Opinion No. 19-59 Re:Foreign Participation in Travel and Tour Business and Retail Trade

OFFICE OF THE GENERAL COUNSEL Securities and Exchange Commission Republic of the Philippines Department of Finance

13 December 2019

and Tour Business and Retail Trade SEC-OGC Opinion No. 19-59 Re: Foreign Participation in Travel

Macapagal Blvd., Pasay City and ASSOCIATES LAW OFFICES 2nd Floor, Cluster D,Blue Bay Walk JOVELLANOS-KHO MALCONTENTO Satellite Branch, Units 183-185

Dear Sir: Attention: Atty.Mark Gjefferson E.Pabalate Senior Litigator

Commission on the following queries: This is in response to your letter dated 12 July 2018 requesting the opinion of the

1. Whether incorporators of a corporation engaged in a travel business or activity, with 40% foreign equity and 60% requirement under the Revised Corporation Code ("RCC"); and tour business, which is not engaged in any nationalized Filipino equity, are required to comply with the residency

2. If the answer to No. 1 is in the affirmative, is there a of residency and if so, what are these proofs of residency; requirement for the foreign incorporators to provide proof

3. Whether foreign nationals could occupy the position of President and/or Treasurer in the afore-said travel and tour business; and

4. In the alternative, whether foreign nationals could take the position of President and/or Treasurer in a corporation engaged in retail trade.

of service of the said business is generally to engage in the business of travel and tour Thousand US Dollars (US$200,000). You stated that this business would be partly owned by foreign nationals with 40% equity and 60% Filipino equity. Further, the scope of a travel and tour business in the Philippines with a paid-up capital of Two Hundred In your letter, you claim that your foreign clients intend to be the incorporators

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operation in the country, marketing of travel services local and abroad, and inbound and outbound marketing of travel packages.

the corporate secretary are required to be residents of the Philippines. corporation need not comply with any residency requirement. Only the treasurer and As to your first query, we answer in the negative. The incorporators of any

requirement under Section 101 of the old Corporation Code, to wit: Please note that Section 10 of the RCC already omitted this residency

Provided, That natural persons who are licensed to practice a organize as a corporation unless otherwise provided under special laws. Incorporators who are natural persons must be of person, partnership, association or corporation, singly or jointly with others but not more than fifteen (15) in number, may profession, and partnerships or associations organized for the purpose of practicing a profession, shall not be allowed to legal age." "SECTION 10. Number and Qualifications of Incorporators. -- Any organize a a corporation for any unlawful purpose or purposes:

upon the effectivity of the RCC on 23 February 2019. Thus, the incorporators of a corporation need not be residents of the Philippines

That said, your second query no longer needs to be addressed.

and Morals and Protection of Small and Medium Scale Enterprises. A: Foreign Ownership is Limited by Mandate of the Constitution and Specific Laws, and 2) List B: Foreign Ownership is Limited for Reasons of Security, Defense, Risk to Health nationality requirement for a travel and tour business in the Philippines. To do so, we must ascertain whether a travel and tour business is included in the Eleventh Regular Foreign Investment Negative List2 (FINL-11) which is composed of two (2) lists:1) List As to your third query, we must first determine the applicable corporate

However, it may be covered in List B depending on whether it is an export or domestic enterprise, which would depend on its output being exported. A travel and tour business is not one of the investment areas included in List A.

In SEC Opinion No. 18-04,3 the Commission opined that:

"Based from the above definitions, we cannot conclude whether API is an

2 Executive Order No. 65, Promulgating the Eleventh Regular Foreign Investment Negative List, done on 3 SEC-OGC Opinion No. 18-04 dated 19 March 2018 addressed to AT PHIL, INC. five (5) but not more than fifteen (15), all of legal age and a majority of whom are residents of the Philippines, may form a private corporation for any lawful purpose or purposes." [Emphasis supplied] 29 October 2018. 1 Section 10. Number and qualifications of incorporators. - Any number of natural persons not less than

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least sixty percent (60%) thereof in order to be considered as a domestic that API has been operating as travel and tour agency servicing both local and foreign markets, and providing full information full travel services at packaged prices in the online travel market. You did not provide information as to whether it exports sixty percent (60%) or more of its output to fall under the definition of an export enterprise, or if it fails to consistently export at market enterprise. export enterprise or a domestic market enterprise because you mentioned only

Nonetheless, assuming API is an export enterprise, it should not fall order for it to be 100% foreign-owned. The business of travel and tours agency and services is not included in List A, nor is it covered by List B, of within Lists A and B of the Foreign Investment Negative List (FINL) in the FINL.

Hundred Thousand US Dollars (US$200,000). xxx" than two hundred thousand US dollars (US$200,000). As held in one opinion, the general rule is that non-Philippine nationals can own up to one hundred percent (100%) of the equity in export as well as domestic market enterprises. However, the xxx FNL restricts foreign ownership to a maximum of forty (40%) of the equity in small and medium-sized domestic market enterprises in cases where the paid-in capital is less than the equivalent of Two Assuming, on the other hand, that API is a domestic market enterprise. the same rule applies; that is, it should not fall within Lists A and B of investment areas reserved to Philippine nationals. To reiterate, the business of travel and tours agency and services is not included in List A. Neither is it covered by List B because it has a paid-up capital of more

From the foregoing, and provided API does not own land, it may be allowed to be 100% owned by foreign nationals. Consequently, transfer of shares from Filipino to foreign investors is allowed. This Commission had already opined that foreign national may be a transferee of shares of stock, provided the transfer will not violate the statutory/constitutional limitation on alien equity participation." [Emphasis supplied]

travel and tour business would export 60% or more of its output for it to be considered as an export enterprise, or if it would export less than 60% of its output for it to be considered as a domestic enterprise. Similar to the above opinion, you have not disclosed whether your proposed

is a domestic enterprise, and taking into account that you intend to have a paid-up capital amounting to US$200,000, it may also be 100% foreign-owned. enterprise, your foreign clients can own up to 100%. On the other hand, assuming that it Thus, assuming that the intended travel and tour business is an export

in Lists A & B, it is not engaged in a nationalized business. Hence, you may appoint or the Treasurer shall be a resident of the Philippines.4 However, please be advised that a elect an alien President or Treasurer, provided that the President shall be a director and Considering that in both cases the intended travel and tour business does not fall

4 SEC. 24. Corporate Officers. - Immediately after their election, the directors of a corporation must

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foreign national could not serve as President and Treasurer of a corporation at the same time..

foreign ownership in the enterprise.7 On the other hand, the Commission is also replete appointed or elected as the President of a corporation not engaged in any nationalized administration, or control, such as President and Treasurer.8 activity, or where the existing law neither forbid nor limit to a certain proportion with opinions that a corporation engaged in a nationalized activity is prohibited from hiring any foreigner who would occupy positions involving management, operation, The Commission confirmed on several occasions that a foreigner may be

had, even up to 100% of the corporation capital. has a minimum paid-up capital that is less than Two Million and Five Hundred Thousand US Dollars (US$2,500,000), no foreign equity is allowed. However, if the minimum paid-up capital is equivalent to US$2,500,000 or more, foreign equity may be engaged in retail trade, allowable foreign participation is dependent on the minimum paid-up capital of the corporation.9 If the corporation engaged in retail trade business As to your fourth query, we answer in the affirmative. Note that for corporations

requirement stated above (i.e. no concurrence of President and Treasurer). paid-up capital requirement of not less than USD2,500,000 or its peso equivalent, it would not be considered a nationalized business or activity; hence, a foreign national may occupy the positions of President or Treasurer, subject to the same additional Assuming that the intended business which would engage in retail trade has the

solely on the facts and circumstances disclosed and relevant solely to the particular issue raised therein and shall not be used in the nature of a standing rule binding upon the Commission in other cases or upon the courts whether of similar or dissimilar circumstances. If, upon further inquiry and investigation, it will be disclosed that the It shall be understood, however, that the above-stated opinion is rendered based

6 SEC Opinion dated 25 March 1987 addressed to Atty. Leonides S. Respicio; SEC Opinion No. 09-03 dated 7SEC Opinion dated 08 May 1986 addressed to Atty, Romeo J.Balili. 8 SEC Opinion dated 14 June 1982; 01 July 1983; 15 May 1985; 28 May 1985; SEC Opinion dated 27 July No. 16-13 dated 30 May 2016 addressed to Ariel Arriola 9 SEC-OGC Opinion No. 18-14 dated 24 August 2018 addressed to Tokyo Consulting Firm - Philippine officers as may be provided in the bylaws. If the corporation is vested with public interest, the board shall except that no one shall act as president and secretary or as president and treasurer at the same time, unless otherwise allowed in this Code. [Emphasis supplied] 21 January 2009 addressed to Atty. M. Jasmine S. Oporto, Mr. Joseph Trillana T. Gonzales, and Ms. Amy 1990 addressed to Philippine Association of Service Exporters, Inc.; SEC-OGC Opinion No. 16-12 dated 24 May 2016 addressed to Atty. Rester John L. Nonato citing SEC-OGC Opinion No. 12-01SEC OGC Opinion Branch. formally organize and elect: (a) a president, who must be a director; (b) a treasurer, who must be a resident; (c) a secretary, who must be a citizen and resident of the Philippines; and (d) such other also elect a compliance officer. The same person may hold two (2) or more positions concurrently, 5 Ibid. Rose A.Soler-Rellin

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facts relied upon are different, this opinion shall be rendered void.1o

Please be guided accordingly.

Very truly yours.

amme e ROMUALD C. PADILLA Qfficer-in-Charge

Secretariat Building, PICC Complex, Roxas Boulevard, Pasay City (+632) 8818-8260|Fax: (+632) 8818-8459|website: www.sec.gov.ph

10 SEC Memorandum Circular No. 15, Series of 2003.