RA 11659

In brief
The president of the Philippines has signed into law Republic Act No. 11659 ("RA 11659"), which: (a) removes foreign
equity restrictions on most public service companies, except those considered as 'public utility' and 'critical
infrastructure'; (b) limits the scope of 'public utility' to public service companies involved in distribution and transmission
of electricity, petroleum and petroleum products pipeline transmission systems, water pipeline distribution systems,
wastewater and sewerage pipeline systems, seaports, and public utility vehicles (PUVs); and (c) limits the scope of
'critical infrastructure' to public service companies that own, use or operate systems and assets that are "vital to the
Republic of the Philippines that the incapacity or destruction of such systems or assets would have a detrimental
impact on national security, including telecommunications and other such vital services as may be declared by the
President of the Philippines".
Recent developments
On 22 March 2022, the president of the Philippines signed into law RA 11659, which amends the Public Service Act,
with a view to liberalizing the foreign equity restrictions imposed by the Philippine Constitution on 'public utilities'. RA
11659 will become effective on 9 April 2022, 15 days after its publication in a newspaper of general circulation on 25
March 2022. A copy of RA 11659 can be found here.

With the enactment of RA 11659, the Philippines now has a Public Services law that: (a) removes foreign equity
restrictions on most public service companies, with the exception of those considered as 'public utility' and 'critical
infrastructure'; (b) limits the scope of 'public utility' to public service companies involved in distribution and transmission
of electricity, petroleum and petroleum products pipeline transmission systems, water pipeline distribution systems,
wastewater and sewerage pipeline systems, seaports and PUVs; and (c) limits the scope of 'critical infrastructure' to
public service companies that own, use or operate systems and assets that are "vital to the Republic of the Philippines
that the incapacity or destruction of such systems or assets would have a detrimental impact on national security,
including telecommunications and other such vital services as may be declared by the President of the Philippines".
Background
Under the Philippine Constitution, "[n]o 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 sixty per centum of whose capital is owned by such citizens…" (Article XII, Section
11).
Previously, the term 'public utility' was not defined by law. The Public Service Act, enacted in 1936, enumerates a list
of 'public services' without, however, defining 'public utilities.' As a result, all public services under the Public Service
Act were required to comply with the nationality requirement under the Philippine Constitution (i.e., a maximum of
40% foreign ownership).
The amendments to the Public Service Act aim to remove the above-mentioned nationality restriction being imposed
on most public service companies by limiting the definition of a 'public utility' to particular sectors and introducing the
concept of 'critical infrastructures,' which will be subject to certain foreign restriction requirements.

Salient provisions
Below are the salient provisions of RA 11659:
1. Foreign equity restrictions on most public service companies are removed, with the exception of those
considered as 'public utilities' and 'critical infrastructures'.

• Only the following public service companies involved in the following services are considered 'public utilities'
and are subject to the 40% foreign ownership limitation under the Constitution: (a) distribution and
transmission of electricity; (b) petroleum and petroleum products pipeline transmission systems; (c) water
pipeline distribution systems; (d) wastewater and sewerage pipeline systems; (e) seaports; and (f) PUVs.

• Airports, expressways and tollways, and petroleum pipeline 'distribution' systems previously included as
'public utilities' in Senate Bill 2094 are no longer considered public utilities.
 • While PUVs are still included in the list of public utilities, their scope has changed. In the final version, PUVs
include 'internal combustion engine vehicles' and 'domestic cargo for a fee.' The earlier versions covered 'road
vehicles' and 'cargo for a fee' without distinguishing between domestic and foreign cargo. Moreover, in the
final version, 'transport vehicles accredited with and operating through transport network corporations' are not
considered PUVs deemed as public utilities and thus are not subject to the 40% foreign ownership limit. This
carve-out was not present in the earlier versions of RA 11659.
2. Critical infrastructures are subject to certain nationality restrictions and responsibilities.

• Critical infrastructure refers to "any public service which owns, uses, or operates systems and assets, whether
physical or virtual, so vital to the Republic of the Philippines that the incapacity or destruction of such systems
or assets would have a detrimental impact on national security, including telecommunications and other such
vital services as may be declared by the President of the Philippines".
The definition of critical infrastructure differs from the earlier versions of the law, where critical infrastructure was
limited to: (a) telecommunications; (b) air carriers; (c) domestic shipping; and (d) railways and subways. The definition
of critical infrastructure in the final version appears to be broad, which may be interpreted as extending beyond the
aforementioned industries. This will, however, be subject to a determination by the president, which will likely be in
the form of an executive issuance.

• Foreign nationals are allowed to own more than 50% of capital in public services engaged in the operation
and management of critical infrastructure, but only if the country of such foreign nationals accords reciprocity
to Philippine nationals under foreign law or a treaty. Reciprocity may be satisfied according to rights of similar
value in other economic sectors, which shall be the subject of further rules by the National Economic
Development Authority (NEDA).

• Critical infrastructures are subject to certain responsibilities. For instance, in the event of service interruptions,
operators of critical infrastructures are required to act on customer complaints or provide an action plan within
ten days. They also need to submit monthly reports detailing service interruptions, complaints and actions
taken on each complaint.

• It should be noted that passive telecommunications tower infrastructure and value-added service (VAS) are
not covered by foreign equity restrictions. The definition of 'telecommunications' expressly excludes passive
telecommunications tower infrastructure and components and VAS. The exclusion of these services results in
the clarification that these services are not to be considered 'public utilities' or 'critical infrastructures' and are
therefore not subject to foreign equity restrictions. The National Telecommunications Commission (NTC) may
therefore have to update its regulations on these services, particularly those requiring the registration of VAS
providers.
3. Companies controlled by or acting on behalf of a foreign government or foreign state-owned
enterprises are subject to restrictions.

• A foreign state-owned enterprise refers to an entity in which a foreign state: (a) directly or indirectly
owns more than 50% of the capital, taking into account both the voting rights and beneficial ownership;
(b) controls, through ownership interests, the exercise of more than 50% of the voting rights; or (c)
holds power to appoint a majority of members of the board of directors or any other equivalent
management body.

• Companies controlled by or acting on behalf of a foreign government or foreign state-owned

enterprises are prohibited from owning capital in any public service classified as a public utility or
critical infrastructure. However, this prohibition only applies to investments made after the
effectiveness of the amendments to the Public Service Act. Notably, in the earlier versions of RA
11659, the prohibition only covered ownership of capital in critical infrastructures but not public utilities.

• Foreign state-owned enterprises that own capital prior to the effectivity of the amendments are
prohibited from investing in additional capital upon the effectivity of the amendments. However, the
sovereign wealth funds and independent pension funds of each state may collectively own up to 30%
of the capital of such public services.
 • An entity controlled by, or acting on behalf of a foreign government or foreign-owned enterprises, is
not allowed to make any data or information disclosure, assistance, support, or cooperation to any
foreign government, instrumentalities, or agents.
4. Individuals or entities engaged in the telecommunications industry must obtain and maintain
certifications from an accredited certification body attesting to compliance with relevant International
Organization for Standardization (ISO) standards on information security, as prescribed by the
Department of Information and Communications Technology.

• The maintenance of these certifications shall be a continuing qualification for retention of the franchise or other
authority to operate.

• However, this requirement shall not apply to micro, small and medium enterprises under Republic Act No.
6977, otherwise known as the 'Magna Carta for Micro, Small and Medium Enterprises'.
5. The President, upon review and recommendation of the relevant government agency, may suspend or
prohibit (i) any proposed merger or acquisition (M&A) transaction or (ii) any investment in a public
service that effectively results in the grant of control to a foreigner or a foreign corporation, in the
interest of national security.

• The Philippine Competition Commission (PCC), an agency attached to the Office of the President, may be
consulted on matters relating to all M&As. Currently, the PCC has the power to review and prohibit M&As that
will substantially restrict or lessen competition in the relevant market. This provision appears to allow the PCC
to be consulted on M&As in the public service sector that may affect national security.

• This provision is subject to the implementing rules and regulations to be issued by the NEDA.
Why RA 11659 is relevant to you
With the enactment of RA 11659, the industries covered by foreign equity restriction will be limited to those considered
as public utilities and critical infrastructures. Thus, this will create more opportunities for foreign investors to invest in
the various public service sectors that are no longer considered as public utilities and are subject to foreign equity
restrictions. In addition, businesses that rely on these newly liberalized sectors (e.g., business process outsourcing
and information technology enterprises) will stand to benefit, as additional investments into these sectors are expected
to result in increased competition, lower prices and better quality of services.
Existing businesses in the public services sector will need to exercise heightened vigilance in ensuring compliance
with the law, the rules and regulations of the relevant agencies, and the terms and conditions of their respective
authority. This is especially true for businesses that are considered public utilities or critical infrastructures, given the
additional responsibilities imposed upon them. On the other hand, businesses in the public services sector should be
ready to face the challenges of competition in the market resulting from the expected increase in investments due to
the lifting of foreign equity restrictions.

RA 11647
On 02 March 2022, President Rodrigo Roa Duterte signed Republic Act (“RA”) No. 11647 or “An act promoting foreign
investments, thereby amending Republic Act No. 7042, otherwise known as the ‘Foreign Investments Act of 1991’”.

RA No. 11647 aims to attract, promote and welcome productive foreign investments in activities that significantly
contribute to sustainable, inclusive, resilient, and innovative economic growth, productivity, global competitiveness,
employment creation, technological advancement, and countrywide development.
An Inter-Agency Investment Promotion Coordination Committee (“IIPC”) with the purpose of integrating all promotion
and facilitation efforts to encourage foreign investments in the country was created under RA No. 11647. The IIPC is
tasked to create a comprehensive and strategic Foreign Investment Promotion and Marketing Plan (“FIPMP”). It shall
be led by the Department of Trade and Industry (“DTI”), which will be presided by the DTI Secretary as Chairperson.
A non-Philippine national, not otherwise disqualified by law may, without the need of prior approval, do business or
invest in a domestic enterprise up to 100% of its capital, unless participation of non-Philippine nationals is otherwise
limited by the Foreign Investments Act, as amended. Further, the law allows 100% foreign ownership in export
enterprises whose products and services do not fall within List A and B of the Foreign Investment Negative List.
Small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent of
USD200,000 are reserved to Philippine nationals. However, if the said enterprises are: (1) involved in advanced
technology; or (2) endorsed as startup or startup enablers pursuant to RA No. 11337 or the “Innovative Startup Act”;
or (3) a majority of their direct employees are Filipinos, but in no case shall the number of Filipino employees be less
than fifteen (15) then a minimum paid-in capital of USD100,000 shall be allowed to non-Philippine nationals.
Further, RA No. 11647 states that, upon the order of the President, IIPC “shall review foreign investments involving
military-related industries, cyber infrastructure, pipeline transportation, or such other activities which may threaten the
territorial integrity and the safety, security and well-being of Filipino Citizens, when: (a) [m]ade by a foreign
government-controlled entity or state-owned enterprises except independent pension funds, sovereign wealth funds
and multinational banks, or (b) [l]ocated in geographical areas critical to the national security.”
In addition to the foregoing, RA No. 11647 provides for a stiffer punishment for public officials and employees involved
in foreign investment promotions who violate anti-graft and corruption laws. Pursuant to section 10 of RA No. 11647,
a new Section 17 is inserted into the Foreign Investments Act which provides that any public official or employee
involved in foreign investment promotions who shall commit any of the acts under section 3 of RA No. 3019, as
amended, otherwise known as the “Anti-Graft and Corrupt Practices Act”, shall, in addition to the penalties provided
under Section 9(a) of the said Act, be punished by a fine of not less than PhP2,000,000 but not more than
PhP5,000,000.

RA No. 11647 also clarified that the Foreign Investment Act of 1991 and the corresponding amendments do not apply
to banking and other financial institutions, which are under the supervision of the Bangko Sentral ng Pilipinas, and to
the practice of professions that fall under the jurisdiction of various professional regulatory boards.
RA No. 11647 was published in the Official Gazette on 02 March 2022 and took effect after fifteen (15) days following
its date of publication or on 17 March 2022.
*On 02 March 2022, President Rodrigo Duterte signed into law Republic Act (RA) No. 11647 amending the Foreign
Investments Act.
A brief description of the amendments is as follows:
(1) Foreign Investments:
(a) in Domestic and Export Enterprises
RA 11647 reiterates that one hundred percent (100%) foreign capital investment in domestic enterprises is allowed
unless foreign participation is prohibited or limited by other laws or the Constitution. This also applies to foreign
investments in export enterprises whose products and services do not fall within Lists A and B of the Foreign
Investment Negative List. These foreign export enterprises shall register with the Board of Investments (BOI) and shall
submit reports on export ratio requirements.
Failure to comply with the export ratio requirements will result to reduction of the enterprise’s domestic market sales
to not more than forty percent (40%) of its total production. The registration of the foreign export enterprises from the
Securities and Exchange Commission (SEC) or Department of Trade and Industry (DTI) will be cancelled should they
fail to comply with the order to reduce domestic sales.
The newly signed law, which took effect on 17 March 2022, also requires these foreign export enterprises to register
and comply with the export requirements under Title XIII of the National Internal Revenue Code (NIRC) for purposes
of availing any tax incentive or benefit.

(b) Public Utilities

The Philippine Constitution requires that public utilities be at least sixty percent (60%) Filipino-owned.
Section 4 of RA 11659 or the amendatory law defines public utilities as:
“Public utility refers to a public service that operates, manages, or controls for public use any of the following:
 1. Distribution of Electricity
2. Transmission of Electricity
3. Petroleum and Petroleum Products Pipeline Transmission Systems

4. Water Pipeline Distribution Systems and Wastewater Pipeline Systems, including sewerage pipeline systems
5. Seaports
6. Public Utility Vehicles.
Furthermore, Section 4 of RA 11659 provides:

“xxx
A public service which is not classified as a public utility under this Act shall be considered a business affected with
public interest for purposes of Section 17 and 18 of Article XII of the Constitution.
Notwithstanding any law to the contrary, nationality requirements shall not be imposed by the relevant
Administrative Agencies on any public service not classified as public utility.
xxx.” (Emphasis supplied)

Based on the above, only those listed as public utilities under RA 11659 are required to have the 60% Filipino
nationality requirement.
(c) in Micro and Small Domestic Market Enterprises (MSMEs)

RA 11647 reserves to Philippine nationals those enterprises with paid-in equity capital of less than the equivalent of
Two Hundred Thousand US Dollars (US$200,000). However, the amendment now allows foreign nationals to invest
a minimum paid-in capital of One Hundred Thousand US Dollars (US$100,000) in the following MSMEs: (1) those
with advanced technology as determined by the Department of Science and Technology, or (2) those endorsed as
startup or startup enablers by the lead host agencies pursuant to Republic Act No. 11337, otherwise known as the
Innovative Startup Act; or (3) majority of their direct employees are Filipinos, but with not less than fifteen (15) Filipino
employees. With regard to employees hired prior to the effectivity of RA 11647, RA 11647 cannot be used as basis or
cause for termination.
(2) Administrative Review of Foreign Investments in Strategic Industries
RA 11647 created the Inter-Agency Investment Promotion Coordination Committee (IIPCC), under the Department of
Trade and Industry, which will be in charge of promoting and facilitating efforts in encouraging foreign investments in
the country.

Some of the powers and functions of IIPCC are to establish a Foreign Investment Promotion and Marketing Plan
(FIPMP) and to establish an online database including a directory of local partners as a tool for promoting investments
and business matching in local supply chains. IIPC is also granted the power to review foreign investments involving
military-related industries, cyber infrastructure, pipeline transportation, or such other activities that may threaten
territorial integrity and the safety, security, and well-being of Filipino citizens.
(3) Anti-Graft Practices in Foreign Investment Promotions
Any public official or employee involved in foreign investment promotions who will commit acts under Section 3 of
Republic Act No. 3019, as amended, otherwise known as the Anti-Graft and Corrupt Practices Act, will additionally be
punished by a fine of not less than two million pesos (P2,000,000) but not more than five million pesos (P5,000,000).

On 02 March 2022, President Rodrigo Duterte signed Republic Act No. 11647 (Act 11647), which amended the Foreign
Investment Act (FIA), also known as Republic Act No. 7042. The amendments aim to promote and attract foreign
investments by allowing international investors to set up and fully own domestic enterprises (including micro and small
enterprises) in the Philippines.

The amendments make it easier for foreign businesses to invest in the Philippine market, with the investments expected
to not only contribute to sustainable, inclusive, resilient and innovative economic growth, but to increase competition in
the Philippine market, resulting in lower prices and better products and services for the consumers.

WHAT ARE THE AMENDMENTS TO THE FOREIGN INVESTMENT ACT?

FOREIGN OWNERSHIP OF SMALL AND MEDIUM-SIZED ENTERPRISES

Under the FIA, micro, small, and medium-sized enterprises (MSME) with paid-in capital of less than USD200,000.00 are
reserved for Philippine nationals; however, under the amendments, foreign nationals can own an MSME with a minimum
paid-in capital of USD100,000.00, provided that the enterprises meet the following conditions:

1. Utilize advanced technology (to be determined by the Department of Science and Technology);

2. Are endorsed as startup enablers or as a startup in accordance with the Innovative Startup Act; or

3. The company hires no less than 15 Filipino employees, a reduction from the previous requirement of 50.

THE NEW INTER-AGENCY INVESTMENT PROMOTION COORDINATION COMMITTEE (IIPC)

Under the amended FIA, the government will create the Inter-Agency Investment Promotion Coordination Committee
(IIPCC) which is a body that integrates all the promotion and facilitation efforts to encourage foreign investments. An
inter-agency body will provide a uniform approach to foreign investment promotion, since various government agencies
may have different strategies when it comes to foreign investment promotion and facilitation.

The IIPC will be under the Department of Trade and Industry (DTI).

POWER OF THE PRESIDENT TO SUSPEND, PROHIBIT, OR LIMIT FOREIGN INVESTMENTS

To safeguard national interests, the amened FIA gives the President of the Philippines power to order the IIPCC to review
foreign investments that may threaten the safety, security, and well-being of Filipinos. Examples include foreign
investments involving cyberinfrastructure, military-related industries, and pipeline transportation, among others.

UNDERSTUDY OR SKILLS DEVELOPMENT PROGRAM FOR FOREIGN NATIONALS

Foreign businesses employing foreign nationals and are enjoying fiscal incentives must devise an understudy or skills
development program that benefits Filipino workers. This ensures that local workers receive the knowledge and skills
from their foreign colleagues.

The program that companies develop will be monitored by the Department of Labor and Employment.

STRENGTHENING THE PHILIPPINES’ NATIONAL SECURITY ALONGSIDE ECONOMIC GROWTH

Along with this push for economic growth, RA 11647 also balances the need to strengthen the country’s national
security. Under this law, the IIPCC, in coordination with the National Security Council (NSC) and the National Economic
Development Authority (NEDA), shall review foreign investments involving military-related industries, cyber
infrastructure, pipeline transportation, or other activities that may threaten territorial integrity and the safety, security
and well-being of Filipino citizens in certain instances.

Republic Act No. 7042, also known as the “Foreign Investments Act of 1991,” is a law regulating foreign investments in
the Philippines. The act allows foreign investors to invest up to 100% equity in domestic market enterprises, but also sets
restrictions. The goal of this law is to encourage foreign investors to provide employment opportunities, develop
resources, increase the value of exports, and help fuel the overall economy.
THE FOREIGN INVESTMENTS NEGATIVE LIST (FINL)

The (FINL) is a list of areas or activities that set limits on foreign ownership. It is divided into two: List A and List B.

WHAT IS COVERED IN LIST A?

List A consists of areas of investment reserved for Philippine nationals. The Philippine Constitution restricts foreign
ownership in some of these investment areas to a maximum of 40%. Foreign ownership is prohibited in the following
areas:

• Mass media, except recording

• Practice of licensed professions

• Retail trade

• Cooperatives

• Private security agencies

Limited foreign ownership is allowed in the following areas:

• Private radio communication networks

• Private recruitment

• Advertising

• Ownership of private lands and condominium units

• Exploration, development, and utilization of natural resources

WHAT IS COVERED IN LIST B?

List B indicates limits in foreign ownership for reasons of security, defense, risk to health and morals, and protection of
small and medium-scale enterprises. They include but are not limited to:

• Manufacture, repair, storage, and/or distribution of products and/or ingredients requiring Philippine National
Police (PNP) clearance such as firearms, gunpowder, and dynamite

• Manufacture, repair, storage, and/or distribution of products and/or ingredients requiring Department of
National Defense (DND) clearance such as guns and ammunition for warfare, gunnery, bombing, fire control
systems, and military communication equipment

• Telescopic sights, sniper scopes, and other similar devices

• All forms of gambling, except those covered by investment agreements with the Philippine Amusement and
Gaming Corporation (PAGCOR)

The standard setup for companies with both Filipino and foreign ownership is 60% / 40%, with Filipinos owning the
larger share. The company must also be serving the local market. Under this, paid-up capital can be less than
USD200,000.00. However, some foreign entities may be interested in owning a bigger stake in a locally registered
company. For this, the following conditions have to be met:

• The foreign entity wants to own more than 40% of the domestic company;

• The area in which the foreign entity wants to enter is not among those stated in the FINL;

• The area will serve the domestic market.

The required capital for the endeavor should not be less than US$200 thousand. It can be lowered to US$100 thousand if
the activities involve advanced technology or the company has at least 50 direct employees.

FORM OF INVESTMENTS

Foreign investments can come in these forms:

• Capital goods

• Patents

• Formulae

• Other technological rights or processes

BASIC RIGHTS AND GUARANTEES FOR THE SAFETY OF FOREIGN INVESTORS

Under the Philippine Constitution, all foreign investors have the right to:

• Repatriation of investments. If there is a need for repatriation of investments, it has to be in the same currency
as what was used when it was first invested, as well as in the same exchange rate of said currency during that
time

• Remittance of earnings. Interest payments, payment of loans made to foreign entities, and other obligations
should also follow the same kind and exchange rate of currency for this remittance.

• Freedom from expropriation. The government cannot seize properties stemming from foreign investments
unless these are meant for public use or for national In that case, the foreign investor can avail of just
compensation, still with the conditions of using the same currency at the time of investment and the prevailing
exchange rate of that time.

• Non-requisition of investment. No requisition of property stemming from foreign investments is allowed unless it
was done in the event of war or a national emergency, and only for that time. However, just compensation must
still be made with the same conditions as set in the above-mentioned instances.