Industrial Land Acquisition in the Philippines for Foreign Companies: Rules and Structures

Foreign companies generally cannot own private land in the Philippines, so industrial land acquisition is usually structured through a special economic zone (ecozone) registered with the Philippine Economic Zone Authority (PEZA), or through a long-term lease. Under Republic Act No. 7916, foreign citizens and companies owned by non-Filipinos "in whatever proportion" may set up enterprises inside an ecozone, either alone or in joint venture with Filipinos, in any sector of industry, international trade, and commerce. Their assets, profits, and other legitimate interests are protected. The ecozone route is therefore the most direct path for a wholly foreign-owned manufacturing operation.

Why ownership is the central issue

The starting point is that Philippine law restricts land ownership by non-Filipinos. A foreign company planning an industrial site must decide early whether it will build inside an ecozone, where the rules are most favorable, or outside one, where it will generally need a Filipino partner or a lease arrangement.

Republic Act No. 7916, the Special Economic Zone Act of 1995, was enacted precisely to attract legitimate and productive foreign investments. Its declared policy is to encourage private enterprise and provide incentives to needed investments, and to promote the flow of investors, both foreign and local, into special economic zones.

What an ecozone and an industrial estate are

Under Section 4 of Republic Act No. 7916, a special economic zone (ecozone) is a selected area with highly developed potential as an agro-industrial, industrial, tourist, commercial, banking, investment, or financial center. An ecozone may contain industrial estates, export processing zones, free trade zones, and tourist or recreational centers.

An industrial estate is defined as a tract of land subdivided and developed according to a comprehensive plan, under unified continuous management, with provisions for basic infrastructure and utilities, with or without prebuilt standard factory buildings and community facilities for the use of a community of industries.

An export processing zone is a specialized industrial estate located physically or administratively outside customs territory and predominantly oriented to export production. Enterprises there may import capital equipment and raw materials free from duties, taxes, and other import restrictions.

How a foreign company can set up inside an ecozone

Section 7 of Republic Act No. 7916 is the key provision. Foreign citizens and companies owned by non-Filipinos in whatever proportion may set up enterprises in the ecozone, either by themselves or in joint venture with Filipinos, in any sector of industry, international trade, and commerce within the ecozone. Their assets, profits, and other legitimate interests are protected.

Two qualifications appear in the same section. The ecozone, through PEZA, may require a minimum investment for any ecozone enterprise in freely convertible currencies, and the new investment must fall under the priorities, thrusts, and limits provided for in the Act.

Ecozones are managed and operated by PEZA as a separate customs territory under Section 8. PEZA may also issue certificates of origin for products manufactured or processed in each ecozone.

Immigration and residency for investors

Section 10 of Republic Act No. 7916 provides that an investor within the ecozone whose initial investment is not less than One hundred fifty thousand dollars ($150,000), together with the spouse and dependent children under twenty-one (21) years of age, shall be granted permanent resident status within the ecozone. They have freedom of ingress and egress to and from the ecozone without special authorization from the Bureau of Immigration.

PEZA also issues working visas renewable every two (2) years to foreign executives and other aliens possessing highly technical skills that no Filipino within the ecozone possesses, as certified by the Department of Labor and Employment.

Tax treatment inside the zone

Under Section 24 of Republic Act No. 7916, no taxes, local or national, shall be imposed on business establishments operating within the ecozone. In lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the ecozone is remitted to the national government. That five percent is shared as follows: three percent (3%) to the national government, one percent (1%) to the affected local government units, and one percent (1%) for a development fund for municipalities outside and contiguous to each ecozone.

How ecozones are created and where they are

Section 5 of Republic Act No. 7916 initially identified a long list of areas as ecozones, including portions of Bataan, Batangas, Cagayan de Oro, Iligan, Saranggani, Laoag, Davao, Cebu, Cavite, Laguna, Rizal, and many others, as well as all existing export processing zones and government-owned industrial estates. It also covers any private industrial estate that voluntarily applies for conversion into an ecozone.

These areas may be developed through private initiative, local government initiative with national government assistance, or national government initiative. The metes and bounds of each ecozone are delineated in a proclamation issued by the President upon PEZA's recommendation.

Other areas may be established as ecozones under Section 6 through a presidential proclamation, subject to PEZA evaluation and recommendation based on a detailed feasibility and engineering study. The criteria include identification as a regional growth center, existing infrastructure, availability of water and electric power, available vacant land, an available trainable labor force, strategic location, and suitability for controlling smuggling.

Special economic zones created by separate law

Some ecozones are created by their own statutes rather than by proclamation. The Aurora Pacific Economic Zone and Freeport, for example, was established by Republic Act No. 9490, later amended by Republic Act No. 10083, which renamed it the Aurora Pacific Economic Zone and Freeport Act of 2010. That law defines the zone's two parcels of land in Casiguran, Aurora by technical description, covering 496 hectares and 12,427 hectares respectively. A foreign investor looking at a specific site should confirm whether it falls inside a proclaimed ecozone or one created by special law.

Structuring the Philippine entity

Whatever the land arrangement, the operating company is typically organized as a Philippine corporation. Under Section 10 of the Revised Corporation Code (Republic Act No. 11232), any person, partnership, association, or corporation, singly or jointly with others but not more than fifteen (15) in number, may organize a corporation for any lawful purpose. Natural-person incorporators must be of legal age, and each incorporator of a stock corporation must own or subscribe to at least one share.

Section 11 provides that a corporation has perpetual existence unless its articles of incorporation provide otherwise. Section 12 states that stock corporations are not required to have a minimum capital stock, except as specifically provided by special law.

Ownership restrictions still matter. Section 16 of the Revised Corporation Code lists as a ground for disapproval of articles of incorporation the failure to comply with the required percentage of Filipino ownership of capital stock under existing laws or the Constitution. Section 14 prescribes the form of articles of incorporation and requires corporations engaged in activities reserved for Filipino citizens to include a restriction on transfers that would reduce Filipino ownership below the required percentage.

Frequently asked questions

Can a foreign company own land in the Philippines? Not directly, in general. The practical route for industrial use is to locate inside a PEZA-registered ecozone, where Republic Act No. 7916 expressly allows foreign-owned enterprises to set up and protects their assets and profits, or to use a long-term lease structure.

Can a foreign company own 100% of a PEZA-registered enterprise? Section 7 of Republic Act No. 7916 allows foreign citizens and companies owned by non-Filipinos in whatever proportion to set up enterprises in the ecozone, either alone or in joint venture with Filipinos. PEZA may require a minimum investment in freely convertible currency, and the investment must fall within the Act's priorities and limits.

What incentives apply inside an ecozone? Business establishments operating within ecozones are exempt from national and local taxes under Section 24 of Republic Act No. 7916; instead, five percent (5%) of gross income is remitted, shared among the national government, local government units, and a development fund.

Practical takeaways

• Foreign companies cannot generally own private land in the Philippines, so industrial site acquisition is usually structured through a PEZA-registered ecozone or a long-term lease.
• Section 7 of Republic Act No. 7916 expressly permits foreign citizens and non-Filipino-owned companies, in whatever proportion, to set up enterprises inside an ecozone, alone or in joint venture with Filipinos.
• Ecozones operate as a separate customs territory under PEZA, with a 5% gross income remittance in lieu of national and local taxes under Section 24.
• An ecozone investor with an initial investment of at least $150,000 may obtain permanent resident status within the zone under Section 10, and PEZA issues renewable working visas for highly technical foreign personnel.
• The operating entity is normally a Philippine corporation under the Revised Corporation Code, and Filipino ownership requirements under the Constitution and special laws still apply outside the ecozone framework.

Primary sources

The rules discussed above are drawn from the following primary sources, as published in the Official Gazette and the national statute book.

• REPUBLIC ACT NO. 7916 - AN ACT PROVIDING FOR THE LEGAL FRAMEWORK AND MECHANISMS FOR THE CREATION, OPERATION, ADMINISTRATION, AND COORDINATION OF SPECIAL ECONOMIC ZONES IN THE PHILIPPINES, CREATING FOR THIS PURPOSE, THE PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA), AND FOR OTHER PURPOSES

• REPUBLIC ACT NO. 10083 - AN ACT AMENDING REPUBLIC ACT NO. 9490, OTHERWISE KNOWN AS THE "AURORA SPECIAL ECONOMIC ZONE ACT OF 2007"

• REPUBLIC ACT NO. 11232 - AN ACT PROVIDING FOR THE REVISED CORPORATION CODE OF THE PHILIPPINES

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.