Opinion No. 14-27 RE: Foreign Equity Limitations on Corporations Engaged in Private Construction Contracts

SEC Building, EDSA, Greenhills, Mandaluyong City Securities and Exchange Commission Republic of the Philippines Department of Finance

Office of the General Counsel

2 October 2014

Re: Foreign Equity Limitations on Construction Contracts SEC-OGC Opinion No. 14-27 Corporations Engaged in Private

PICAZO BUYCO TAN FIDER & SANTOS 18th, 19th & 17th Floors, Liberty Center Salcedo Village,Makati City 1227 104 H.V.dela Costa Street

Attention: Atty. Jonas-Karl V.Perez and Atty. Kristina Irene C. Dy

Gentlemen:

Philippines Construction, Inc. ("WPCI"). This is in reply to your letter dated 1 June 2010, on behalf of your client, Whessoe

In the request, you seek confirmation of your following positions:

1. An earlier SEC Opinion which states that the Construction Industry Authority of the

2 Construction corporations which will cater exclusively to private construction contracts are Philippines ("CIAP), being an administrative agency, can neither amend nor overrule the law it seeks to implement, nor by its rules and regulations extend or restrict the terms and provisions thereof;

3. Ownership, management, and operations of WPCI need not be vested in citizens of the Foreign Investments Negative List ("FINL") and the minimum capitalization requirement is not subject to limitation on foreign ownership and that the same can be majority-owned by foreign nationals, provided that it is not engaged in any of the industries indicated in the satisfied; and

Philippines.

of Incorporation ("AOI"), to wit: construction business pursuant to its primary purpose under the Second Article of its Articles According to you, WPCI is a domestic corporation primarily engaged in the

piers, docks, mines, shafts, waterworks, railroads, railway structures, all iron, steel, constructing, enlarging, repairing, removing, developing, or otherwise engaging in any work upon buildings, roads, highways, manufacturing plants, bridges, airfields, wood,masonry and earth construction, except locally funded projects, and to make To engage in general construction and other allied businesses including the

execute, bid for, and take or receive any contracts or assignment of contracts for and incidental to the furtherance and/or implementation of the purposes therein therefore, or in relation thereto, or connected therewith and to manufacture and furnish building materials and supplies connected therewith; and doing of any and all other business and contracting incidental thereto or connected therewith, and the doing and performing of any and all acts and things necessary, proper or convenient mentioned.

Re: Foreign Equity Limitations on Corporations Engaged in Private Construction Contracts SEC-OGC Opinion No. 14-27 Page 2 of 4

this purpose, WPCI proposes to register with the Philippine Overseas Construction Board, which operates under the CIAP. You stated that WPCI intends to undertake overseas construction projects, and that for

Commercials Holdings, Inc., a Filipino corporation, and forty percent (40%) owned by Hundred Thousand Pesos (Php5,200,000.00), divided into Fifty Two Thousand (52,000) Hundred Thirty Nine Thousand Five Hundred Ninety Pesos and Fifteen Cents shares with par value of One Hundred Pesos (Php100.00) each; and (3) it has a paid-in capital amounting to Ten Million One Hundred Thirty Nine Thousand Five Hundred Ninety Pesos and Fifteen Cents (Php10,139,590.15), consisting of the paid-up capital of One Million Three British Nationals; (2) the authorized capital stock of the corporation is Five Million Two Hundred Pesos (Php1,300,000.00) and the additional paid-in capital of Eight Million Eight (Php8,839,590.15). You likewise stated that: (1) WPCI is sixty percent (60%) owned by Luzon Industrial

between Section 20 of Republic Act No. 4566, otherwise known as the Contractor's License Law ("CL Law and Section 3.1(a) of the Rules and Regulations Governing Licensing and Accreditation of Constructors in the Philippines ("Rules") As to your first position, the same arises from what you believe to be an inconsistency '), promulgated by the CIAP.

for the issuance of a contractor's license is found only in the Rules, but not in the CL Law which the Rules seek to implement. As you pointed out, the forty percent (40%) foreign equity limitation as a requirement

Commission does not review acts and ruling of other government agencies. the policy of the Commission to refrain from rendering opinions on matters which require an examination and review of the acts and ruling of another government agency since However, we cannot give any confirmation as to your presented position. First, it is

least two years of experience in the construction industry, and knowledge of the building, safety, health and lien laws of the Republic of the Philippines and the rudimentary administrative principles of the contracting business as the Board deems necessary for the safety of the contracting business of the public. bona fide responsible officer of such firm and that he exercises or is in a position to exercise authority over the SECTION 3.1 License Types X X X through its responsible managing officer appearing personally before the Board who shall prove that he is a contracting business of his principal or employer in the following manner: (l) to make technical and administrative decisions; and, (2) to hire, superintend, promote, transfer, lay off, discipline or discharge employees 2 Section 3.1 reads: a) The Regular License duly organized and existing under and by virtue of the laws of the Philippines. Section 20 reads: proprietorship, or partnership/corporation with at least seventy percent (70%)* Filipino equity participation and *Adjusted to 60% under Article 48 of Chapter III, Book II of the Ominubus Investments Code of 1987. 3 SEC Memorandum Circular No. 15, Series of 2003, Item 5.7. For the purpose of this section, a partnership, corporation, or any other organization may qualify Qualifications of applicants for contractors' licenses. The Board shall require an applicant to show at The Regular License shall be reserved for and issued only to constructor-firms of Filipino sole XXX

Re: Foreign Equity Limitations on Corporations Engaged in Private Construction Contracts SEC-OGC Opinion No. 14-27 Page 3 of 4

of Justice ("DOJ"), particularly DOJ Opinion No. 017, Series of 1996.4 Please ascertain the Commission. and verify the premises of your queries in your future communications and dealings with Second, the opinion you cited is NOT of this Commission, but of the Department

Further, the Commission, in a past Opinion. took note that the CIAP, through the Philippine Contractors Accreditation Board, still maintains the forty percent (40%) foreign government agency. The same suggestion was made as well by the DOJ in the Opinion you cited. equity limit as a requirement for the issuance of regular contractors' licenses. In relation thereto, the Commission suggested that this particular matter be clarified with the said

business, private construction contracts used to be included in List A of the Foreign Concerning the second position, the Commission has acknowledged that as a

the current FINL, the said economic activity is no longer included. This means that satisfied and that it does not undertake other nationalized or partially nationalized activities. Investments Negative List (FINL") with forty percent (40%) foreign equity limitation. In corporations which undertake private construction contracts may be wholly owned by foreign nationals provided the minimum capitalization requirement under the FINL is

of the Foreign Investments Act of 1991 ("FIA"),' which is adopted in List "B" of the current covered by the foreign equity restrictions for domestic market enterprises. Under Section 8 FINL, domestic market enterprises, with paid-in equity capital of less than the equivalent of On the other hand, a corporation, although engaged in private construction, may be

two hundred thousand US Dollars (US$ 200,000.00), are restricted to a maximum of forty employs at least fifty (50) direct employees, and has a paid-in capital of less than the percent (40%) foreign equity. Moreover, if the domestic market enterprise either (1) involves advanced technology as determined by the Department of Science and Technology, or (2)

restriction applies.10 equivalent of one hundred thousand US Dollars (US$ 100,000.00), then the foreign equity

which will cater exclusively to private construction contracts are not subject to limitation on foreign ownership and that the same can be majority-owned by foreign nationals, provided that it is not engaged in any of the industries indicated in the current FINL and the minimum capitalization requirement therein is satisfied. Based on the foregoing, we confirm your second position. Construction corporations

With regard to the third position, relevant is Section 2-A of Commonwealth Act No. 108, otherwise known as the Anti-Dummy Law. In firms engaged in wholly or partially

5 SEC Opinion dated 18 April 2001, addressed to Atty. Renato Calma. Republic Act No. 7402, as amended by Republic Act No. 8179. Ninth Regular Foreign Investments Negative List, Executive Order No. 98, 29 October 2012 as of this 10 SEC-OGC Opinion No. 14-11, dated 2 June 2014, addressed to Navarro Amper & Co. 4 Dated 9 February 1996, Addressed to Mr. Cielito F. Habito of the NEDA. 6 Ibid. Opinion. 8 See note 5.

Re: Foreign Equity Limitations on Corporations Engaged in Private Construction Contracts SEC-OGC Opinion No. 14-27 Page 4 of 4 nationalized activities," aliens may not be appointed to management positions, although they may be elected as directors in proportion to their allowable participation or share in the Capital of such entities.

your representation, WPCI intends to engage in overseas construction projects only. If the construction contracts, then, the foreign equity ownership limitations under the List "A" of the FINL do not apply since the activity is not nationalized. business activities of WPCI are limited to overseas construction projects or private Based on WPCI's AOI, it will not undertake locally funded projects, and, based on

may own private lands in the Philippines. Based on the first of the secondary purposesl2 in a partly nationalized activity. Hence, foreign ownership of WPCI shall be limited to a maximum of forty percent (40%) if it will own land. This being the case, Section 2-A of the associations at least 60 per centum (60%) of whose capital is owned by Philippine citizens WPCI's AOI, among the activities to be undertaken by WPCI is ownership of land, which is Anti-Dummy Law may apply. However, under List "A", No. 18 of the current FINL, only those corporations or

under the Anti-Dummy Law shall not apply to WPCI, for as long as: (1) it does not engage in any nationalized or partially nationalized activity; and (2) the minimum capitalization requirement under the current FINL for corporations engaged in domestic market enterprises is complied with, should it undertake private construction projects in the Philippines. In view of the foregoing, the restrictions on ownership, management, and operations

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 inquiry and investigation, it will be disclosed that the facts relied upon are different, this cases or upon the courts whether of similar or dissimilar circumstances. If, upon further opinion shall be rendered void. It shall be understood, however, that the foregoing opinion is rendered based solely on

Please be guided accordingly.

Very truly yours,

Impb /vpbg CAMILO S/CORREA General Counsel

limited by the Constitution or any law to citizens of the Philippines or of any other specific country, or to warehouses and machineries, equipment and other personal properties as may be necessary or incidental to the conduet of the corporate business, and to pay in cash, shares of its capital stock, debentures and other evidences of indebtedness, or other securities, as may be deemed expedient, for any business or property acquired by the 1 Under the same provision, an undertaking or activity is partially nationalized if its enjoyment or exercise is 13 SEC Memorandum Cricular No. 15, Series of 2003. corporations or associations at least sixty percent (60%) of the capital of which is owned by Filipino citizens. To purchase, acquire, own, lease, sell and convey real properties such as lands, buildings, factories and rporation