorated based on the number of stores served.
- Removes the requirement for a public offering of shares. Retail businesses that are more than eighty percent (80%) owned by foreigners are no longer required to offer a minimum of thirty percent (30%) of their equity to the public through ‘a Philippine scholarship within eight (8) years of commencement. operations.
- Promotion of locally produced products. RA 11595 encourages overseas retailers to have stock inventory made in the Philippines.
- Preferential use of Filipino labor. RA 1195 requires compliance with the provisions of the Philippine Labor Code on determining the unavailability of a competent, capable and voluntary Philippine citizen before engaging the services of a foreign national.
- Change of executing agency. Foreign retailers who have created or will form companies, associations or partnerships engaged in retail are now subject to SEC oversight and regulation, instead of DTI. The DTI will continue to exercise regulatory authority over foreign retailers who have established or will establish sole proprietorships in the Philippines.
The DTI, in coordination with the SEC and NEDA, is mandated to issue rules and regulations to implement the provisions of RA 11595 within ninety (90) days of its approval.
- Reduces penalties. RA 11595 reduces the penalties provided for in the RTLA for violating its provisions from imprisonment of six (6) to eight (8) years to four (4) to six (6) years, and a fine of PHP 1 million to PHP 20 million to PHP 1 million to PHP 5 million.
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