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COMMONWEALTH ACT No.

108

AN ACT TO PUNISH ACTS OF EVASION OF THE LAWS ON THE NATIONALIZATION OF


CERTAIN RIGHTS, FRANCHISES OR PRIVILEGES

Be it enacted by the National Assembly of the Philippines

Section 1. Penalty In all cases in which any constitutional or legal provisions requires
Philippine or any other specific citizenship as a requisite for the exercise or enjoyment of a right,
franchise or privilege, any citizen of the Philippines or of any other specific country who allows
his name or citizenship to be used for the purpose of evading such provision, and any alien or
foreigner profiting thereby, shall be punished by imprisonment for not less than five nor more
than fifteen years, and by a fine of not less than the value of the right franchise or privilege,
which is enjoyed or acquired in violation of the provisions hereof but in no case less than five
thousand pesos.

The fact that the citizen of the Philippines or of any specific country charged with a violation of
this Act had, at the time of the acquisition of his holdings in the corporations or associations
referred to in section two of this Act, no real or personal property, credit or other assets the
value of which shall at least be equivalent to said holdings, shall be evidence of a violation of
this Act.1

Section 2. Simulation of minimum capital stock In all cases in which a constitutional or legal
provision requires that, in order that a corporation or association may exercise or enjoy a right,
franchise or privilege, not less than a certain per centum of its capital must be owned by citizens
of the Philippines or of any other specific country, it shall be unlawful to falsely simulate the
existence of such minimum stock or capital as owned by such citizens, for the purpose of
evading said provision. The president or managers and directors or trustees of corporations or
associations convicted of a violation of this section shall be punished by imprisonment of not
less than five nor more than fifteen years, and by a fine not less than the value of the right,
franchise or privilege, enjoyed or acquired in violation of the provisions hereof but in no case
less than five thousand pesos.2

Section 2-A. Unlawful use, Exploitation or enjoyment Any person, corporation, or association
which, having in its name or under its control, a right, franchise, privilege, property or business,
the exercise or enjoyment of which is expressly reserved by the Constitution or the laws to
citizens of the Philippines or of any other specific country, or to corporations or associations at
least sixty per centum of the capital of which is owned by such citizens, permits or allows the
use, exploitation or enjoyment thereof by a person, corporation or association not possessing
the requisites prescribed by a the Constitution or the laws of the Philippines; or leases, or in any
other way, transfers or conveys said right, franchise, privilege, property or business to a person,
corporation or association not otherwise qualified under the Constitution, or the provisions of the
existing laws; or in any manner permits or allows any person, not possessing the qualifications
required by the Constitution, or existing laws to acquire, use, exploit or enjoy a right, franchise,
privilege, property or business, the exercise and enjoyment of which are expressly reserved by
the Constitution or existing laws to citizens of the Philippines or of any other specific country, to
intervene in the management, operation, administration or control thereof, whether as an officer,
employee or laborer therein with or without remuneration except technical personnel whose
employment may be specifically authorized by the Secretary of Justice, and any person who
knowingly aids, assists or abets in the planning consummation or perpetration of any of the acts

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herein above enumerated shall be punished by imprisonment for not less than five nor more
than fifteen years and by a fine of not less than the value of the right, franchise or privilege
enjoyed or acquired in violation of the provisions hereof but in no case less than five thousand
pesos: Provided, however, That the president, managers or persons in charge of corporations,
associations or partnerships violating the provisions of this section shall be criminally liable in
lieu thereof: Provided, further, That any person, corporation or association shall, in addition to
the penalty imposed herein, forfeit such right, franchise, privilege, and the property or business
enjoyed or acquired in violation of the provisions of this Act: And provided, finally, That the
election of aliens as members of the board of directors or governing body of corporations or
associations engaging in partially nationalized activities shall be allowed in proportion to their
allowable participation or share in the capital of such entities.3

Section 2-B. Any violation of the provisions of this Act by the spouse of any public official, if
both live together, shall be cause for the dismissal of such public official. 4itc@lawphil

Section 2-C. The exercise, possession or control by a Filipino citizen having a common-law
relationship with an alien of a right, privilege, property or business, the exercise or enjoyment of
which is expressly reserved by the Constitution or the laws to citizens of the Philippines, shall
constitute a prima facie evidence of violation of the provisions of Section 2-A hereof.5

Section 3. Any corporation or association violating any of the provisions of this Act shall, upon
proper court proceedings, be dissolved.

Section 3-A. Reward to informer. In case of conviction under the provisions of this Act,
twenty-five per centum of any fine imposed shall accrue to the benefit of the informer who
furnishes to the Government original information leading to said conviction and who shall be
ascertained and named in the judgment of the court. If the informer is a dummy, who shall
voluntarily take the initiative of reporting to the proper authorities any violation of the provisions
of this Act and assist in the prosecution, resulting in the conviction of any person or corporation
profiting thereby or involved therein, he shall be entitled to the reward hereof in the sum
equivalent to twenty-five per centum of the fine actually paid to or received by the Government,
and shall be exempted from the penal liabilities provided for in this Act. 6

Section 4. This Act shall take effect upon its approval.

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Approved, October 30, 1936.

Footnotes

*As amended by RA 421, RA 134, RA 6084, and PD 715.

1
Words in bold in the text above are amendments introduced by RA 134, section 1,
approved June 14, 1947.

Statutory History of section 1:

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Original text

SEC. 1. In all cases in which any constitutional or legal provision requires Philippine or
[United States] citizenship as requisite for the exercise or enjoyment of a right, franchise
or privilege, any citizen of the Philippines or [the United States] who allows his name or
citizenship to be used for the purpose of evading such provision, and any alien or
foreigner profiting thereby, shall be punished by imprisonment for not less than [two] nor
more than [ten] years, and by, fine of not less than [two thousand nor more than ten
thousand pesos.]

The fact that the citizen of the Philippines or of [the United States] charged with, violation
of this Act had, at the time of acquisition of his holdings in the corporations or
association referred to in section two of this Act, no real or personal property, credit or
other assets the value of which shall at least be equivalent to said holdings, shall be
admissible as circumstantial evidence of, violation of this act. (Ed. Note: Words in
brackets were deleted in RA 134, supra)

2
Words in bold in the text above are amendments introduced by RA 134, section 1,
approved June 14, 1947.

Statutory History of section 2:

Original text

SEC. 2. In all cases in which a constitutional or legal provisions requires that, in order
that a corporation or association may exercise or enjoy a right, franchise or privilege, not
less than a certain per centum of its capital must be owned by citizens of the Philippines
or [the United States, or both.] It shall be unlawful to falsely simulate the existence of
such minimum of stock or capital as owned by such citizens of the Philippines [or the
United States or both,] for the purpose of evading said provision. The president or
managers and directors or trustees of corporations or associations convicted of a
violation of this section shall be punished by imprisonment [for] not less than [two] nor
more than [ten] years, and by a fine of not less than [two thousand nor more than ten
thousand pesos.] (Ed. Note: Words in brackets were deleted in RA 134, supra.)

3
Words in bold in the text above are amendments introduced by PD 715, section 1,
promulgated May 28, 1975.

Statutory History of section 2-A:

a) Original text (inserted by CA 421)

SEC. 2-A. Any person, corporation or association which, having in its name or under its
control, a right, franchise, privilege, property or business, the exercise or enjoyment of
which is expressly reserved by the constitution or the laws [of the Philippines] to citizens
of the Philippines or of [the United States,] or to corporations or associations at least
sixty per centum of the capital of which is owned by such citizens, permits or allows the
use, exploitation or enjoyment thereof by a person, corporation or association not
possessing the requisites prescribed by the Constitution or the laws of the Philippines; or
leases, or in any other way transfers or conveys said right, franchise, privilege, property

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or business to a person, corporation or association not otherwise qualified under the
Constitution, or the provisions of the existing [Acts,] any person who knowingly aids,
assists, or abets in the planning, consummation or perpetuation of any of the acts herein
above enumerated, shall be punished by imprisonment for not less than [two] nor more
than [ten] years, and by a fine of not less than [two thousand nor more than ten
thousand pesos:] Provided, however, That presidents, managers, or persons in charge
of corporations, associations or partnerships violating the provisions of this section shall
be criminally liable in lieu thereof. (Ed, Note: Words in brackets were deleted in RA
134, infra.)

b) Words in bold in the next immediately following are amendments introduced by RA


134, section 2, approved June 14, 1947.

SEC. 2-A. Any person, corporation, or association which, having in its name or under its
control, a right franchise, privilege, property or business, the exercise or enjoyment of
which is expressly reserved by the Constitution or the laws to citizens of the Philippines
or of any other specific country, or to corporations or associations at least sixty per
centum of the capital of which is owned by such citizens, permits or allows the use,
exploitation or enjoyment thereof by a person, corporation or association not possessing
the requisites prescribed by the Constitution or the laws of the Philippines; or leases, or
in any other way transfers or conveys said right, franchise, privilege, property or
business to a person, corporation or association not otherwise qualified under the
constitution, or the provisions of the existing laws; or in any manner permits or allows
any person, not possessing the qualifications required by the Constitution or existing
laws to acquire, use, exploit or enjoy a right, franchise, privilege, property or business,
the exercise and enjoyment of which are expressly reserved by the constitution or
existing laws to citizens of the Philippines or of any other specific country, to intervene in
the management, operation, administration or control thereof, whether as an officer,
employee or laborer therein, with or without remuneration except technical personnel
whose employment may be specifically authorized by the [President of the Philippines
upon recommendation of the Department Head concerned, if any,] and any person who
knowingly aids, assists or abets in the planning, consummation or perpetration of any of
the acts hereinabove enumerated shall be punished by imprisonment for not less than
five nor more than fifteen years and by a fine of not less than the value of the right,
franchise, or privilege enjoyed or acquired in violation of the provisions hereof but in no
case less than five thousand pesos: Provided, however, That the president, managers,
or persons in charge of corporations, associations, or partnerships violating the
provisions of this section shall be criminally liable in Lieu thereof: Provided further, That
any person, corporation or association shall, in addition to the penalty imposed herein,
forfeit such right, franchise, privilege, and the property or business enjoyed or acquired
in violation of the provisions of this Act. (Ed. Note: Words in brackets were deleted in PD
715, supra.)

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Inserted by CA 421, section 1, approved May 31, 1939.

5
Inserted by RA 6084, section 1, approved August 4, 1969.

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. Inserted by RA 134, section 3, approved June 14, 1947.

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COMMONWEALTH ACT NO.108: THE
ANTI-DUMMY LAW
The Anti-Dummy Law punishes evasion of the laws on the nationalization of certain rights,
franchises or privileges. Any citizen of the Philippines or of any other specific country who
allows his name or citizenship to be used for the purpose of evading any constitutional or legal
provisions that requires Philippine citizenship as a requisite for the exercise or enjoyment of a
right, franchise or privilege, and any alien or foreigner profiting thereby (Section 1,
Commonwealth Act No. 108, as amended).

WHAT ARE THE ACTS PENALIZED UNDER THE


ANTI-DUMMY LAW?
1. Simulation of minimum capital stock Falsely simulating the minimum stock or capital requirement provided in
the constitution or any other laws, which specifies the minimum percentage ownership of Filipinos, for the
purpose of evading said laws.
2. Unlawful use, Exploitation or enjoyment The following acts of any person, corporation, or association which,
having in its name or under its control, a right, franchise, privilege, property or business, the exercise or
enjoyment of which is expressly reserved by the Constitution or the laws to citizens of the Philippines or of any
other specific country, or to corporations or associations at least 60% of the capital of which is owned by such
citizens, are violative of the Anti-Dummy Law and punishable by law:
a.
permits or allows the use, exploitation or enjoyment thereof by a person, corporation or
association not possessing the requisites prescribed by a the Constitution or the laws;
b.
leases, or in any other way, transfers or conveys said right, franchise, privilege, property or
business to a person, corporation or association not otherwise qualified under the Constitution, or
the provisions of the existing laws;
c.
permits or allows any person, not possessing the qualifications required by the Constitution, or
existing laws to acquire, use, exploit or enjoy a right, franchise, privilege, property or business,
the exercise and enjoyment of which are expressly reserved by the Constitution or existing laws
to citizens of the Philippines;
d.
to intervene in the management, operation, administration or control thereof, whether as an
officer, employee or laborer therein with or without remuneration except technical personnel
whose employment may be specifically authorized by the Secretary of Justice;
e.
any person who knowingly aids, assists or abets in the planning consummation or perpetration of
any of the acts herein above enumerated.

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Five Things You Need To Know About The
Philippine Anti-Dummy Law And How It
Affects You
Youve probably heard about it bandied about in a lot of news reports but have no idea what its
about. For your illumination, and also because this is an important part of doing business in the
Philippines, were giving you five things you need to know about the Philippine Anti-Dummy Law and
how it affects you.

Some types of businesses are reserved for Filipinos, either wholly or partly. The
Philippine Constitution plus various other laws impose nationality restrictions on certain enterprises
operating in the Philippines. This means that for certain types of businesses, a specific percentage
of the ownership interest should be reserved for Filipino citizens or nationals. The Foreign Negative
List (well-loved by lawyers and bureaucrats) provides a ready reference of the investment areas
where foreign ownership is partly restricted or absolutely prohibited.

The Philippine Anti-Dummy Law prohibits dummy arrangements. A dummy arrangement


exists when a Filipino citizen allows a foreigner to use his Filipino citizenship as a way to circumvent
nationality restrictions. For example, the Constitution disallows a foreigner from owning land in the
Philippines. If a foreigner asks a Filipino citizen to buy land and register the same in his own name
but with the agreement that it is actually the foreigner who has a real right to the land, then the
citizen is a dummy of the foreigner and what they have is a dummy arrangement.

The Philippine Anti-Dummy Law prohibits simulation of capital stock. This is a little more
complicated. A corporation engaged in nationalized industries is normally required to submit
documents proving that the percentage of shares owned by Filipino citizens in the corporation are
compliant with nationality restrictions. There is simulation of capital stock when, contrary to said
submitted documentation, the percentage of local ownership is actually below that required by law.

For example, the law provides that at least 60% of the shares in a corporation must be owned by
Filipino citizens if the corporation intends to own land. If a corporation with only 25% local ownership
falsely reports that there is 60% local ownership, then it simulates its capital stock.

The Philippine Anti-Dummy Law prohibits foreign participation in the management of a


corporation with a right, franchise or privilege reserved to Filipino citizens or Filipino
corporations (Filipino corporations are corporations that are 60% owned by Filipino citizens).
This is the general rule, but there are exceptions to this prohibition for directors (to the extent of the
shares owned by foreigners in the corporation) and for technical personnel.

If convicted of violating the Anti-Dummy Law, you may be imprisoned (for a period of 5 to 15
years) and steeply fined. The citizen who allowed a reserved right to be enjoyed and the foreigner
who enjoyed such right in violation of Philippine laws are both criminally liable. In the case of
corporations, their directors, officers and managers will be held liable.

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MALACAANG
Manila
PRESIDENTIAL DECREE No. 715 May 28, 1975

AMENDING COMMONWEALTH ACT NO. 108, AS AMENDED, OTHERWISE KNOWN AS "THE


ANTI-DUMMY LAW"

WHEREAS, there have been conflicting interpretations as to whether Sec. 2-A of Commonwealth Act No.
108, as amended, otherwise known as the Anti-Dummy Law, allows aliens to become members of the
board of directors or governing body of corporations or associations engaging in partially nationalized
activities;

WHEREAS, it is fair and equitable and in line with the constitutional policy expressed in Article XIV, Sec. 5
of the Constitution, that foreign investors be allowed limited representation in the governing board or
body of corporations or associations in proportion to their allowable participation in the equity of the
said entities;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers
vested in me by the Constitution, do hereby order and decree:

Section 1. Sec. 2-A of Commonwealth Act No. 108, as amended, is hereby further amended to read as
follows:

"Sec. 2-A. Any person, corporation, or association, which, having in its name or under its control, a right,
franchise, privilege, property or business, the exercise or enjoyment of which is expressly reserved by
the Constitution or the laws to citizens of the Philippines or of any other specific country, or to
corporations or associations at least sixty per centum of the capital of which is owned by such citizens,
permits or allows the use, exploitation or enjoyment thereof by a person, corporation or association not
possessing the requisites prescribed by the Constitution or the laws of the Philippines; or leases, or in
any other way, transfers or conveys said right, franchise, privilege, property or business to a person,
corporation or association not otherwise qualified under the Constitution, or the provisions of the
existing laws; or in any manner permits or allows any person, not possessing the qualifications required
by the Constitution, or existing laws to acquire, use, exploit or enjoy a right, franchise, privilege, property
or business, the exercise and enjoyment of which are expressly reserved by the Constitution or existing
laws to citizens of the Philippines or of any other specific country, to intervene in the management,
operation, administration or control thereof, whether as an officer, employee or laborer therein with or
without remuneration except technical personnel whose employment may be specifically authorized by
the Secretary of Justice, and any person who knowingly aids, assists, or abets in the planning,
consummation or perpetration of any of the acts herein above enumerated shall be punished by
imprisonment for not less than five nor more than fifteen years and by a fine of not less than the value
of the right, franchise or privilege enjoyed or acquired in violation of the provisions hereof but in no case
less than five thousand pesos: Provided, however, that the president, managers or persons in violating
the provisions of this section shall be criminally liable in lieu thereof: Provided, further, That any person,
corporation or association shall, in addition to the penalty imposed herein, forfeit such right, franchise,
privilege and the property provisions of this Act; and Provided, finally, That the election of aliens as
members of the board of directors or governing body of corporations or associations engaging in

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partially nationalized activities shall be allowed in proportion to their allowable participation or share in
the capital of such entities.

Sec. 2. This Decree shall take effect immediately.

DONE in the City of Manila, this 28th day of May, in the year of Our Lord, nineteen hundred and seventy-
five

anti-dummy law and Foreign Investments Act of 1991

Opinion

Limitations under the anti-dummy


law and Foreign Investments Act of
1991
By
Atty. Julie Ann L. Aranda
-
February 17, 2016

Based on the Foreign Investments Act (FIA)


of 1991, there are, as a general rule, no restrictions on extent of foreign ownership of
export enterprises. In domestic market enterprises, foreigners can invest as much as 100-
percent equity except in areas included in the negative list. A foreign investments
negative list or negative list refers to a list of areas of economic activity whose foreign
ownership is limited to a maximum of 40 percent of the equity capital of the enterprises
engaged in said activities. In essence, foreign ownership shall be prohibited or limited to
industries that are wholly or partly nationalized.

Likewise, the anti-dummy law prohibits the employment by any person, corporation, or
association of an alien, who shall intervene in the management, operation, administration
or control thereof, whether as officer, employee, or laborer, when the exercise or

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enjoyment of the property or of the franchise, privilege, or business engaged in by such
person, corporation or association is expressly reserved by the Constitution or the law to
the citizens of the Philippines or corporations or associations at least 60 percent of the
capital of which is owned by such citizens.

Recently, the Office of the General Counsel of the Securities and Exchange Commission
(SEC) issued an opinion regarding the application of both laws. The underlying issue is
whether a foreign national can assume the position as president or chairman of a
domestic company and increase his shareholdings from 25 percent to 40 percent.

In the said opinion, the primary purpose of the domestic entity is to develop real-estate
projects in conjunction with modern construction methods and systems, and included in
the secondary purposes is the acquisition, lease, purchase and to go into joint venture,
borrow, lend and develop subdivision and condominium properties in relation to its
business. Consequently, acquisition or ownership of land is incidental to its primary and
secondary purposes. The SEC opined that since the purpose of the company involves
acquisition or ownership land, therefore, it is partially nationalized and it is required that
60 percent of its capitalization shall be owned by Philippine citizens.

The anti-dummy law also applies in this case and the foreign national cannot act as a
president/chairman of the board, nor can he increase his shareholdings to 40 percent if
there are other foreign stockholders in the corporation. On the other hand, if there is no
other foreign stockholder in the corporation, the foreign national can increase his
shareholdings from 25 percent to 40 percent, but he cannot act as president or chairman
of the board.

The SEC further noted that even if the company is not covered by the rules of land
ownership, it may still be covered by Section 8 of FIA of 1991. As such, if the company
is a domestic market enterprise with a paid-in equity of less than $200,000 or a domestic
market enterprise which involves advance technology or employ at least 50 employees
with paid-in capital of less than the equivalent of $100,000, it can be considered as
engaged in a nationalized activity. In such instances, the anti-dummy law applies,
restricting the officer position only to Filipinos and the foreign ownership to 40 percent.

****

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The author is a senior associate of Du-Baladad and Associates Law Offices (BDB Law), a
member-firm of World Tax Services.

The article is for general information only and is not intended, nor should be construed,
as a substitute for tax, legal or financial advice on any specific matter. Applicability of this
article to any actual or particular tax or legal issue should be supported therefore by a
professional study or advice. If you have any comments or questions concerning the
article, you may e-mail the author at julie.aranda@bdblaw.com.ph or call 403-2001 local
312.

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