Retail Trade
Source:
"How to Invest in the Philippines" by PricewaterhouseCoopers Philippines (printed with permission from author)

Definitions, prequalification criteria, capitalization requirements, restrictions.

1) Can foreign investors engage in retail trade in the Philippines?

Yes. Republic Act (RA) No. 8762 or the Retail Trade Liberalization Act which took effect on March 26, 2000 paved the way for the entry of foreign participants who meet the capitalization, net worth, and other requirements under the Act.

2) How is "Retail Trade" defined?

"Retail Trade" shall mean any act, occupation or calling of habitually selling direct to general public merchandise, commodities or goods for consumption subject to certain exceptions.

3) To what extent is foreign ownership of retail enterprises in the country permitted?

Foreign ownership of Philippine retail enterprises depends on the amount of the enterprise's capitalization. Retail ventures with paid-up capital less than the peso equivalent of US$2,500,000 (Category A) is limited to Filipinos. Initially, within two years after the Act becomes effective (until March 26, 2002), foreign investors can own only up to 60% of retail enterprises with paid-up capital between US$250 million and US$750 million (Category B). Full foreign ownership of such ventures will be permitted after this two-year period.

Enterprises that have paid-up capital greater than US$750 million (Category C) as well as those that are engaged in the retail of high-end or luxury items (Category D) are fully open to foreign investors. The investment for opening a store in Categories B and C should not be below the peso equivalent of US$830,000.

4) What are the criteria to qualify as foreign retailers in the Philippines?

Foreign entity that will engage in the retail business or invest in a retail store in the Philippines must meet the following criteria:

a. Net worth of at least US$200 million of the parent corporation, for those that want to establish Categories B and C enterprises, and net worth of at least US$50 million for Category D;

a. Ownership of at least 5 retail stores or franchises anywhere in the world or at least one branch with capitalization of US$25 million or more;

b. Five-year track record in retailing; and

c. The foreign retailer's home country offers reciprocal benefits to Filipinos.

5) Can foreign investors acquire shares in an existing Philippine retail company?

Yes, as long as the net worth of the existing local store is at least the peso equivalent of US$2,500,000. For the first two years after the Act becomes effective, foreign investors may acquire a maximum of 60% of the local retail store's shares.

After the two-year period, the extent of stock acquisition will be made consistent with the allowable foreign participation in the different categories, as mentioned above.

6) What are the duties of the foreign participant with respect to its capital investment?

The foreign retailer must secure from the Bangko Sentral ng Pilipinas (BSP) and the Department of Trade and Industry (DTI) a certification confirming the inward remittance of its minimum capital investment. The Securities and Exchange Commission (SEC) will monitor the use of these funds in actual Philippine operations. The foreign investor is required to maintain this minimum capital amount unless it has notified the SEC and DTI that it intends to repatriate its capital and cease Philippine operations.

7) Once it has complied with the requirements for prequalification and registration, what other restrictions must a foreign retailer observe?

a. Philippine-made products must constitute at least 30% of the aggregate inventory cost of foreign retailers classified under Category B or C. The corresponding figure for Category D stores is 10%. This is required until March 26, 2010, or ten years after the effectivity of the Retail Trade Liberalization Act.

b. Foreign retailers are prohibited from engaging in trade outside its accredited stores. Specifically, the use of mobile carts, door-to-door selling, restaurants and sari-sari stores, and other retailing activites similar to these are prohibited.

c. Within eight years after the start of operations, Category B or C retail establishments with at least 80% foreign-ownership are required to offer 30% of its shares to the public.