Can a foreigner engage in retail business in the Philippines? The simple answer is YES, but the requirements are not that simple.
Every day we receive several inquiries from foreigners who came to the Philippines to introduce their business abroad locally. We have foreign clients who sell pharmaceuticals, cosmetics, religious items from the Dead Sea and various other products.
They have the capital. They have the source. And they have the marketing know-how. However, Philippine laws have set certain limitations before these foreigners can engage in retail business.
With good reason, retail is reserved for Filipinos. Filipinos who do not have as much capital as these foreigners will be deprived of making a living from their sari-sari shops.
The Immigration Bureau has repeatedly warned foreigners not to engage in retail trade without meeting the requirements, lest they be arrested or deported for violating retail trade and immigration laws. (December 2012, IDB Bulletin)
When is a business a RETAIL business?
If one typically sells merchandise, staples, or consumer goods to the general public, then he or she is engaged in a retail business as defined by law.
What is the requirement for a foreigner to engage in retail trade?
The foreigner or the corporation with foreign capital must have a capital of not less than two million five hundred thousand United States dollars (US$2,500,000.00).
Are all retail businesses covered by the Retail Trade Liberalization Act?
Not all withholding businesses are covered. There are exceptions where foreign ownership is allowed.
On the one hand, the sales made by a manufacturer of products manufactured by him are not considered retail trade, when his capital does not exceed one hundred thousand pesos (P 100,000.00).
The same happens with a farmer who sells the products of his farm.
Sales in restaurant operations by a hotel owner or innkeeper are also exempt, regardless of the amount of principal, when the restaurant is accessory to the hotel business.
Finally, sales that are limited solely to products made, processed, or assembled by a manufacturer through a single outlet, regardless of capitalization, are likewise outside the scope of the Retail Trade Liberalization Law.
If the foreigner has a capitalization of two million five hundred thousand US dollars (US$2,500,000.00), can the business be wholly foreign owned?
If the capitalization is at least 2.5 Million dollars but not more than 7.5 Million dollars, the foreigner may own up to sixty percent (60%) of the business. If the capitalization is at least seven million five hundred dollars, then it may be wholly foreign owned.
Likewise, companies specializing in high-end or luxury products with a paid-in capital of the equivalent in Philippine pesos of two hundred and fifty thousand United States dollars (US$250,000.00) per store may be wholly foreign owned.
Is the foreigner required to keep the capitalization amount in a Philippine bank?
Although the foreign investor will be required to maintain the full amount of the prescribed minimum capital in the Philippines, it is not required to maintain it in the bank. It is required to actually be used in its operations in the Philippines. The actual use of the funds will be overseen by the Securities and Exchange Commission.
