Gov’t eases entry rules for foreign retailers

The government has made it easier for foreign retailers to do business in the Philippines by lowering their paid-up capital requirement and removing certain qualifications for their operation in the country.

President Duterte signed Republic Act No. 11595 on Dec. 10, 2021, amending the Retail Trade Liberalization Act of 2000 (RA 8762), to allow foreign retailers to operate in the country with a minimum paid-up capital of only P25 million (about $500,000 at the current exchange rate), down from the original P125 million ($2.5 million).

The revised law, a signed copy of which was released to reporters on Thursday, also removed the requirement for foreign retailers to have a five-year track record in retailing, a $50-million to $200-million minimum net worth for their parent corporation, and five retailing branches or franchises in operation anywhere in the world.

P10M per store

Foreign retailers that have more than one physical store now need to invest only a minimum of P10 million per store. Previously, the investment required for establishing a store should not be less than $830,000 (about P41.5 million).

Under the revised law, however, foreign retailers may operate in the Philippines only if their country of origin does not prohibit the entry of Filipino retailers.

Foreign retailers will also be allowed to hire foreign nationals only if it is determined that there are no available “competent, willing and able Filipino citizens” to take on the job.

The law only encourages foreign retailers to have a stock inventory of products made in the Philippines.

Violation of the law will merit a four- to six-year jail term and fines ranging from P1 million to P5 million. If the violators are not Filipino citizens, they will be deported immediately after serving their sentence.

Review every 3 years

The Department of Trade and Industry, the Securities and Exchange Commission and the National Economic and Development Authority have been tasked to review the required minimum paid-up capital for foreign retailers every three years.

Proponents of the measure said the relaxation of qualifications for foreign investors was meant to encourage investment inflows to the country, create more jobs and enhance competition.

The Philippines has lagged behind its neighbors when it comes to foreign investments, they said.

The bill seeking to amend the Retail Trade Liberalization Act of 2000 was certified urgent by President Duterte in April last year to open up the economy to more foreign investors and help the country’s economy recover from the effects inflicted by the pandemic.

Ratification

The Senate and the House of Representatives ratified the bicameral conference committee report in September, reconciling the provisions of Senate Bill No. 1840 and House Bill No. 59.

Foreign business groups earlier batted for a much lower minimum capitalization requirement for foreign retailers.

The Senate had approved a measure that would set foreign retailers’ minimum paid-up capital at P50 million (around $1 million) and a required investment of at least P25 million per store. The House version of the bill approved in 2019 set a minimum paid-up capital of $200,000.

Foreign business groups had backed the Lower House proposal and called the Senate version an impediment to new foreign direct investment.

“This still-protectionist level (under the Senate version) is far higher than in Cambodia, Indonesia, Singapore, Vietnam and others, who also have large numbers of MSMEs (micro-, small-, and medium-sized enterprises) like the Philippines,” the groups said in an earlier statement.

Opposition

The Philippine Retailers Association, on the other hand, supported the Senate version, expressing concern that smaller businesses would lose out if the minimum capital requirements for foreign investors were lowered further.

The foreign business groups argued that the entry of foreign retail companies would create more jobs, including work in advertising, agriculture, construction and logistics.

“More foreign retail players create more competition, which is good for the Filipino consumer, especially the fast-growing middle class, who can purchase higher quality and more variety of goods at lower cost,” the groups added.

But during the Senate deliberations, Sen. Risa Hontiveros had warned that lowering the minimum capital investment for foreign investors would blow out the local retail market, arguing that the impending influx of foreign competition would impact on the already struggling local MSMEs.

“While I support measures that will help the economy bounce back, create jobs and bring prices down for consumers, lowering the minimum paid-up capital investment for foreign investors may further hurt small local businesses still reeling from the pandemic. This sudden drop can mean the difference between life and death for our Filipino retailers,” she said.

As of 2020, the Philippine Statistics Authority recorded 952,969 MSMEs operating in the country, or 99.51 percent of the 957,620 business enterprises in the Philippines. Of the total MSMEs, 850,127 were micro enterprises, 98,126 small enterprises and 4,716 medium enterprises.

—With a report from Inquirer Research