Foreign Ownership of a Philippine Retail Business: Rules and Capital Thresholds

Foreign ownership of a Philippine retail business is allowed, but only within the limits set by the Retail Trade Liberalization Act of 2000 (Republic Act No. 8762). The law divides retail enterprises into categories based on paid-up capital. Below US$2,500,000, retail trade is reserved exclusively for Filipino citizens and corporations wholly owned by Filipinos. At US$2,500,000 up to US$7,500,000, a retail enterprise may be wholly foreign-owned. At US$7,500,000 or more, full foreign ownership is also allowed. Enterprises specializing in high-end or luxury goods may be wholly foreign-owned with a lower capital requirement of US$250,000 per store.

What counts as retail trade under the law

Section 3 of the Retail Trade Liberalization Act defines retail trade as any act, occupation, or calling of habitually selling merchandise, commodities, or goods directly to the general public for consumption.

The law carves out several activities that are not covered by its restrictions:

• Sales by a manufacturer, processor, laborer, or worker of products they made, if their capital does not exceed One hundred thousand pesos (P100,000);
• Sales by a farmer or agriculturist of their own farm products;
• Restaurant operations by a hotel owner or innkeeper, regardless of capital, provided the restaurant is incidental to the hotel business; and
• Sales limited to products manufactured, processed, or assembled by a manufacturer through a single outlet, regardless of capitalization.

The four foreign equity categories

Section 5 of the law sets the categories that determine how much foreign equity is permitted.

Category A covers enterprises with paid-up capital below US$2,500,000. These are reserved exclusively for Filipino citizens and corporations wholly owned by Filipino citizens.

Category B covers enterprises with at least US$2,500,000 but less than US$7,500,000 in paid-up capital. These may be wholly owned by foreigners, except during the first two years after the law took effect, when foreign participation was limited to sixty percent of total equity.

Category C covers enterprises with paid-up capital of US$7,500,000 or more. These may be wholly owned by foreigners. For both Categories B and C, the investment for establishing a store must not be less than US$830,000.

Category D covers enterprises specializing in high-end or luxury products with paid-up capital of US$250,000 per store. These may be wholly owned by foreigners. Section 3 defines high-end or luxury goods as goods not necessary for life maintenance, whose demand comes largely from higher income groups — jewelry, branded clothing and footwear, apparel, leisure and sporting goods, and electronics, among others.

A natural-born citizen of the Philippines who lost Philippine citizenship but resides in the country is granted the same rights as Filipino citizens for purposes of the law, under Section 4.

Capital maintenance and registration requirements

A foreign investor must maintain the full amount of the prescribed minimum capital in the Philippines, unless the investor has notified the SEC and the DTI of an intention to repatriate capital and cease operations. The SEC monitors the actual use of the inwardly remitted minimum capital in Philippine operations.

Failure to maintain the full amount before notifying the SEC and DTI exposes the foreign investor to penalties or restrictions on future trading or business activities in the Philippines.

Foreign retail stores must also secure a certification from the Bangko Sentral ng Pilipinas and the DTI verifying or confirming the inward remittance of the minimum required capital investment.

Qualifications foreign retailers must meet

Section 8 requires that a foreign retailer meet all of the following before engaging in retail trade:

• A minimum net worth of US$200,000,000 in its parent corporation for Categories B and C, or US$50,000,000 for Category D;
• Five retailing branches or franchises operating anywhere in the world, unless the retailer has at least one store capitalized at a minimum of US$25,000,000;
• A five-year track record in retailing; and
• Nationality from, or incorporation in, a country that allows the entry of Filipino retailers.

The DTI is authorized to pre-qualify all foreign retailers before they may conduct business in the Philippines, and it keeps a record of qualified foreign retailers.

Other obligations and restrictions

Under Section 9, for ten years after the law took effect, at least thirty percent of the aggregate cost of stock inventory of foreign retailers under Categories B and C — and ten percent for Category D — must be made in the Philippines.

Section 10 prohibits qualified foreign retailers from engaging in retailing activities outside their accredited stores, such as mobile or rolling stores or carts, sales representatives, door-to-door selling, restaurants, and sari-sari stores.

Section 7 requires retail trade enterprises under Categories B and C in which foreign ownership exceeds eighty percent of equity to offer at least thirty percent of their equity to the public through a Philippine stock exchange within eight years from the start of operations.

Violations of the law carry imprisonment of six years and one day to eight years and a fine of One million pesos to Twenty million pesos under Section 12. Foreign offenders are deported immediately after serving sentence.

Frequently asked questions

Can a foreigner fully own a retail business in the Philippines? Yes, if the enterprise falls under Category B, C, or D. Category B requires paid-up capital of at least US$2,500,000 but less than US$7,500,000; Category C requires US$7,500,000 or more; and Category D, for high-end or luxury goods, requires US$250,000 per store.

What is the minimum capital for foreign retail ownership in the Philippines? The lowest threshold is US$250,000 per store for enterprises specializing in high-end or luxury products. For general retail under Categories B and C, the minimum paid-up capital is US$2,500,000.

Can a foreigner buy shares of an existing Philippine retail store? Under Section 6, a foreign investor acquiring shares of an existing retail store with a net worth exceeding US$2,500,000 may purchase up to a maximum of sixty percent of the equity within the first two years from the law's effectivity, and thereafter may acquire the remaining percentage consistent with the allowable foreign participation.

Practical takeaways

• Retail trade below US$2,500,000 in paid-up capital is reserved exclusively for Filipino citizens and Filipino-owned corporations.
• Full foreign ownership is possible at US$2,500,000 or more in paid-up capital, or at US$250,000 per store for high-end or luxury goods.
• Foreign retailers must meet parent-company net worth, branch, and track record qualifications, and must be pre-qualified by the DTI.
• Minimum capital must be maintained in the Philippines and its inward remittance confirmed by the BSP and DTI.
• Foreign retailers face restrictions on selling outside accredited stores and must carry a minimum share of locally made inventory.

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. 8762 - AN ACT LIBERALIZING THE RETAIL TRADE BUSINESS, REPEALING FOR THE PURPOSE REPUBLIC ACT NO. 1180, AS AMENDED, AND FOR OTHER PURPOSES

• REPUBLIC ACT NO. 10881 - AN ACT AMENDING INVESTMENT RESTRICTIONS IN SPECIFIC LAWS GOVERNING ADJUSTMENT COMPANIES, LENDING COMPANIES, FINANCING COMPANIES AND INVESTMENT HOUSES CITED IN THE FOREIGN INVESTMENT NEGATIVE LIST AND FOR OTHER PURPOSES

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