I.

Foreign Investments in the Philippines

Anyone, regardless of nationality, can invest in the Philippines with up to 100% equity. A business
with 60% Filipino equity is considered a Philippine company, while one with more than 40% foreign
equity is considered a foreign-owned domestic company.

Restrictions to 100% foreign ownership

Any business may be 100% foreign-owned except for those covered in the FIA Foreign Investment
Negative List A & B. These restrictions are determined by:
- The nature of the business
- Amount of paid-up capital

List of Investment Areas Reserved to Philippine Nationals (Foreign Investment Negative List).—The Foreign
Investment Negative List shall have three (3) component lists: A, B, and C:’
- a) List A shall enumerate the areas of activities reserved to Philippine nationals by mandate of the Constitution
and specific laws.
- b) List B shall contain the areas of activities and enterprises regulated pursuant to law:
- Manufacture, repair, storage and/or distribution of firearms, ammunition, lethal weapons, military
ordnance, explosives, pyrotechnics and similar materials required by law to be licensed by and under the
continuing regulation of the Department of National Defense; unless such manufacturing or repair
activity is specifically authorized, with a substantial export component, to a non-Philippine national by
the Secretary of National Defense;
- Manufacture and distribution of dangerous drugs; all forms of gambling; nightclubs, bars, beerhouses,
dance halls; sauna and steam bathhouses, massage clinics and other like activities regulated by law
because of risks they may pose to public health and morals;
- Small and medium-sized domestic market enterprises with paid-in equity capital of less than the
equivalent of US$500,000, unless they involve advanced technology as determined by the Department
of Science and Technology, and
- Export enterprises which utilize raw materials from depleting natural resources, and with paid-in equity
capital of less than the equivalent of US$500,000.
- c) List C shall contain the areas of investment in which existing enterprises already serve adequately the needs
of the economy and the consumer and do not require further foreign investments, as determined by NEDA
applying the criteria provided in Section 9 of this Act, approved by the President and promulgated in a
Presidential Proclamation.
- Import and wholesale activities not integrated with production or manufacture of goods;
- Services requiring a license or specific authorization, and subject to continuing regulation by national
government agencies other than BOI and SEC which at the time of effectivity of this Act are restricted
to Philippine nationals by existing administrative regulations and practice of the regulatory agencies
concerned: Provided, That after effectivity of this Act, no other services shall be additionally subjected
to such restrictions on nationality of ownership by the corresponding regulatory agencies, and such
restrictions once removed shall not be reimposed; and
- Enterprises owned in the majority by a foreign licensor and/or its affiliates for the assembly, processing
or manufacture of goods for the domestic market which are being produced by a Philippine national as
of the date of effectivity of this Act under a technology, know-how and/or brand name license from such
licensor during the term of the license agreement: Provided, That, the license is duly registered with the
Central Bank and/or the Technology Transfer Board and is operatively in force as of the date of effectivity
of this Act.

Source: RA 7042: Foreign Investment Act Section 8

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Per this list and article, there is no restriction on leasing/rental operations.

II. Minimum capital requirement in the Philippines

In general, the minimum paid-up capital of a corporation in the Philippines must not be less than
₱5,000. Enterprises are required to pay, in full amount, at least 25% of the subscribed capital stock, an
amount of which should not be less than ₱5,000. Under the law, the total capital stock subscribed at
the time of incorporation must be at least 25% of the authorized capital stock of the corporation being
formed.

The Securities and Exchange Commission (SEC) does not require a bank
certificate to prove the transfer of the paid-up capital during the incorporation
process. However, you may have to appoint a Treasurer-in-Trust who will certify
through a Treasurer’s Affidavit that you have subscribed to 25% of the authorized
capital stock and at least 25% of such have been fully paid in cash or property.

III. Land Ownership and Property Acquisition in the Philippines for

Foreigners and Former Filipino Citizens

In general, only Filipino citizens and corporations or partnerships with at least 60% of the shares are
owned by Filipinos are entitled to own or acquire land in the Philippines. Foreigners or non-Philippine
nationals may, however, purchase condominiums, buildings, and enter into a long-term land lease.

A major restriction in the law is the restriction on the number of foreign members on the Board of
Directors of a landholding company (which is limited to 40% foreign participation). Another concern
is the possible forfeiture of the property if the provisions of the law are breached.

Per information above, we should push through with the 60:40 arrangement of the
corporation for land acquisition.
IV. Tax related matters for the acquisition and rental of property

What are these taxes that should be paid before the BIR authorizes the transfer of the land title?

Due to the nature of the property, the real estate is considered an ordinary asset, and the purchase is
subject to:
(i) creditable withholding tax (CWT) of 1.5% to 6% depending on the status of the seller
which may be offset against the seller’s income tax due at the end of the taxable year,
(ii) 12% value added tax, and
(iii) 1.5% DST.

Additional fees
Moreover the purchase is subject to local government transfer tax payable to the city or municipal
treasurer at a typical rate of 0.50% (if located in the provinces) or 0.75% (if located within Metro
Manila) of the total consideration for the acquisition or current fair market value, whichever is
higher.

Moreover, the transfer of the certificate of title to land is subject to payment of fees (with a schedule/
scale) to the Register of Deeds.

A reminder
The buyer will have to consider and identify potential penalties for any failure of the company to
meet regulatory requirements, such as filing of annual reports to the Securities and Exchange
Commission and timely remittance of taxes to the BIR, as well as breach or violation of existing
contracts.

V. What are the costs usually shouldered by the parties?

The seller is the statutory taxpayer of the following types of taxes due in a real estate sale:
● Income tax
● Value-added tax (which, being an indirect tax, may be passed on by the buyer to the seller)
● Local transfer tax
● Capital gains tax

The law does not designate which between the seller and the buyer is the statutory taxpayer for the
documentary stamp tax.
In addition to the foregoing taxes, the other costs arising from a real estate sale are the registration
fees assessed by the Register of Deeds and notarization fees.

In almost all sale transactions, the seller bears the income tax and the local transfer
tax. With respect to the other taxes and costs, there is no uniform practice as to
which party shoulders them.

VI. For Corporate Operations per se, Taxes to be included in the

presentation are as follows (CREATE law): ( they are still
considered as Domestic Corporation as 60% is Filipino owned)

- Effective July 1, 2020, corporate Income Tax rate is reduced from 30% to 20% for domestic
corporations with net taxable income not exceeding ₱ 5 Million and with total assets not
exceeding ₱ 100 Million. All other domestic corporations and resident foreign corporations
will be subject to 25% Income Tax. (On net income from all sources of domestic corporations
with total assets not exceeding 100 million Philippine pesos (PHP) and total net taxable income
not exceeding PHP 5 million.)

- Minimum Corporate Income Tax (MCIT) rate is reduced from 2% to 1% effective July 1, 2020
to June 30, 2023. (Minimum corporate income tax (MCIT) on gross income, beginning in the
fourth taxable year following the year of commencement of business operations. MCIT is
imposed where the CIT at 25% is less than 2% MCIT on gross income.)

- 12% Value Added Tax (VAT). This is a form of sales tax. It is a tax on consumption levied on
the sale, barter, exchange or lease of goods or properties and services in the Philippines and on
importation of goods into the Philippines. It is an indirect tax, which may be shifted or passed
on to the buyer, transferee or lessee of goods, properties or services.

Any person or entity who, in the course of his trade or business, sells, barters, exchanges, leases
goods or properties and renders services subject to VAT, if the aggregate amount of actual
gross sales or receipts exceed Three Million Pesos (Php3,000,000.00)

- The 3% tax on persons who are not VAT-registered because their annual sales or receipts do
not exceed the VAT threshold of PHP 3 million is adjusted to 1% from 1 July 2020 to 30 June
2023 but will revert to 3% thereafter.