PHILIPPINES. Mode 1) Cross Border Supply Mode 2) Consumption abroad Mode 3) Commercial Presence Mode 4) Presence of Natural Persons Sector/ Sub-

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1 PHILIPPINES Mode 1) Cross Border Supply Mode 2) Consumption abroad Mode 3) Commercial Presence Mode 4) Presence of Natural Persons Sector/ Sub- GATS commitment AFAS commitment Explicit Regulation Sectors TELECOMMUNICATION SERVICES Voice telephone services, Packet-switched data transmission services, Circuitswitched data transmission services, Telex services, Telegraph services, Facsimile services, and Cellular mobile telephone services Modes 1 and 2: Unbound Mode 3: Entry is subject to the following requirements and conditions: a. Franchise from Congress of the Philippines b. Certificate of Public Convenience and Necessity (CPCN) from the National Telecommunications Commission c. Foreign equity is permitted up to 40% d. Resale of private leased lines is not allowed e. Call back, dial back and other similar schemes which result in the same operation are not authorized f. Subject to the availability and efficient utilization of radio frequencies. Mode 4: Unbound Modes 1: subject to commercial arrangement with licensed operators Mode 2: No limitations Mode 3: Entry is subject to the following requirements and conditions: a. Franchise from Congress of the Philippines b. Certificate of Public Convenience and Necessity (CPCN) from the National Telecommunications Commission c. Foreign equity is permitted up to 40% d. Resale of private leased lines is not allowed e. Call back, dial back and other similar schemes which result in the same operation are not authorized f. Subject to the availability and efficient utilization of radio frequencies. : Under Republic Act No. 7925, telecommunications is considered a public utility. As required under the Philippine Constitution, the provision of telecommunication services was limited to Filipino citizens or to corporations, associations or entities which were owned at least 60 percent by Filipino citizens. The remaining 40 percent may be owned by foreigners. The Philippine Constitution provides that broadcast media shall be owned, operated and maintained by Filipino citizens. CATV services have been placed under broadcast services and also require 100 percent Filipino entity. To qualify an applicant to be a public telecommunication service provider, the following must be complied with: applicant must be a Filipino citizen or a 60 percent Filipino corporation, association or entity duly incorporated in accordance with Philippine laws; applicant must be financially capable and the service economically viable; applicant must be technically capable and the service is technically feasible; applicant must have a legislative franchise; and the service applied for shall be in the public interest and serve public convenience and necessity. Mode 4: Unbound. All the above requirements shall be proven in quasijudicial proceedings before the National Telecommunications Commission after due notice and hearing to all affected parties EO 139 allows up to 20% foreign equity for private radio communications networks pursuant to RA 3836 which 1

2 regulates radio stations and radio communications in the country. Modes 1 and 2: No limitations Mode 3: i) The number of non-filipino citizens in the Board of Directors of an entity shall be proportionate to the aggregate share of foreign capital of that entity. (ii) All executives and managers must be citizens of the Philippines Mode 4: Unbound Modes 1 and 2: No limitations Mode 3: The number of non- Filipino citizens in the Board of Directors of an entity shall be proportionate to the aggregate share of foreign capital of that entity. - All executives and managers must be citizens of the Philippines Mode 4: Unbound. : All domestic service providers are governed under the same laws, rules and regulations provided for a particular service. National treatment is provided, subject to constitutional, legislated and administrative limitations and/or regulations. All areas are open to foreign investment, except those restricted under negative lists: (a) by legal and/or constitutional constraints; and (b) for reasons of security, defense, risk to health and morals and to protect SMEs. Paging Services Unlisted Modes 1 and 2: Unbound Mode 3: Entry is subject to the following requirements and conditions: franchise from Congress foreign equity is limited to 40 % subject to the availability and efficient utilization of radio frequencies Mode 4: Unbound Radio Paging Service is no longer regulated except in terms of radio frequencies, which are issued by NTC on an open tender basis, where the demand exceeds availability. Republic Act 7925 Sec. 13. provides that duly enfranchised radio paging services involving either voice data messages, shall be allowed to compete freely in such number of operators, or variety of operating modalities, subject only to the norms on radio frequency spectrum utilization. Modes 1 and 2: No limitations Mode 3: The number of non-filipino 2

3 citizens in the Board of Directors of an entity shall be proportionate to the aggregate share of foreign capital to that entity. All executives and managers must be citizens of the Philippines Mode 4: Unbound Courier services Mode 1: Commercial presence is required. Modes 2-4: No limitations Modes 1-4: No limitations Unlisted 3

4 CONSTRUCTION SERVICES Private construction projects CPC Unlisted Mode 1: Unbound due to lack of technical feasibility. Mode 2: No limitations Mode 3: a. 40% Foreign Equity for construction of locally funded private projects b. 100% foreign equity for foreignfunded/assisted internationally-bid construction projects Mode 4: Unbound subject to WTO GATS horizontal commitment (see Note) Mode 1: Unbound due to lack of technical feasibility. Mode 2: No limitations Mode 3: a. Unbound b. Foreign Contractors are required to secure a Special Contractor s License form the Philippine Contractors Accreditation Board on a per project basis Foreign Contractors are required to employ qualified Filipino Sustaining Technical Employees (STE) who meet the minimum requirements for the category and classifications applied for Foreign Contractors are required to have a Resident Alien Representative (RAR) in the Philippines who is a holder of an Alien Certificate of Registration (ACR) and a working visa to receive summons and act for and In general, all foreign companies intending to undertake construction activities in the Philippines must register with the Securities and Exchange Commission (SEC) and conform with certain provisions of Republic Act Nos 7042 (Foreign Investment Act) and 4566 (Construction Licensing Law). Those intending to avail of the Build- Operate-Transfer (BOT) scheme must conform to RA 6957, amended by RA RA 7042 sets limits on foreign equity participation for construction and related engineering services. For construction and repair of locally-funded public works, foreign equity participation is limited to 25%. For public sector projects financed by multilateral financial institutions, 100% foreign equity participation may be allowed. RA 7042 as amended by RA8179 provides up to 25% foreign equity on contracts for the construction and repair of locally-funded public works.(sec 1 of CA 541, LOI 630) Except: (a) infrastructure/ development projects covered in RA7718 and (b) projects which are foreign funded or assisted and required to undergo international competitive bidding (Sec 2 a of RA7718); Uo to 25% foreign equity for constracts for construction of defenserelated structures(sec 1 of CA 541) 4

5 in behalf of the company Mode 4: Foreign engineers or architects to be involved in undertaking construction and related activities must register/secure the necessary permit from the Philippine Regulation Commission (PRC), the Bureau of Immigration and Deportation (BID) and the Department of Labor and Employment (DOLE) Renting services related to equipment for const. or demolition of building or civil engineering works, with operator (CPC 518) Unlisted Modes 1 and 2: No limitations. Mode 3: Maximum 40% foreign equity. Mode 4: Unbound subject to WTO GATS horizontal commitments (see note) Modes 1 and 2: No limitations. Mode 3: All executives and managing officers must be Filipino citizens. Mode 4: Unbound. 5

6 TRANSPORT SERVICES All subsectors Mode 3: No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least 60 per cent of whose capital is owned by such citizens. Mode 4: Only aliens qualified to hold technical positions may be employed within the first five years of operation of the enterprise, their stay not to exceed five (5) years upon entry. Each employed alien should have at least two (2) Filipino understudies. Mode 3 & 4: Limitations listed in the horizontal section shall also apply Under the Philippine Constitution, franchises, or any other authority for the operation of a public utility shall be given only to Philippine citizens or to corporations organized in the Philippines (and registered with the Securities and Exchange Commission), at least 60 percent of whose capital is owned by such citizens. The Foreign Investment Act (RA 7042) restricts foreign equity to a maximum of 40% in areas of economic activities reserved for Filipinos by mandate of the Constitution and specific laws. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. AIR TRANSPORT Selling and Marketing Unlisted Mode 1. No limitations, except for on-line carriers and its agents subject to: a. Minimum capital requirements b. Maximum 40% equity ownership; and c. Surety bond requirement Mode 2: No limitations. Modes 3 and 4: Unbound Modes 1 and 2: No limitations Mode 3 and 4: Unbound R.A. 776 Sec. 34. Eligibility for registration. Except as otherwise provided in the Constitution and existing treaty or treaties, no aircraft shall be eligible for registration unless it is owned by or leased to a citizen or citizens of the Philippines and is not registered under the laws of any foreign country Executive Order No. 219 (1995) On international air transportation, carrier designation, At least two (2) international carriers shall be designated official carrier(s) for the Philippines. However, if the designated carrier(s) do not service the total frequency entitlement of the Philippines under existing Air Services Agreements or other arrangements, then additional carrier(s) may be designated to operate such unused frequencies. 6

7 Issuance of a permit for foreign air carriers requires compliance with CAB Economic Regulation No. 1. The exchange of traffic rights and routes with other countries shall be based on (a) the National Interest which shall include value for the Philippines in terms of promoting international trade, foreign investments and tourism, among others; and on (b) the reciprocity between the Philippines and other countries. Reciprocity shall be interpreted to mean the exchange of rights, freedoms, and opportunities of equal or equivalent value. The Civil Aeronautics Board (CAB) shall determine "national interest" taking into consideration the larger interest of the country, especially the users of air services Part I, Chapter A, Section (ATO Administrative Order No. 121): No person may engage in scheduled and non-scheduled international and domestic passenger or cargo, on both operations in air commerce without or in violation of the air carrier operating certificate issued under this Administrative Order. Foreign entry is allowed under Bilateral Agreements (Air Services Agreements), regional and other arrangements, e.g., BIMP-EAGA. Maintenance and repair of aircraft Mode 1: Unbound due to lack of technical feasibility Mode 2-4: Unbound Mode 1: Unbound due to lack of technical feasibility Mode 2-4: Unbound Open to foreigners as long as the repair stations are accredited by the Air transportation Office (ATO). Computer and reservation system services Unlisted Modes 1 and 2: No limitations 7

8 Mode 3 and 4: Unbound Modes 1 and 2: No limitations Mode 3 and 4: Unbound MARITIME TRANSPORT International Transport (passenger and freight), except a) cabotage transport, and b) governmentowned cargoes (Subject to the Cargo Reservation Law which requires that cargoes owned by governmentowned or controlled corporations shall be shipped on board Philippine flag vessels) Modes 1-3: No limitations Mode 4: For specialized vessels, aliens may be employed as supernumeraries only for a period of six months. Mode 1-4: No limitations Modes 1-3: No limitations Mode 4: For specialized vessels, aliens may be employed as supernumeraries only for a period of six months. 1 Mode 1-4: No limitations Foreign-owned/registered vessels and Philippineregistered overseas vessels are allowed to be temporarily utilized in the domestic trade subject to the issuance of a Special Permit by the MARINA. Filipinos must man all Philippine-registered ships. A foreigner holding a Certificate of Competency issued by his national administration in accordance with the requirements of STCW "78 Convention, as amended, shall be issued special dispensation to serve on board a Philippine-registered vessel engaged in the international trade, provided that the Philippine Certificate of Competency issued and endorsed by the Board shall be reciprocally recognized by the said foreign national administration to allow the Filipino merchant marine to practice his profession on board the foreigner's flag vessel. Market access In general, the Philippines has liberalized the domestic shipping industry by providing for the entry of new operators and investors to enhance the level of competition and bring about reasonable rates and improved quality of service. Executive Order Nos. 185 and 213 were mandated to enhance competition, which would, in turn, result in greater efficiency, improved safety, better quality of service, and increased profitability. EO No. 185, issued on 28 June 1994, opening the 1 The following services at the port are made available to international maritime transport suppliers on reasonable and non-discriminatory terms and conditions: pilotage; towing and tug assistance; provisioning, fuelling and watering; garbage collection and ballast waste disposal; port captain s services; navigational aids; shore-based operational services essential to ship operations including communications, water and electrical supplies; emergency repair facilities; and anchorage, berth and berthing services. 8

9 domestic water transport industry to new Operators and investors and minimizing government intervention and control over the domestic shipping industry to attract more control over the domestic shipping industry to attract more investments under an environment of freemarket competition. EO No. 185 liberalize only the entry of vessels into liner routes but has not covered the regulation of domestic shipping rates; Cabotage Law. Foreign shipping lines are not allowed to ply the country s interisland routes. The Maritime Industry Authority prohibits foreign flagged vessels from engaging in the provision of domestic carriage services. The country s bareboat chartering laws stipulate that Philippine flagged vessels should be manned by a Filipino crew and disallows foreign crew/officers, except as supernumeraries. The general requirements for registration and accreditation of shipping companies which shall operate ships in domestic trade says that the applicant must be a citizen and permanent resident of the Philippines, or a corporation or co-partnership, association or joint-stock company constituted and organized under the laws of the Philippines, with at least 60 percent of the subscribed capital belonging entirely to citizens of the Philippines. on management competence, for corporations and partnerships, at least two of the company's principal officers (e.g., President, Vice- President for Operations or General Manager, or their equivalents) shall have a minimum of two years experience in ship management, shipping operations and/ or chartering. In the case of corporations, the Chief Executive Officer (CEO) and the Chief Operating Officer (COO) or their equivalents, shall be citizens and permanent residents of the Philippines. For single proprietorships, the owner/operator or a principal officer shall have a minimum of two years experience in ship management, shipping operations and/or chartering. 9

10 Executive Order No. 185 (1994) routes were demonopolized. Executive Order No. 213 (1994) deregulated domestic shipping rates. The reciprocity right is used as the basis of the entry of the foreign nationals into the Philippines for purposes of trade, investment and related activities. Maintenance and repair of vessels Passenger and freight transport Mode 1: No limitation due to lack of technical feasibility Mode 2: Any repairs, conversion or drydocking of Philippine-owned or registered vessels are required to be done at domestic ship repair yards registered with the Maritime Industry Authority (MARINA) Mode 3-4: No limitations Mode 1: Unbound due to lack of technical feasibility Mode 2-4: Unbound Mode 1: Unbound due to lack of technical feasibility Modes 2-4: No limitations Mode 1: Unbound due to lack of technical feasibility Modes 2-4: No limitations RAIL TRANSPORT Any repairs, improvement, alteration, reconditioning, conversion or dry-docking of Philippine-owned or registered ships are required to be done at domestic ship repair yards registered with the MARINA. Exemptions from this requirement may be granted by MARINA in any of the following cases: a) When as a result of collision, grounding, heavy weather, breakdowns and other perils of the sea occurring abroad, the vessel suffers damages necessitating emergency and/or extraordinary repairs, and it is impracticable that such vessel be brought to the Philippines for the needed repairs; b) When on account of existing prior commitments or due to inadequacy or lack of service facilities or MARINA-registered ship repair yards, as determined by the MARINA; and c) When the Philippines is not one of the vessels' ports of call, in which case a waiver from the said requirement must be obtained from the MARINA. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least 60 per cent of whose capital is owned by such citizens. Only aliens qualified to hold technical positions may be employed within the first five years of operation of the enterprise, their stay not to exceed five (5) years upon entry. Each employed alien should have at least two (2) Filipino understudies. Maintenance and 10

11 repair of rail transport equipment Mode 1: Unbound due to lack of technical feasibility Modes 2-4: No limitations Mode 1: Unbound due to lack of technical feasibility Modes 2-4: No limitations ROAD TRANSPORT Passenger and freight transport Mode 1: Unbound due to lack of technical feasibility Mode 2: No limitation Mode 3: Provisional authority/certificate of public convenience must be secured from the Land Transportation Franchising and Regulatory Board (LTFRB). New entrants are subject to economic needs test, as follows: a) the need to provide protection to investments of operators in unserved areas/developmental routes; and b) the route measured capacity test for number of vehicles. Mode 4: No limitations Mode 1: Unbound due to lack of technical feasibility Modes 2-4: No limitations For passenger transport, a determination of the actual seat requirement is first done before any franchise can be made. This is to determine the saturation of the line. If it is seen as over saturated, then the route is not open for foreigners. Maintenance and repair of road Projects are open to foreigners for bidding. 11

12 transport equipment Mode 1: Unbound due to lack of technical feasibility Mode 2-4: Unbound Mode 1: Unbound due to lack of technical feasibility Mode 2-4: Unbound Cargo handling services Storage and warehousing services Container yard and depot services Mode 1: Unbound due to lack of technical feasibility Mode 2-4: Unbound Mode 1: Unbound due to lack of technical feasibility Mode 2-4: Unbound SERVICES AUXILIARY TO ALL MODES OF TRANSPORT The company has to be partly owned by a Philippine national (49% foreign, 51%domestic) General sales and cargo sales agency Freight forwarding services Mode 1: Commercial presence required Modes 2-4: No limitations Modes 1-4: No limitations Modes 1-4: No limitations Modes 1-4: No limitations The company has to be partly owned by a Philippine national (49% foreign, 51%domestic) The company has to be partly owned by a Philippine national (49% foreign, 51%domestic) 12

13 FINANCIAL SERVICES All sub-sectors Mode 3: The appropriate regulatory authority in the Philippines shall determine whether public interest and economic conditions justify authorization for the establishment of commercial presence or expansion of existing operations in banking and other financial services in the Philippines. For foreign financial institutions with internationally recognized standing, such determination shall include a demonstrated capacity to contribute to the attainment of Philippine development objectives particularly in the promotion of trade, investments and appropriate technology transfer; and the country of incorporation has strategic trade and investment relations with the Philippines. In banking, the Monetary Board shall ensure that at all times seventy per cent (70%) of the resources or assets of the Philippine banking system is held by domestic banks which are at least majority-owned by Filipinos. Mode 3 & 4: Limitations in horizontal section shall also apply RA 7721 allows foreign participation in the Philippine banking and financial system to create a more competitive environment. It encourages greater foreign participation through increase in ownership in domestic banks by foreign banks and the entry of new foreign bank branches. However, in allowing increased foreign participation in the financial system, it shall be the policy of the State that the financial system shall remain effectively controlled by Filipinos. Commercial Banking Acceptance of deposits and other repayable funds from the public Mode 1: Commercial presence is required. Mode 2: No limitation Mode 3: Foreign equity in existing or new domestic commercial banks subject to a maximum 30 per cent of Mode 1: Commercial presence is required. Mode 2: No limitation Mode 3: Forms of commercial presences: RA 7721 (1994) liberalizes the entry of foreign banks limited to ten new foreign banks that could open fullservice branches in the Philippines. All ten licenses were issued. These foreign banks are limited to putting up six branches each, although the four foreign banks operating in the Philippines prior to 1948 were allowed 13

14 Lending of all types, including consumer credit, mortgage credit, and financing of commercial transaction All payment and money transmission services, including credit, charge and debit cards, travellers cheques and bankers drafts Guarantees and commitments Trading for own account or for account of customers, whether on an exchange, in an over-the-counter market or otherwise, the following: - money market - instrument (including cheques, bills, certificates of deposits); - foreign exchange derivative products voting stock or 40 per cent upon approval by the President of the Philippines Deposit taking authority extends only to domestic commercial banks and to the four grandfathered foreign bank branches Participation of aliens in the Board of Directors of domestic banks is limited to one-third of the Board's total membership Equity ownership ceiling for domestic banks: individual - 20 per cent; corporation - 30 per cent Prior authority is required for the following: Acceptance of deposit substitutes and other repayable funds from the public, Guarantees and commitments; and Performance of trust, investment management and other fiduciary business. Underwriting (firm and best efforts basis) may be performed only by commercial banks with expanded commercial banking authority Mode 4: No limitation Note: MFN exemption authorization of financial service suppliers of another Member to establish commercial presence or expand existing operations in commercial banking in the Philippines shall be subject to a reciprocity test. A foreign bank, widely-owned and publicly listed, may avail of itself only of one form of commercial presence at a time. However, this shall not preclude secondary investment in the equity of a locally incorporated bank not exceeding 30% of voting stock or 40% upon approval of the President of the Philippines. Establishment of foreign bank branches a). Bound for 10 new licenses for the period Full banking authority to new and existing foreign bank branches. Each foreign bank shall be allowed to establish a maximum of 6 branches, with the first 3 of these branches at locations of its choice and the remaining 3 branches at locations designated by the Monetary Board. The prescribed capital ratio shall consist of the permanently assigned capital and net due to account not exceeding the equivalent of 4 times the amount of permanently assigned capital. The permanently assigned capital and 15% of the required net due to account shall be inwardly remitted and converted into Philippine currency. b). Acquisition of up to 60% of the voting stock of an existing bank. c). Investing in up to 60% of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines. to open up to six additional branches. While a relaxation from the previous 40 percent ceiling, R.A limits foreign ownership in locally-incorporated banks to 60 percent. Foreign investors that do not meet the criteria stipulated in R.A and its implementing regulations are limited to 40 percent ownership. RA 8791 (General Banking Law of 2000) provides, inter alia, for a seven-year window during which foreign banks may own up to 100 percent of one locallyincorporated commercial or thrift bank (with no obligation to divest later). This represents a temporary relaxation from the 60 percent foreign ownership cap that would otherwise apply. However, R.A imposed a three-year freeze on new bank licenses (i.e., investments must be made in existing banking institutions), reflecting the government's current emphasis on consolidation. A "macro" limitation on foreign ownership requires that majority Filipino-owned banks should, at all times, control at least 70 percent of total banking system resources. Rural banking remains completely closed to foreigners. Other reforms that have been implemented are: - Further reduction of the reserve requirement - Lower capital requirement for bank branching, particularly as regards thrift banks - Expanded use of ATMs - Liberalization of accreditation guidelines for securities dealership of Treasury bills - Simplification of reportorial procedures of banks - Lifting of restrictions on repatriation of foreign investments - Increasing the ceiling on outward foreign investments - Reduction of requirements against deposit and deposit substitutes of banks and non-banks - Removing restrictions on automatic conversion into pesos of a certain portion of foreign loans, limiting foreign loan approvals - Extension of foreign currency denominated loans to indirect exporters - Lowering of BSP rediscount rate to increase utilization thereof, and - Creation of an exporters dollar facility funded by 14

15 including, but not limited to, futures and options! exchange rate and interest rate instruments, including products such as swaps, forward rate agreements; and other allowable negotiable instruments and financial assets Participation in issues of all kinds of securities, including underwriting and placement as agent (whether publicly or privately) and provision of services related to such issues. Asset management, such as cash or portfolio management, all forms of collective investment management, custodial, subject to a reciprocity test. Modes 1-3: No limitation Mode 4: Foreign service suppliers shall perform technical functions only, with Filipino understudy Non-Filipino citizens may become members of the Board of Directors of a bank to the extent of the foreign participation in the equity of said bank. Scope of Operations Prior authorization is required for the following: acceptance of deposit substitutes and other repayable funds from the public; guarantees and commitments; performance of trust, investment management and other fiduciary functions; foreign currency deposit unit operations; derivative activities; Underwriting may be performed only by commercial banks with expanded commercial banking authority Mode 4: Unbound except as provided in the horizontal section. Modes 1-3: No limitation Mode 4: A non-filipino citizen employed as officer or assigned to do technical functions shall have two Filipino understudies. BSP National treatment Under the law, one of the guidelines for foreign bank entry is to see to it that reciprocity rights are enjoyed by Philippine banks in the applicant bank's country (Sec. 3, RA 7721). 15

16 depository and trust services. Financial advisory services as follows: underwriting guarantees and commitments credit reference and analysis investment and portfolio research and advise Modes 1 and 2: No limitation Mode 3: Required to be organized as a commercial bank or a non-bank financial intermediary For commercial banks, all other limitations mentioned under mode 3 above for commercial banks shall apply Foreign equity bound at 40 per cent for non-bank financial intermediary Mode 4: No limitation Modes 1-3: No limitation Mode 4: Foreign service suppliers shall perform technical functions only, with Filipino understudy Non Banking Market access: RA 8366 (1997 Investment Houses Law) increases foreign equity participation to 60% of the voting stock of an investment house. RA8366 It further allows foreign nationals to become members of the Board of Directors to the extent of their participation in the equity of the enterprise. RA 8556 (1998 Financing Company Act) increased foreign equity participation to 60% of the voting stock of a financing company Enacted RA 8799 (Securities Regulation Code of 2000) which aims to encourage the widest participation of ownership in enterprises and promote the development of the capital market, among others. 16

17 Factoring Mode 1: Commercial presence is required Mode 2: No limitation Mode 3: Must be performed by a financing company only, organized either as a corporation or general partnership Subject to foreign equity limitation of 40 per cent Membership of aliens in the Board of Directors is limited to one-third of the Board's total membership in the case of a corporation; no foreign managing partners in the case of a general partnership Mode 4: No limitation Modes 1-3: No limitation Mode 4: Foreign service suppliers shall perform technical functions only, with Filipino understudy Foreign equity is limited to 40%. Nonresidents are also required a proof of inward remittances and a bank certificate from the bank connected (deposited of money). 17

18 Financial leasing Mode 1: Commercial presence is required Mode 2: No limitation Mode 3: Must be performed by a financing company only, organized either as a corporation or general partnership Subject to foreign equity limitation of 40 per cent Membership of aliens in the Board of Directors is limited to one-third of the Board's total membership in the case of a corporation no foreign managing partners in the case of a general partnershipi Mode 4: No limitation Modes 1-3: No limitation Mode 4: Foreign service suppliers shall perform technical functions only, with Filipino understudy Up to 60% foreign equity. Representation to the board must be in proportion to the stock holding. Foreigners can be elected to management position as long as foreign equity is more than 40% (as long as not cover3d by the Anti-Dummy Law). Foreigners cannot be elected in a wholly/partially nationalized business. Financing is also covered by the Reciprocity Rule (RA8556) which provides that no foreign national may be allowed to own stock in a financing company unless the country accords the same rights to Filipinos. On the extension of DOSRI loans, the amount of loan should not exceed 15% of the financing company likewise single borrow limit. Foreigners also have a limitation of 30% on the extension of loans. 18

19 Money broking and foreign exchange broking Mode 1: Commercial presence is required Mode 2: No limitation Mode 3: Required to be organized as a commercial bank or a non-bank financial intermediary For commercial banks, all other limitations mentioned under mode 3 above for commercial banks shall apply Foreign equity bound at 40 per cent for non-bank financial intermediary Mode 4: No limitation Modes 1-3: No limitation Mode 4: Foreign service suppliers shall perform technical functions only, with Filipino understudy Allowed 100% in foreign equity under the foreign investment act 19

20 Credit card services Mode 1: Commercial presence required Mode 2: No limitation Mode 3: Required to be organized as a commercial bank or a non-bank financial intermediary For commercial banks, all other limitations mentioned under mode 3 above for commercial banks shall apply Foreign equity bound at 40 per cent for non-bank financial intermediary Mode 4: No limitation Modes 1-4: No limitation Must follow the basic requirements of SEC. 40% foreign equity limitations. Promotion and provision of information about the services/products offered by a foreign bank Mode 1: Commercial presence is required Mode 2-4: No limitation Modes 1-4: No limitation Subject to 40% foreign equity limitations. Securities Dealership/ Brokerage Trading for own account or for account of customers, whether in an Mode 1: Commercial presence required Mode 2: No limitation Mode 3: Must be organized as a securities broker/dealer corporation or partnership. Must be a member of the stock 20

21 exchange, in an over-thecounter market or otherwise, the following: Equities and its derivative products such as warrants and options exchange. Membership is limited to 200. Underwriting is allowed only on bestefforts basis. Mode 4: No limitation Modes 1-4: No limitation Transferable securities Participation in issues of all kinds of securities, including underwriting and placement as agent (whether publicly or privately) and provision of services related to such issues Mode 1: Commercial presence required Mode 2: No limitation Mode 3: Must be organized as a securities broker/dealer corporation or partnership. Must be a member of the stock exchange. Membership is limited to 200. Underwriting is allowed only on bestefforts basis. Mode 4: No limitation Modes 1-4: No limitation Performance of the functions of stock transfer agent such as but not limited to Mode 1: Commercial presence is required 21

22 monitoring the issuance and transfer of stock certificates Mode 2: No limitation Mode 3: Must be organized either as a corporation or partnership with at least one certified public accountant duly licensed in the Philippines Mode 4: No limitation Modes 1-4: No limitation Transactions of an issuer primarily engaged in the business of investing, reinvesting or trading in securities Mode 1: Commercial presence is required Mode 2: No limitation Mode 3: Foreign equity bound at 40 per cent All members of the Board of Directors must be citizens of the Philippines Mode 4: No limitation Modes 1-4: No limitation Sale of contracts for the payment of benefits or performance of future services such as life, education, pension and internment plans Mode 1: Commercial presence is required Mode 2: No limitation Mode 3: Foreign equity bound at 40 percent Mode 4: No limitation Modes 1-4: No limitation 22

23 INSURANCE All sectors Mode 3: The establishment of new insurance companies is subject to the approval of the Insurance Commission which determines whether public interest and economic conditions justify such establishment. Mode 4: Only aliens qualified to hold technical positions may be employed within the first five (5) years of operation of the enterprise, their stay not to exceed five (5) years upon entry. Each employed alien should have at least two (2) Filipino understudies Mode 3 and 4: Limitations listed in horizontal section shall also apply. Market access: In 1994, maximum percentage of foreign ownership was increased to 100 percent with the issuance of Department of Finance Order and A. Entry is allowed under any of the following modes: ownership of the voting stock of an existing domestic insurance or reinsurance company or intermediary; investment in a new insurance or reinsurance company or intermediary incorporated in the Philippines; or establishment of a branch. Entry under (c) is not available to an intermediary. An applicant may avail itself of only one mode of entry. Capital requirements vary depending on the line of business, degree of foreign ownership and mode of entry. Minimum capital requirements increase with the degree of foreign ownership. Department of Finance Order Nos and A allowed the entry of foreign insurance or reinsurance companies to operate as a branch or where foreign equity in said company or intermediary was more than 40 percent within two years from the effectivity of the Orders. As a general rule, only the state-owned government insurance system may provide coverage for government-funded projects. A 1994 administrative order extended this policy to public and private buildoperate-transfer (BOT) projects. Current regulations require all insurance/professional reinsurance companies operating in the Philippines to cede to the industry-owned National Reinsurance Corporation of the Philippines (NRCP) at least 10 percent of outward reinsurance placements. Qualified Non-Filipino citizens may be employed for 23

24 technical positions only within the first five (5) years of operation of the enterprise, their stay not to exceed five (5) years upon entry. Non-resident aliens may be admitted to the Philippines for the supply of a service after a determination of the non-availability of a person in the Philippines who is competent, able and willing, at the time of application, to perform the services for which the alien is desired Foreign participation in the boards of insurance companies is also limited to a third of the seats, while foreigners are allowed to establish a commercial presence only as companies, and not as associations of underwriters. The participation of foreign investors in the governing body of any corporation engaged in activities expressly reserved to citizens of the Philippines by law shall be limited to the proportionate share of foreign capital of such entities. Each employed non-filipino citizen shall have at least two (2) Filipino understudies. All executive and managing officers must be citizens of the Philippines. Life insurance as follows: Ordinary Group Industrial Health and accident Mode 1: Risks located in the Philippines should be insured with the companies authorized * to transact business in the Philippines Mode 2: Same as (1) above Existing foreign companies are similarly situated with local companies except for land ownership. Foreign companies may not own land in the Philippines. New licenses to set up subsidiaries for foreign life insurance companies may be obtained from the IC subject to the usual satisfactory completion of required documents and appropriate capital. Capital requirements vary depending on foreign equity participation as shown below: * Authorized means the company has been issued a license by the Insurance Commission to transact business in the Philippines. 24

25 Annuities Mode 3: Subject to foreign equity limitation of 40 per cent Membership of aliens in the Board of Directors is limited to the extent of foreign equity participation Mode 4: No limitation Modes 1 and 2: Unbound Mode 3-4: No limitations Foreign Equity Paid-up capital Contributed Surplus Total at least 60% P250 mil P 50 mil P300 mil >40% - < 60% P150 mil P 50 mil P200 mil <= 40% P 75 mil P25 mil P100 mil General Non-life, as follows: Fire and allied risks/earthquak es/shock/typhoo n/floods/tidal wave Marine Ocean marine/inland marine/ marine hull/aviation Casualty motor car/ health and accident/ burglary/engine ering miscellaneous Suretyship Fidelity/surety bonds Mode 1: Risks located in the Philippines should be insured with the companies authorized * to transact business in the Philippines Mode 2: Same as (1) above Mode 3: Subject to foreign equity limitation of 40 per cent Membership of aliens in the Board of Directors is limited to the extent of foreign equity participation Mode 4: No limitation Modes 1 and 2: Unbound Mode 3-4: No limitations DEPARTMENT ORDER No Capital Requirements For an insurance company, a minimum paid-up capital of: a. P250 million and a contributed surplus fund of P50 million, where foreign equity is sixty percent (60%) or more; b. P150 million and a contributed surplus of P50 million, where foreign equity is more than forty percent (40%) but less than sixty percent (60%); c. P75 million and a contributed surplus fund of 25 million, where foreign equity is forty percent (40%) or less. For a reinsurance company, minimum paid-up capital of: a. P500 million, where foreign equity is sixty percent (60%) or more; b. P300 million, where foreign equity is more than forty percent (40%) but below sixty percent (60%) c. P150 million, where foreign equity in a new company * Authorized means the company has been issued a license by the Insurance Commission to transact business in the Philippines. 25

26 incorporated in the Philippines is forty percent (40%) or less Insurance auxiliary services as follows: Actuarial consultancies Average adjustors Reinsurance/ Retrocession Mode 1: Commercial presence is required Mode 2: No limitation Mode 3: Subject to foreign equity limitation of 40 percent Membership of aliens in the Board of Directors is limited to the extent of foreign equity participation Mode 4: No limitation Mode 1: Unbound Modes 2-4: No limitations Mode 1: Priority cessions to authorized insurance/reinsurance companies Foreign unauthorized reinsurers DEPARTMENT ORDER No Capital Requirements For an insurance company, a minimum paid-up capital of: a. P250 million and a contributed surplus fund of P50 million, where foreign equity is sixty percent (60%) or more; b. P150 million and a contributed surplus of P50 million, where foreign equity is more than forty percent (40%) but less than sixty percent (60%); c. P75 million and a contributed surplus fund of 25 million, where foreign equity is forty percent (40%) or less. For a reinsurance company, minimum paid-up capital of: a. P500 million, where foreign equity is sixty percent (60%) or more; b. P300 million, where foreign equity is more than forty percent (40%) but below sixty percent (60%) c. P150 million, where foreign equity in a new company incorporated in the Philippines is forty percent (40%) or less DEPARTMENT ORDER No Capital Requirements For an insurance company, a minimum paid-up capital of: a. P250 million and a contributed surplus fund of P50 million, where foreign equity is sixty percent (60%) or 26

27 should be represented by resident agents duly registered with the Insurance Commission 10 per cent of total insurance cessions to foreign unauthorized reinsurers should be ceded to the National Reinsurance Corporation of the Philippines Mode 2: Same as (1) above Mode 3: Subject to foreign equity limitation of 40 percent Membership of aliens in the Board of Directors is limited to the extent of foreign equity participation Mode 4: No limitation Modes 1-4: No limitations more; b. P150 million and a contributed surplus of P50 million, where foreign equity is more than forty percent (40%) but less than sixty percent (60%); c. P75 million and a contributed surplus fund of 25 million, where foreign equity is forty percent (40%) or less. For a reinsurance company, minimum paid-up capital of: a. P500 million, where foreign equity is sixty percent (60%) or more; b. P300 million, where foreign equity is more than forty percent (40%) but below sixty percent (60%) c. P150 million, where foreign equity in a new company incorporated in the Philippines is forty percent (40%) or less 27

28 TOURISM AND TRAVEL RELATED SERVICES All subsectors Foreigners can invest as much as 100% in almost all tourism activities pursuant to RA 7042 (Foreign Investments Act of 1991) as amended by RA 8179, except for restaurants and tourist transport which was limited to Philippine nationals pursuant to RA 1180 and the Philippine Constitution, respectively. A foreign corporation must first secure the necessary licenses or registrations from the appropriate government bodies. In the case of corporations or partnerships, the necessary incorporation papers from the Securities and Exchange Commission must first be obtained. In the case of single proprietorships, registration from the Department of Trade and Industry must be secured. While acquisition of land is limited to a maximum of 40% foreign ownership, foreigners can now lease land for as long as 75 years. Based on Republic Act 7652, lease agreements may be entered into with Filipino landowners. Lease period is 25 years, renewable for another 25 years. For tourism projects with project cost of $5 M or more, lease period can be 50 years, renewable for another 25 years Executive Order No. 63 grants the foreign investor a Special Investor s Resident Visa (SIRV) for as long as the investment subsists. The E.O. also recognizes the right of the investor to remit earnings from his investment in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance. In case of liquidation, the investor is also allowed to repatriate the entire proceeds of the liquidation of the investment. Lastly, the right of succession is also recognized. Tourism accommodation facilities Hotel Mode 1: Unbound due to lack of technical feasibility Mode 1: Unbound due to lack of technical feasibility Mode 2: No limitations Omnibus Investments Code (Executive Order No. 226) authorizes the BOI to grant fiscal incentives to tourism enterprises engaged in the: Development of Tourism Estates a tourism estate is a 28

29 Resort Pension house Tourist inn Apartel Mode 2: No limitations Mode 3: Subject to foreign equity limitation of 40 per cent for pension house, tourist inn and apartel Mode 4: As a general rule, only citizens of the Philippines can be employed in tourism-oriented establishments. However, for hotels and resorts, aliens may be employed subject to the pertinent provisions of the Tripartite Agreement among the Department of Tourism, Department of Labor and Employment and the Bureau of Immigration, as follows: i) Only hotels/resorts duly accredited by the Department of Tourism shall be allowed to engage the services of aliens ii) Aliens may occupy a maximum of four (4) managerial positions in a hotel or resort establishment iii) For new hotels or resorts, aliens required during the pre-operation stage and up to six (6) months after opening of the hotel/resort to the public may be employed iv) The services of aliens may be engaged during special occasions/events such as food festivals, provided the service contract shall be limited to a period of three (3) months renewable for a maximum period of another three (3) months Mode 1: Unbound due to lack of Mode 3: Foreign equity of 60% is allowed for pension house, tourist inn, and apartels. Mode 4: As a general rule, only citizens of the Philippines can be employed in tourism-oriented establishments. However, for hotels and resorts, aliens may be employed subject to the provisions of the Tripartite Agreement among the Dept. of Tourism, Dept. of Labor and Employment, and Bureau of Immigration, as follows: i) Only hotels/resorts duly accredited by the Department of Tourism shall be allowed to engage the services of aliens ii) Aliens may occupy a maximum of four (4) managerial positions in a hotel or resort establishment iii) For new hotels or resorts, aliens required during the preoperation stage and up to six (6) months after opening of the hotel/resort to the public may be employed iv) The services of aliens may be engaged during special occasions/events such as food festivals, provided the service contract shall be limited to a period of three (3) months renewable for a maximum period of another three (3) months Mode 1: Unbound due to lack of technical feasibility large tract of land with defined boundaries in any of the destinations identified in the Philippine Tourism Master Plan. The land should be suitable for the development of an integrated resort complex including accommodations, food and beverage outlets, convention, sports, and recreational centers, commercial outlets, among others. It must be provided with roads, water supply facilities, power supply, drainage and sewerage systems, and other necessary infrastructure. The estate must be located outside Metro Manila, at least 50 hectares, and under a unified continuous management. Establishment of Tourist Accommodation Facilities tourist accommodation facilities include hotels, resorts, inns, pensionnes, and special interest resorts outside Metro Manila. New projects can qualify for a pioneer status if they satisfy the following: Type of facility minimum project cost Less Developed Area Elsewhere (excluding Metro Manila) De Luxe/First Class Hotels US$50,000/room US$100,000/room Class AAA Resort US$5 M per resort US$10 M per resort Projects not meeting the aforementioned prescribed minimum project cost may only be classified under a non-pioneer status. Operation of Tourist Transport Facilities (Tourist Buses) Application for registration should be accompanied by a proof of filing an application with the Land Transportation Franchising Regulatory Board (LTFRB). Buses must be brand new and suited to local conditions. Expansion of Existing Tourist Accommodation Facilities expansion projects shall be eligible for registration if they involve the addition of guestrooms exceeding 25% of existing facilities of a tourist accommodation facility and located outside Metro Manila. Modernization/Rehabilitation of Tourist Accommodation 29