SECTION 1: Market outlook
1.1 How would you summarise your jurisdiction's attitude
towards the influence of Japanese corporate culture in its
Over the years, the Philippines has proven to Japan its
ability to be an effective platform for opportunities in trade
and investments for Japanese companies. Japan has been the
Philippines' most generous donor of official development
assistance for the past 23 years. Because of this symbiotic
relationship, Japanese corporate culture is not only seen as
desirable but is also perceived as vital to the mutual
development of both Asian countries.
1.2 What is the outlook for Japanese investment into your
jurisdiction over the next 12 months?
In October 2016, Philippine President Duterte secured
investments and loans, primarily from private Japanese firms,
amounting to $19 billion during his official visit to Japan. In
January 2017, Prime Minister Shinzo Abe pitched for more
Japanese firms to invest in the Philippines and capped off his
official visit to Manila with a ¥1 trillion ($8.9 billion)
pledge of aid and investments over the next five years. These
trends show that Japanese investments will be met with more
growth and optimism for the next couple of years. Current
trends with previous investments support this conclusion as
well: Japanese convenience store chains like Lawson and Family
Mart have already experienced expansion. The Bank of
Tokyo-Mitsubishi UFJ took a 20% stake in Philippine's Security
Bank, a leading local bank. The NTT group and Mitsubishi are
strategic shareholders of PLDT and Ayala Corp, among the
largest Philippine conglomerates. DMCI Holdings, a leading
construction firm in the Philippines, has partnered with
Marubeni on several infrastructure projects. These recent
developments show that there is a consistently increasing trend
of Japanese corporations realising significant gains in the
SECTION 2: Approving foreign
2.1 Explain the foreign investment approval process and
Generally, foreign investments do not need prior approval
separate from the approval required for establishing a presence
in the Philippines.
However, in the event that a foreign investor purchases or
subscribes to shares in an existing domestic corporation with
the result that the domestic corporation has a foreign equity
of more than 40% or, where the domestic corporation already has
40% foreign equity, further increases the foreign equity
percentage, then an application must be filed with the
Philippine Securities and Exchange Commission (SEC). It usually
takes two to three weeks for the approval of the SEC.
Additionally, there are special laws which require foreign
investors to obtain approval from the relevant regulators prior
to investment in regulated corporations, for example insurance
companies, banks and public utilities, among others.
2.2 Are there any investment restrictions in specially
regulated sectors and is the government entitled to any special
rights in these sectors?
The Philippine government releases a Foreign Investment
Negative List every two years which enumerates the areas of
activities wholly reserved to Philippine nationals and those
that are partially-nationalised and subject to limited
participation by foreign investors.
The Negative List contains two lists: List A, which
enumerates areas of investment where foreign ownership is
limited pursuant to the Philippine Constitution and/or by
specific laws; and List B, which enumerates areas of investment
where foreign ownership is limited for reasons of security,
defence, risk to health and morals and protection of local
small and medium scale enterprises.
As an example, mass media and retail trade with paid-up
capital of less than $2.5 million are reserved for Philippine
nationals or corporations 100% owned by Philippine nationals.
On the other hand, ownership of private lands, mining, and
operation and management of public utilities are reserved for
Philippine nationals or corporations at least 60% owned by
2.3 Which authority oversees competition clearance? Please
give a brief overview of the merger clearance process.
The Philippine Competition Commission holds original and
primary jurisdiction to enforce the Philippine Competition
To enable the Commission adequate opportunity to assess
whether a transaction is prohibited, the law requires parties
to a transaction to notify the Commission where the value of
the merger or acquisition transaction exceeds PHP1 billion ($20
The implementing rules and regulations for the Competition
Law expand the criteria for transactions requiring prior
notification by including total revenues of the target and the
level of ownership in the company to be acquired. If the
Commission does not act on the transaction within a period of
30 days from notification, the transaction may proceed.
However, the 30-day period may be extended for a period not
exceeding 60 days by a request for additional information by
Notification allows the Commission to determine whether or
not the transaction comes within the purview of the prohibited
mergers and acquisitions. If after evaluation, the Commission
concludes that the transaction is anathema to competition, the
Commission is empowered to take measures necessary to ensure
compliance with the law, such as outright prohibition of the
transaction or the recommendation and imposition of
modifications to the transaction. The requirement to notify the
Commission is in addition to any approvals already required by
laws or regulations that must be obtained from the relevant
regulatory authority (such as the central monetary authority
for transactions involving banks). The law therefore adds a
crucial closing condition for acquisition and financing
2.4 Are there further approval requirements that foreign
investors should be aware of?
In the event that a foreign investor will be purchasing
shares in an existing corporation, the investor will need to
obtain confirmation from the Bureau of Internal Revenue to
confirm that proper taxes have been paid for the purchase of
shares before the investor is reflected as the owner of record
of the shares in the books of the corporation.
SECTION 3: Investment techniques
3.1 What are the most common legal entities used for
Japanese investment in your jurisdiction?
The most common legal entities used for Japanese investment
in the Philippines are: a representative or liaison office; a
branch office; or a local subsidiary (domestic corporation).
The permissible activities, taxation, extent of liability of
the head office/parent company, exercise of management powers
and administrative costs will vary depending on the investment
3.2 What are the key requirements for establishment and
operation of these legal entities?
A representative office acts merely as a liaison office
between its head office and the latter's Philippine-based
clients or customers. The activities it may engage in are
limited to information dissemination, promotion and quality
control of the foreign company's products and the like.
A representative office in the Philippines is not allowed to
conclude sales contracts on behalf of its head office. It is
not allowed to derive income from the Philippines. Its expenses
are fully subsidised by its head office.
Capital requirements: at least $30,000 or its equivalent in
other acceptable foreign currency must be remitted into the
Philippines for use by the representative office.
If a foreign corporation desires to carry out the business
activities of its parent company in the Philippines and to
derive income from the Philippines, then it may establish a
A branch office is treated as the same juridical entity as
its parent foreign corporation. No independent juridical entity
is created by its establishment. Thus, any judgment or claim
for liability against the branch office in the Philippines will
be directed against the parent company. Furthermore, a branch
is considered a foreign entity. For this reason, if the
business activity is subject to foreign equity restrictions or
limitations, the foreign investor may not be allowed to
establish a branch office.
Capital requirements: generally, at least $200,000 or its
equivalent in other acceptable foreign currency must be
remitted into the Philippines for the branch office.
Domestic Corporation/Local Subsidiary
A foreign investor may also choose to establish a domestic
corporation or local subsidiary in the Philippines. A domestic
corporation or local subsidiary is a juridical person separate
and distinct from that of its shareholders. Thus, a local
subsidiary of a foreign corporation is deemed, both in law and
in fact, separate and distinct from its parent company. The
local subsidiary is a legally independent unit.
Capital requirements: generally, a domestic corporation with
foreign equity participation of more than 40% must have a
minimum paid-up capital equivalent to at least $200,000.
SECTION 4: Dispute resolution
4.1. How effective are local courts' enforcement and
dispute resolution proceedings, and what should Japanese
investors be particularly aware of?
A policy in favour of alternative methods of dispute
resolution (such as domestic, construction and international
commercial arbitration, as well as conciliation and mediation)
was expressly adopted through Republic Act No 9285. In the case
of international commercial arbitration, the ADR Act
particularly adopted the 1985 UNCITRAL Model Law on
International Commercial Arbitration.
4.2. Does your jurisdiction have a bilateral investment
protection treaty with Japan and is that commonly used by
The Philippines and Japan entered into a bilateral
investment protection treaty called the Philippine-Japan
Economic Partnership Agreement, which aims to increase and
protect investment opportunities between the two countries. At
present, the Philippines provides preferential rates,
particularly modified and reduced tariff on certain goods
imported from Japan, such as motor vehicles.
4.3. Do local courts respect foreign judgments and are
international arbitration awards enforceable?
Foreign judgments and foreign arbitral awards are
enforceable and respected in the Philippines.
Foreign judgments upon specific things are conclusive upon
the titles to the thing, while foreign judgments against a
person are mere presumptive evidence of a right between the
parties and their successors-in-interest. In both cases, the
foreign judgment may be repelled by evidence of want of
jurisdiction, want of notice to the party, collusion, fraud,
clear mistake of law or fact.
Recognition and enforcement of foreign arbitral awards are
governed by the 1958 New York Convention. The Philippines,
however, may recognise and enforce foreign arbitral awards
rendered in countries not covered by the New York Convention if
the said country extends comity and reciprocity to awards
rendered in the Philippines. Otherwise, it shall be enforced in
the same manner as foreign judgments and orders. Notably, a
merits review of foreign arbitral awards is not available,
since these are presumed to have been rendered in due course
and subject to enforcement by Philippine courts. Philippine
courts, nevertheless, may refuse foreign arbitral awards
recognition and enforcement based on limited grounds under
Article V of the New York Convention.
Although Philippine courts are inclined to recognise and
enforce foreign arbitral awards, uncertainty exists whether
interim measures of protection that can be invoked pending
arbitration are still available post-award.
SECTION 5: Forex controls and local
5.1 What foreign currency or exchange restrictions should
foreign investors be aware of?
The registration of foreign/non-resident investments with
the Philippine central bank, Bangko Sentral ng Pilipinas (BSP),
is not mandatory. The registration of foreign investments with
the BSP is only required if the foreign exchange needed to
service the repatriation of capital and the remittance of
dividends, profits and earnings which accrue thereon shall be
sourced from the Philippine banking system. Foreign exchange
needed for capital repatriation and remittance of dividends,
profits and earnings of unregistered foreign investment may be
sourced outside of the banking system.
SECTION 6: Tax implications
6.1 Are there tax structures and/or favourable intermediary
tax jurisdictions that are particularly useful for Japanese
investors into the country?
Generally, Japanese investors should seek to avail of the
tax incentives available to enterprises engaged in activities
entitled to such incentives. Further, Japanese investors should
take full advantage of the Philippine-Japan Tax Treaty.
6.2 What are the applicable rates of corporate tax and
withholding tax on dividends?
The corporate income tax in the Philippines is 30% of the
net taxable income of the corporation or branch office.
Generally, dividend tax to non-resident corporate stockholders
is a final tax of 30%. However, a non-resident Japanese
corporation may avail of the Philippine-Japan Tax Treaty to
enjoy a lower dividend tax rate.
6.3 Does the government have any tax incentive schemes in
Entities engaged in business in the Philippines may avail of
certain fiscal and non-fiscal incentives depending on the
nature of the business, the location where the business is
conducted and the government agency with which the business
will be registered.
Businesses may be located within any of the established
economic or freeport zones in various parts of the Philippines,
and incentives may be available upon registration and
compliance with the requirements prescribed by the respective
laws establishing such zones.
Businesses located outside an established economic or
freeport zone may avail of fiscal and non-fiscal incentives if
they qualify and register as a pioneer or non-pioneer
enterprise under the Philippines Omnibus Investments Code. An
enterprise may register as a pioneer or non-pioneer enterprise
with the Board of Investments (BOI) if its activity is listed
in the current Investments Priorities Plan.
BOI-registered enterprises are entitled to an income tax
holiday of six years for pioneer enterprises and four years for
non-pioneer enterprises. These enterprises may also be entitled
to zero percent duty on importation of capital equipment, spare
parts and accessories and exemption from taxes and duties on
imported supplies and spare parts, among others.
6.4 Are there any reciprocal tax arrangements between your
jurisdiction and Japan? If so, how can they aid investors?
There is an existing Philippine-Japan Tax Treaty for the
avoidance of double taxation of income tax. Among others, the
tax treaty provides a preferential rate for dividend tax for
residents of Japan. Generally, dividends paid to a Japan
resident are a ten percent of the gross amount of the dividends
if such resident directly owns at least ten percent either of
the voting shares of the company paying the dividends or of the
total shares issued by that company during the period of six
months immediately preceding the date of payment of the
dividends; or 15% of the gross amount of the dividends in all
Sylvette Y Tankiang
Senior partner, Villaraza &
T: 632 988 6088
F: 632 988 6000
Sylvette Tankiang heads Villaraza & Angangco's
tax department. She is a lecturer at the University of
the Philippines College of Law. Tankiang has special
expertise in the fields of taxation, mergers and
acquisitions, banking and finance, securities and power
and energy. She is also an active member and officer in
various local and international law associations.
Tankiang is a member of the Inter-Pacific Bar
She earned her bachelor of arts (honours) major in
economics from the De La Salle University, graduating
summa cum laude in 1977. She also obtained her bachelor
of laws degree from the University of the Philippines
College of law in 1981, graduating cum laude and
valedictorian. Tankiang earned her masters of laws
degree from Harvard University in 1986.
Franchette M Acosta
Senior partner, Villaraza &
T: 632 988 6088
F: 632 988 6000
Franchette Acosta heads Villaraza & Angangco's
corporate and commercial law department. She
specialises in commercial law and has counseled clients
in foreign investment transactions, mergers and
acquisitions of private and public companies and debt
and equity offerings (including initial public
offerings). Acosta is counsel for public/listed and
private companies in various industries, such as
banking and finance, telecommunications, property
development, mining and power and energy. She also
represents clients before government agencies for
procurement and build-operate and transfer
Acosta holds a masters of law degree (LLM) from New
York University, a bachelor of laws degree (LLB) from
the University of the Philippines College of Law,
graduating cum laude and valedictorian, and a bachelor
of science degree in business economics from the
University of the Philippines School of Economics where
she graduated magna cum laude.
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