The Philippines remains committed to improving its overall investment climate and recovering from the COVID-19 pandemic. Sovereign credit ratings remain at investment grade based on the country’s historically sound macroeconomic fundamentals, but one credit rating agency has updated its ratings with a negative outlook indicating a possible downgrade within the next year due to increasing public debt and inflationary pressures on the economy. Foreign direct investment (FDI) inflows rebounded to USD 10.5 billion, up 54 percent from USD 6.8 billion in 2020 and surpassing the previous high of USD 10.3 billion in 2017, according to the Bangko Sentral ng Pilipinas (the Philippine Central Bank). While 2021 was a record year for inward FDI, since 2010 the Philippines has lagged behind regional peers in the Association of Southeast Asian Nations (ASEAN) in attracting foreign investment. The Philippines ranked sixth out of ten ASEAN economies for total FDI inflows in 2020, and last among ASEAN-5 economies (which include Indonesia, Malaysia, the Philippines, Singapore, and Thailand) in cumulative FDI inflows from 2010-2020, according to World Bank data. The majority of FDI equity investments in 2021 targeted the manufacturing, energy, financial services, and real estate sectors. (https://www.bsp.gov.ph/SitePages/MediaAndResearch/MediaDisp.aspx?ItemId=6189)
Poor infrastructure, high power costs, slow broadband connections, regulatory inconsistencies, and corruption are major disincentives to investment. The Philippines’ complex, slow, and sometimes corrupt judicial system inhibits the timely and fair resolution of commercial disputes. Traffic in major cities and congestion in the ports remain barriers to doing business. The Philippines made progress in addressing foreign ownership limitations that has constrained investment in many sectors, through legislation such as the amendments to the Public Services Act, the Retail Trade Liberalization Act, and Foreign Investment Act, that were signed into law in 2022.
Amendments to the Public Services Act open previously closed sectors of the economy to 100 percent foreign investment. The amended law maintains foreign ownership restrictions in six “public utilities:” (1) distribution of electricity, (2) transmission of electricity, (3) petroleum and petroleum products pipeline transmission systems, (4) water pipeline distribution systems, (5) seaports, and (6) public utility vehicles. The newly approved Retail Trade Liberalization Act aims to boost foreign direct investment in the retail sector by reducing the minimum per-store investment requirement for foreign-owned retail trade businesses from USD 830,000 to USD 200,000. It will also reduce the quantity of locally manufactured products foreign-owned stores are required to carry. The Foreign Investment Act will ease restrictions on foreigners practicing their professions in the Philippines and grant them access to investment areas that were previously reserved for Philippine nationals, particularly in the education, technology, and retail sectors.
In addition, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act signed in March 2021 reduced the corporate income tax from ASEAN’s highest rate of 30 percent to 25 percent for large firms, and 20 percent for small firms. The rate for large firms will be gradually lowered to 20 percent by 2025. CREATE could attract new business investment, although some foreign investors have concerns about the phase-out of their incentive benefits, which are replaced by the performance-based and time-bound nature of the incentives scheme adopted in the measure.
While the Philippine bureaucracy can be slow and opaque in its processes, the business environment is notably better within the special economic zones, particularly those available for export businesses operated by the Philippine Economic Zone Authority (PEZA), known for its regulatory transparency, no red-tape policy, and one-stop shop services for investors. Finally, the Philippines’ infrastructure spending under the Duterte Administration’s “Build, Build, Build” infrastructure program is estimated to have exceeded USD100 billion over the 2017-2022 period.
|TI Corruption Perceptions Index||2021||117 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2021||51 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2020||5,199||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2020||USD3,430||https://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
The Philippines seeks foreign investment to support economic recovery, generate employment, promote economic development, and contribute to inclusive and sustained growth in targeted areas. In 2021, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act standardized the incentives regime across 14 investment promotion agencies (IPAs). With the reform, the Board of Investments (BOI) and Philippine Economic Zone Authority (PEZA) continue to be the country’s lead IPAs. The BOI approves incentives for projects with an investment capital of USD 20 million and below; the interagency Fiscal Incentives Review Board (FIRB) approves incentives for projects beyond the USD 20 million investment capital threshold. Noteworthy advantages of the Philippine investment landscape include free trade zones, including economic zones, and a large, educated, English-speaking, and relatively low-cost Filipino workforce. Philippine law treats foreign investors the same as their domestic counterparts, except in sectors reserved for Filipinos by the Philippine Constitution and the Foreign Investment Act (see details under Limits on Foreign Control section). Additional information regarding investment policies and incentives are available on the BOI (http://boi.gov.ph) and PEZA (http://www.peza.gov.ph) websites.
Restrictions on foreign ownership in some sectors, inadequate public investment in infrastructure, and lack of transparency in procurement tenders hinder foreign investment. The Philippines’ regulatory regime remains ambiguous in many sectors of the economy, and corruption is a significant problem. Large, family-owned conglomerates dominate the economic landscape, crowding out other smaller businesses.
Foreigners are prohibited from fully owning land under the 1987 Constitution, although the 1993 Investors’ Lease Act allows foreign investors to lease a contiguous parcel of up to 1,000 hectares (2,471 acres) for a maximum of 75 years. Dual citizens are permitted to own land.
The 2022 Foreign Investment Act (FIA) still requires the publishing every two years of the Foreign Investment Negative List (FINL), which outlines sectors in which foreign investment is restricted. The latest FINL was released in October 2018; an updated version of the FINL is currently under draft. The FINL bans foreign ownership/participation in the following investment activities: mass media (except recording and internet businesses); small-scale mining; private security agencies; utilization of marine resources; cockpits; manufacturing of firecrackers and pyrotechnic devices; manufacturing and distribution of nuclear, biological, chemical and radiological weapons; and manufacturing and distribution of anti-personnel mines. With the exception of the practices of law, radiologic and x-ray technology, and marine deck and marine engine officers, foreign professionals are allowed to practice in the Philippines if their country permits reciprocity for Philippine citizens. These professions include medicine, pharmacy, nursing, dentistry, accountancy, architecture, engineering, criminology, teaching, chemistry, environmental planning, geology, forestry, interior design, landscape architecture, and customs brokerage. In practice, however, language exams, onerous registration processes, and other barriers make it difficult for foreigners to practice in these fields.
The Philippines limits foreign ownership to 40 percent in the manufacturing of explosives, firearms, and military hardware; private radio communication networks; natural resource exploration, development, and utilization (with exceptions); educational institutions (with some exceptions); operation and management of public utilities; operation of commercial deep sea fishing vessels; Philippine government procurement contracts (40 percent for supply of goods and commodities); contracts for the construction and repair of locally funded public works (with some exceptions); ownership of private land; and rice and corn production and processing (with some exceptions). Other areas that carry varying foreign ownership ceilings include the following: private employee recruitment firms (25 percent) and advertising agencies (30 percent). The amended FIA includes 100 percent foreign ownership for enterprises with a minimum paid-in capital of USD 100,000 involved in advanced technology (as determined by the Department of Science and Technology), endorsed as start-ups or start-up enablers (pursuant to the Innovative Startup Act), and where a majority of direct hires (but not less than 15 workers) are local talent. The FINL, however, is limited in scope since it cannot change prior laws related to foreign investments, such as Constitutional provisions which bar investment in mass media, utilities, and natural resource extraction.
In the telecommunications sector, the Philippines’ existing regulations limit competition and create barriers to entry. Telecommunications services in the Philippines are classified as either “basic” or “enhanced” value added. Internet service providers as value-added service providers cannot build their own fiber network for commercial purpose and are required to connect to franchised telecommunication facilities for their service. Only companies with a legislative franchise and public telecommunication entities are allowed to build transmission and switching facilities, offer a local exchange service (landline), and operate inter-exchange service (backbone) and an international gateway facility.
Amendments to the Retail Trade Liberalization Act lowered the minimum investment requirement for foreign retailers from USD 2.5 million to USD 500,000 and per-store investment requirement from USD 830,000 to USD 200,000. It also removed the USD 250,000 minimum investment for retailers of luxury goods. In effect, retail trade enterprises with capital of less than USD 500,000 are still reserved for Filipinos. The Philippines allows up to full foreign ownership of insurance adjustment, lending, financing, or investment companies; however, foreign investors are prohibited from owning stock in such enterprises, unless the investor’s home country affords the same reciprocal rights to Filipino investors.
Foreign banks are allowed to establish branches or own up to 100 percent of the voting stock of locally incorporated subsidiaries if they can meet certain requirements. However, a foreign bank cannot open more than six branches in the Philippines. A minimum of 60 percent of the total assets of the Philippine banking system should, at all times, remain controlled by majority Philippine-owned banks. Ownership caps apply to foreign non-bank investors, whose aggregate share should not exceed 40 percent of the total voting stock in a domestic commercial bank and 60 percent of the voting stock in a thrift/rural bank.
The World Trade Organization (WTO) and the Organization for Economic Co-operation and Development (OECD) conducted a Trade Policy Review of the Philippines in March 2018 and an Investment Policy Review of the Philippines in 2016, respectively. The reviews are available online at the WTO website (https://www.wto.org/english/tratop_e/tpr_e/tp468_e.htm) and OECD website (http://www.oecd.org/daf/oecd-investment-policy-reviews-philippines-2016-9789264254510-en.htm).
Business registration in the Philippines is cumbersome due to multiple agencies involved in the process. It takes an average of 33 days to start a business in Quezon City in Metro Manila, according to the 2020 World Bank’s Ease of Doing Business report. The Duterte Administration’s landmark law, Republic Act No. 11032 or the Ease of Doing Business and Efficient Government Service Delivery Act of 2018 (better known as the “Ease of Doing Business Act”), sought to address the issues through the amendment of the Anti-Red Tape Act of 2007 (https://www.officialgazette.gov.ph/2018/05/28/republic-act-no-11032/). The Ease of Doing Business Act legislates standardized deadlines for government transactions, a single business application form, a one-stop-shop to issue or renew permits and licenses, automation of business permits processing, a zero-contact policy, and a central business databank. Implementing rules and regulations for the Act were signed in 2019 (http://arta.gov.ph/pages/IRR.html). The law also created an Anti-Red Tape Authority (ARTA) under the Office of the President to oversee national policy on anti-red tape issues and implement reforms to improve competitiveness rankings. ARTA also monitors compliance of agencies and issues notices to erring and non-compliant government employees and officials.
ARTA is governed by a council that includes the Secretaries of Trade and Industry, Finance, Interior and Local Governments, and Information and Communications Technology. The Department of Trade and Industry serves as interim Secretariat for ARTA. Since passage of the 2018 Ease of Doing Business Act, the Philippines jumped 29 notches in the World Bank’s 2020 Doing Business Report ranking to 95th, with the ARTA pushing for the full adoption of an online application system as an efficient alternative to on-site application procedures, issue online permits, and use e-signatures in the processing of government transactions. In the past year, ARTA has launched integrated business registration portals, a database of government services and service standards, and the country’s first Regulatory Impact Assessment (RIA) manual, in line with the Ease of Doing Business Act’s mandate for government agencies to undergo an RIA process before proposing new regulations.
The Revised Corporation Code, a business-friendly amendment that encourages entrepreneurship, improves the ease of business and promotes good corporate governance. This new law amends part of the four-decade-old Corporation Code and allows for existing and future companies to hold a perpetual status of incorporation, compared to the previous 50-year term limit which required renewal. More importantly, the amendments allow for the formation of one-person corporations, providing more flexibility to conduct business; the old code required all incorporation to have at least five stockholders and provided less protection from liabilities.
There are no restrictions on outward portfolio investments for Philippine residents, defined to include non-Filipino citizens who have been residing in the country for at least one year; foreign-controlled entities organized under Philippine laws; and branches, subsidiaries, or affiliates of foreign enterprises organized under foreign laws operating in the country. However, outward investments funded by foreign exchange purchases above USD 60 million, or its equivalent per investor per year, require prior notification to the Central Bank.
3. Legal Regime
Proposed Philippine laws must undergo public comment and review. Government agencies are required to craft implementing rules and regulations (IRRs) through public consultation meetings within the government and with private sector representatives after laws are passed. New regulations must be published in newspapers or in the government’s online official gazette before taking effect (https://www.gov.ph/). The 2016 Executive Order on Freedom of Information (FOI) mandates full public disclosure and transparency of government operations, with certain exceptions. The public may request copies of official records through the FOI website (https://www.foi.gov.ph/). Government offices in the Executive Branch are expected to develop their respective agencies’ implementation guidelines. The order is criticized for its long list of exceptions, which render the policy less effective.
Stakeholders report regulatory enforcement in the Philippines is generally weak, inconsistent, and unpredictable. Many U.S. investors describe business registration, customs, immigration, and visa procedures as burdensome and frustrating. Regulatory agencies are generally not statutorily independent but are attached to cabinet departments or the Office of the President and, therefore, are subject to political pressure. Issues in the judicial system also affect regulatory enforcement.
The Philippines is a member of the World Trade Organization (WTO) and provides notice of draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). (http://tbtims.wto.org/en/Notifications/Search?ProductsCoveredHSCodes=&ProductsCoveredICSCodes=&DoSearch=True&ExpandSearchMoreFields=False&NotifyingMember=Philippines&DocumentSymbol=&DistributionDateFrom=&DistributionDateTo=&SearchTerm=&ProductsCovered=&DescriptionOfContent=&CommentPeriod=&FinalDateForCommentsFrom=&FinalDateForCommentsTo=&ProposedDateOfAdoptionFrom=&ProposedDateOfAdoptionTo=&ProposedDateOfEntryIntoForceFrom=&ProposedDateOfEntryIntoForceTo=).
The Philippines continues to fulfill required regulatory reforms under the ASEAN Economic Community (AEC). The Philippines officially joined live operations of the ASEAN Single Window (ASW) on December 30, 2019. The country’s National Single Window (NSW) now issues an electronic Certificate of Origin via the TRADENET.gov.ph platform, and the NSW is connected to the ASW, allowing for customs efficiencies and better transparency.
The Philippines passed the Customs Modernization and Tariff Act in 2016, which enables the country to largely comply with the WTO Agreement on Trade Facilitation.
The Philippines has a mixed legal system of civil, common, Islamic, and customary laws, along with commercial and contractual laws.
The Philippine judicial system is a separate and largely independent branch of the government, made up of the Supreme Court and lower courts. The Supreme Court is the highest court and sole constitutional body. More information is available on the court’s website (http://sc.judiciary.gov.ph/). The lower courts consist of: (a) trial courts with limited jurisdictions (i.e., Municipal Trial Courts, Metropolitan Trial Courts, etc.); (b) Regional Trial Courts (RTCs); (c) Shari’ah District Courts (Muslim courts); and (d) Courts of Appeal (appellate courts). Special courts include the Sandiganbayan (anti-graft court for public officials) and the Court of Tax Appeals. A total of 147 RTCs have been designated as Special Commercial Courts (SCC) to hear intellectual property (IP) cases, with four SCCs authorized to issue writs of search and seizure on IP violations, enforceable nationwide. In addition, nearly any case can be appealed to appellate courts, including the Supreme Court, increasing caseloads and further clogging the judicial system.
Foreign investors describe the inefficiency and uncertainty of the judicial system as a significant disincentive to investment. Many investors decline to file dispute cases in court because of slow and complex litigation processes and corruption among some personnel. The courts are not considered impartial or fair. Stakeholders also report an inexperienced judiciary when confronted with complex issues such as technology, science, and intellectual property cases. The Philippines ranked 152nd out of 190 economies, and 18th among 25 economies from East Asia and the Pacific, in the World Bank’s 2020 Ease of Doing Business report in terms of enforcing contracts.
The interagency Fiscal Incentives Review Board (FIRB) is the ultimate governing body that oversees the administration and grant of tax incentives by investments promotions agencies (IPAs). Chaired by the Philippine Secretary of Finance, the FIRB also determines the target performance metrics used as conditions to avail of tax incentives and reviews, approves, and cancels incentives for investments above USD 20 million as endorsed by IPAs. The BOI regulates and promotes investment into the Philippines that caters to the domestic market. The Strategic Investment Priorities Plan (SIPP), administered by the BOI, identifies preferred economic activities approved by the President. Government agencies are encouraged to adopt policies and implement programs consistent with the SIPP.
The Foreign Investment Act (FIA) requires the publishing of the Foreign Investment Negative List (FINL) that outlines sectors in which foreign investment is restricted. The FINL consists of two parts: Part A details sectors in which foreign equity participation is restricted by the Philippine Constitution or laws; and Part B lists areas in which foreign ownership is limited for reasons of national security, defense, public health, morals, and/or the protection of small and medium enterprises (SMEs).
The 1995 Special Economic Zone Act allows the Philippine Economic Zone Authority (PEZA) to regulate and promote investments in export-oriented manufacturing and service facilities inside special economic zones, including the granting of fiscal and non-fiscal incentives for investments worth USD 20 million and below.
Further information about investing in the Philippines is available at the BOI website (http://boi.gov.ph/) and PEZA website (http://www.peza.gov.ph).
The 2015 Philippine competition law established the Philippine Competition Commission (PCC), an independent body mandated to resolve complaints on issues such as price fixing and bid rigging, to stop mergers that would restrict competition. More information is available on PCC website (http://phcc.gov.ph/#content). The Department of Justice (https://www.doj.gov.ph/) prosecutes criminal offenses involving violations of competition laws.
Philippine law allows expropriation of private property for public use or in the interest of national welfare or defense in return for fair market value compensation. In the event of expropriation, foreign investors have the right to receive compensation in the currency in which the investment was originally made and to remit it at the equivalent exchange rate. However, the process of agreeing on a mutually acceptable price can be protracted in Philippine courts. No recent cases of expropriation involve U.S. companies in the Philippines.
The 2016 Right-of-Way Act facilitates acquisition of right-of-way sites for national government infrastructure projects and outlines procedures in providing “just compensation” to owners of expropriated real properties to expedite implementation of government infrastructure programs.
The 2010 Philippine bankruptcy and insolvency law provides a predictable framework for rehabilitation and liquidation of distressed companies, although an examination of some reported cases suggests uneven implementation. Rehabilitation may be initiated by debtors or creditors under court-supervised, pre-negotiated, or out-of-court proceedings. The law sets conditions for voluntary (debtor-initiated) and involuntary (creditor-initiated) liquidation. It also recognizes cross-border insolvency proceedings in accordance with the United Nations Conference on Trade and Development (UNCTAD) Model Law on Cross-Border Insolvency, allowing courts to recognize proceedings in a foreign jurisdiction involving a foreign entity with assets in the Philippines. Regional trial courts designated by the Supreme Court have jurisdiction over insolvency and bankruptcy cases.
4. Industrial Policies
The Philippines’ Investment Priorities Plan (IPP) enumerates investment activities entitled to incentives facilitated by BOI, such as an income tax holiday. Non-fiscal incentives include the following: employment of foreign nationals, simplified customs procedures, duty exemption on imported capital equipment and spare parts, importation of consigned equipment, and operation of a bonded manufacturing warehouse.
The transitional 2020 IPP provides incentives for the following activities: COVID-19 mitigation, manufacturing (e.g., agro-processing, modular housing components, machinery, and equipment); agriculture, fishery, and forestry (e.g., hatcheries, postharvest facilities, nurseries); integrated circuit design, creative industries, and knowledge-based services (e.g., IT-Business Process Management services for the domestic market); repair, maintenance, and overhaul of aircraft; charging/refueling stations for alternative energy vehicles; industrial waste treatment; telecommunications (e.g., connectivity facilities and mobile broadband services); engineering, procurement, and construction; healthcare and disaster risk reduction management services (e.g., hospitals, drug rehabilitation centers, and quarantine and evacuation centers); mass housing; infrastructure and logistics (e.g., airports, seaports, and PPP projects); inclusive business models (activities of medium and large enterprises in agribusiness and tourism that include micro and small enterprises in their value chains); energy (development of energy sources, power generation plants, and ancillary services); innovation drivers (e.g., fabrication laboratories); and environment (e.g., climate change-related projects). Further details of the 2020 IPP are available on the BOI website (http://boi.gov.ph/). The BOI was tasked to update the investment priorities and formulate a Strategic Investment Priorities Plan to replace the IPP in light of the enactment of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act on March 26, 2021 under the Comprehensive Tax Reform Program.
Domestic-oriented foreign-owned enterprises whose foreign ownership exceeds 40 percent may qualify for BOI incentives, such as specific tax credits and tax exemptions, if the enterprise’s proposed activity is listed in the SIPP or meets the criteria of industry tiers and/or location.
The first package of the Tax Reform for Acceleration and Inclusion (TRAIN) law, which took effect January 1, 2018, removed the 15 percent special tax rate on gross income of employees of multinational enterprises’ regional headquarters (RHQ) and regional operating headquarters (ROHQ) located in the Philippines. RHQ and ROHQ employees are now subject to regular income tax rates, usually at higher and less competitive rates than before the implementation of the TRAIN law.
Export-oriented businesses enjoy preferential tax treatment when located in export processing zones, free trade zones, and certain industrial estates, collectively known as economic zones, or ecozones. Businesses located in ecozones are considered outside customs territory and are allowed to import capital equipment and raw material free of customs duties, taxes, and other import restrictions. Goods imported into ecozones may be stored, repacked, mixed, or otherwise manipulated without being subject to import duties and are exempt from the Bureau of Customs’ Selective Pre-shipment Advance Classification Scheme. While some ecozones are designated as both export processing zones and free trade zones, individual businesses within them are only permitted to receive incentives under a single category.
The BOI imposes a higher export performance requirement on foreign-owned enterprises (70 percent of production) than on Philippine-owned companies (50 percent of production) when providing incentives under SIPP.
Companies registered with BOI and PEZA may employ foreign nationals in supervisory, technical, or advisory positions for five years from date of registration (possibly extendable upon request). Top positions and elective officers of majority foreign-owned BOI-registered enterprises (such as president, general manager, and treasurer, or their equivalents) are exempt from employment term limitation. Foreigners intending to work locally must secure an Alien Employment Permit from the Department of Labor and Employment (DOLE), renewable every year with the duration of employment (which in no case shall exceed five years). The BOI and PEZA facilitate special investor’s resident visas with multiple entry privileges and extend visa facilitation assistance to foreign nationals, their spouses, and dependents.
The 2006 Biofuels Act establishes local content requirements for diesel and gasoline. Regarding diesel, only locally produced biodiesel is permitted. For gasoline, all local ethanol must be bought off the market before imports are allowed to meet the blend requirement, and the local ethanol production may only be sourced from locally produced sugar/molasses feedstock.
The Philippines does not impose restrictions on cross-border data transfers. Sensitive personal information is protected under the 2012 Data Privacy Act, which provides penalties for unauthorized processing and improper disposal of data even if processed outside the Philippines.
5. Protection of Property Rights
The Philippines recognizes and protects property rights, but the enforcement of laws is weak and fragmented. The Land Registration Authority and the Register of Deeds (http://www.lra.gov.ph/ ), which facilitate the registration and transfer of property titles, are responsible for land administration, with more information available on their websites. Property registration processes are tedious and costly. Multiple agencies are involved in property administration, which results in overlapping procedures for land valuation and titling processes. Record management is weak due to a lack of funds and trained personnel. Corruption is also prevalent among land administration personnel and the court system is slow to resolve land disputes. The Philippines ranked 120th out of 190 economies in terms of ease of property registration in the World Bank’s 2020 Ease of Doing Business report.
The Philippines is not listed on the United States Trade Representative’s (USTR) Special 301 Watch List. The country has a generally robust intellectual property rights (IPR) regime in place, although enforcement is irregular and inconsistent. The total estimated value of counterfeit goods reported seized in 2021 was close to USD 500 million, significantly higher than the USD 193 million recorded in 2020 and the previous record high of USD 472 million in 2018, a sign of enforcement activities returning to pre-pandemic levels. The sale of imported counterfeit goods in local markets has visibly decreased since the start of the COVID-19 pandemic, though the amount of counterfeit goods sold online has dramatically increased due to the shift of most businesses to online activities.
The Intellectual Property (IP) Code provides a legal framework for IPR protection, particularly in key areas of patents, trademarks, and copyrights. The Intellectual Property Office of the Philippines (IPOPHL) is the implementing agency of the IP Code, with more information available on its website (https://www.ipophil.gov.ph/). The Philippines generally has strong patent and trademark laws. IPOPHL’s IP Enforcement Office (IEO) reviews IPR-related complaints and visits establishments reportedly engaged in IPR-related violations. However, weak border protection, corruption, limited enforcement capacity by the government, and lack of clear procedures continue to weaken enforcement. In addition, IP owners still must assume most enforcement and storage costs when counterfeit goods are seized.
Enforcement actions are often not followed by successful prosecutions. The slow and capricious judicial system keeps most IP owners from pursuing cases in court. IP infringement is not considered a major crime in the Philippines and takes a lower priority in court proceedings, especially as the courts become more crowded with criminal cases deemed more serious, which receive higher priority. Many IP owners opt for out-of-court settlements (such as ADR) rather than filing a lawsuit that may take years to resolve in the unpredictable Philippine courts.
The IPOPHL has jurisdiction to resolve certain disputes concerning alleged infringement and licensing through its Arbitration and Mediation Center.
The Philippines has been a member of the World Intellectual Property Organization (WIPO) since 1980. For additional information about treaty obligations and points of contact at the local IP offices, see WIPO’s country profiles at http://www.wipo.int/directory/en/.
6. Financial Sector
The Philippines welcomes the entry of foreign portfolio investments, including in local and foreign-issued equities listed on the Philippine Stock Exchange (PSE). Investments in certain publicly listed companies are subject to foreign ownership restrictions specified in the Constitution and other laws, but the recent amendments to the Public Service Act opened several economic sectors like transportation and telecommunications that were previously closed to 100 percent foreign ownership.
Non-residents are allowed to issue bonds/notes or similar instruments in the domestic market with prior approval from the Central Bank; in certain cases, they may also obtain financing in Philippine pesos from authorized agent banks without prior Central Bank approval.
Although growing, the PSE (with 281 listed firms as of March 2022) lags many of its neighbors in size, product offerings, and trading activity. Efforts are underway to deepen the equity market, including introduction of new instruments (e.g., real investment trusts) and amend listing rules for small and medium enterprises (SME). In 2021, companies raised a record $4.5 billion in capital in PSE, including eight initial public offerings. The growth in market participation of local retail investors also supported robust PSE trading activity over the past year amid a retreat by foreign investors. The securities market is growing, and while it remains dominated by government bills and bonds, corporate issuances continue to expand due to the favorable interest rate environment, regulatory reforms, and digital transition. Hostile takeovers are uncommon because most companies’ shares are not publicly listed and controlling interest tends to remain with a small group of parties. Cross-ownership and interlocking directorates among listed companies also decrease the likelihood of hostile takeovers.
The Bangko Sentral ng Pilipinas (BSP/Central Bank) does not restrict payments and transfers for current international transactions in accordance with the country’s acceptance of International Monetary Fund Article VIII obligations of September 1995. Purchase of foreign currencies for trade and non-trade obligations and/or remittances requires submission of a foreign exchange purchase application form if the foreign exchange is sourced from banks and/or their subsidiary/affiliate foreign exchange corporations falls within specified thresholds (USD 500,000 for individuals and USD 1 million for corporates/other entities). Purchases above the thresholds are also subject to the submission of minimum documentary requirements but do not require prior Central Bank approval. Meanwhile, a person may freely bring in or carry out foreign currencies up to USD 10,000; more than this threshold requires submission of a foreign currency declaration form.
Credit is generally granted on market terms and foreign investors are able to obtain credit from the liquid domestic market. Some laws require financial institutions to set aside loans for preferred sectors such as agriculture, agrarian reform, and MSMEs. Notwithstanding, bank loans to these sectors remain constrained; for example, MSMEs loans only had a 4.7 percent share of the total banking system loans as of end-June and had been declining since 2015, despite comprising 99 percent of domestic firms. The government has implemented measures to promote lending to preferred sectors at competitive rates, including the establishment of a centralized credit information system, enactment of the 2018 Personal Property Security Law allowing the use of non-traditional collaterals (e.g., movable assets like machinery and equipment and inventories), and the temporary use of MSME loans as commercial banks’ alternative compliance with the reserve requirements against deposit liabilities and substitutes. The government also established the Philippine Guarantee Corporation in 2018 to expand development financing by extending credit guarantees to priority sectors, including MSMEs.
The BSP is a highly respected institution that oversees a stable banking system. It has pursued regulatory reforms promoting good governance and aligning risk management regulations with international standards. The Philippines’ banking system sustained its solid footing amid the pandemic, with capital adequacy ratios well above the Bank for International Settlements’ eight percent minimum threshold and the BSP’s 10 percent regulatory requirement. Loan quality remained manageable, with a non-performing loan ratio of 4.0 percent as of end-2021. High liquidity coverage ratio (197.6 percent) and net stable funding ratio (143.6 percent) suggest that banks can meet funding requirements during short and medium term liquidity shocks.
Commercial banks constitute more than 93 percent of the total assets of the Philippine banking industry. As of September 2021, the five largest commercial banks represented 60 percent of the total resources of the commercial banking sector. The banking system was liberalized in 2014, allowing the full control of domestic lenders by non-residents and lifting the limits to the number of foreign banks that can operate in the country, subject to central bank prudential regulations. Twenty-six of the 45 universal and commercial banks operating in the country are foreign branches and subsidiaries, including three U.S. banks (Citibank, Bank of America, and JP Morgan Chase). Citibank sold its consumer banking unit to a local bank in 2021, with the transition expected to be completed in 2022. Despite the adequate number of operational banks, 15 percent of cities and municipalities in the Philippines were still without banking presence as of end-June 2021 and 4.4 percent were without any financial access point. The BSP nonetheless has made significant progress in expanding financial inclusion, with 53 percent of adults having bank accounts (from 34 percent in 2019) as of end-June 2021 – closer to its 70 percent target by 2023. Recent payment system reforms through the BSP’s National Retail Payment System have also increased individuals and enterprises’ access to e-wallet accounts, allowing them to do financial transactions without formal bank accounts, increasing the efficiency of financial transactions in the country.
Foreign residents and non-residents may open foreign and local currency bank accounts. Although non-residents may open local currency deposit accounts, they are limited to the funding sources specified under Central Bank regulations. Should non-residents decide to convert to foreign currency their local deposits, sales of foreign currencies are limited up to the local currency balance. Non-residents’ foreign currency accounts cannot be funded from foreign exchange purchases from banks and banks’ subsidiary/affiliate foreign exchange corporations.
The Philippines does not presently have sovereign wealth funds.
7. State-Owned Enterprises
State-owned enterprises, known in the Philippines as government-owned and controlled corporations (GOCC), are predominantly in the finance, power, transport, infrastructure, communications, land and water resources, social services, housing, and support services sectors. The Governance Commission for GOCC (GCG) further reduced the number of GOCCs to 118 in 2020 (excluding water districts), from 133 the prior year; a list is available on their website (https://gcg.gov.ph). The government corporate sector has combined assets of USD 150 billion and liability of USD 103 billion (or net assets/equity worth about USD 46 billion) as of end-2020. Using adjusted comprehensive income (i.e., without subsidies, unrealized gains, etc.), the GOCC sector’s income declined by 55 percent to USD 1.1 billion in 2020, the lowest since 2015. GOCCs are required to remit at least 50 percent of their annual net earnings (e.g., cash, stock, or property dividends) to the national government. Competition-related concerns, arising from conflicting mandates for selected GOCCs, exist in the transportation sector. For example, both the Philippine Ports Authority and the Civil Aviation Authority of the Philippines have both commercial and regulatory mandates.
Private and state-owned enterprises generally compete equally. The Government Service Insurance System (GSIS) is the only agency, with limited exceptions, allowed to provide coverage for the government’s insurance risks and interests, including those in build-operate-transfer (BOT) projects and privatized government corporations. Since the national government acts as the main guarantor of loans, stakeholders report GOCCs often have an advantage in obtaining financing from government financial institutions and private banks. Most GOCCs are not statutorily independent, thus could potentially be subject to political interference.
The Philippines is not an OECD member country. The 2011 GOCC Governance Act addresses problems experienced by GOCCs, including poor financial performance, weak governance structures, and unauthorized allowances. The law allows unrestricted access to GOCC account books and requires strict compliance with accounting and financial disclosure standards; establishes the power to privatize, abolish, or restructure GOCCs without legislative action; and sets performance standards and limits on compensation and allowances. The GCG formulates and implements GOCC policies. GOCC board members are limited to one-year terms and subject to reappointment based on a performance rating set by GCG, with final approval by the Philippine President.
The Philippine Government’s privatization program is managed by the Privatization and Management Office (PMO) under the Department of Finance. The privatization of government assets undergoes a public bidding process. Apart from restrictions stipulated in FINL, no regulations discriminate against foreign buyers, and the bidding process appears to be transparent. The PMO is currently reviewing the privatization of government-owned mining assets as part of the Philippine government’s revenue-generating measures adopted during the pandemic. Additional information is available on the PMO website (http://www.pmo.gov.ph/ ).
8. Responsible Business Conduct
Responsible Business Conduct (RBC) is regularly practiced in the Philippines, although no domestic laws require it. The Philippine Tax Code provides RBC-related incentives to corporations, such as tax exemptions and deductions. Various non-government organizations and business associations also promote RBC. The Philippine Business for Social Progress (PBSP) is the largest corporate-led social development foundation involved in advocating corporate citizenship practice in the Philippines. U.S. companies report strong and favorable responses to RBC programs among employees and within local communities.
The Philippines is not an OECD member country. The Philippine government strongly supports RBC practices among the business community but has not yet endorsed the OECD Guidelines for Multinational Enterprises to stakeholders.
Department of State
- Country Reports on Human Rights Practices;
- Trafficking in Persons Report;
- Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
- U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
- Xinjiang Supply Chain Business Advisory
Department of the Treasury
Department of Labor
The Philippines is highly vulnerable to the effects of climate change and is already observing its effects, including increased storms and increased storm intensity of up to 50 percent, as well as climate-sensitive diseases such as dengue fever. Philippine government agencies are researching effects on food security, including crop performance and fish population sustainability. Agriculture sector representatives note climate change has also changed typhoon paths. The Asian Development Bank estimated the Philippines would lose 6 percent of its GDP annually by 2100 if it disregards climate change risks.
While the Philippines emits less than 0.4 percent of the world’s greenhouse gas (GHG) emissions, through its Nationally Determined Contribution (NDC) under the Paris Agreement it committed to reduce or avoid 75 percent of GHG emissions by 2020 to 2030 (compared to a business-as-usual model), with reductions coming from the agriculture, waste, industry, transport, and energy sectors. The NDC commitment is predicated on significant international support (including through grants, concessional finance, and private sector investment) and calls for the Philippine government to ensure access to climate finance, support technology development and transfer, provide capacity building, and implement circular economy and sustainable consumption and production practices.
The Philippines is poised to rely on private investment to fund its planned commercially viable “green” infrastructure investment opportunities, which will support the country’s transition to a low carbon economy. The Philippines Investment Coordination Committee (ICC) and the Committee on Infrastructure of the National Economic Development Authority (NEDA) identified big-ticket green infrastructure projects to be added to the national project pipeline, including opportunities in ICT, water, transportation, the digital economy, and the health care sector. The Philippine Securities and Exchange Commission adopted measures to develop a sustainable financial market, including ASEAN Green Bond Standards, ASEAN Social Bond Standards, and ASEAN Sustainability Bond Standards. In 2020, Philippine sustainable bond issuance totaled USD 3.4 billion, 90 percent of which was issued by Philippine banks or Philippine renewable energy, infrastructure, and real estate companies.
The Philippine Climate Change Commission (CCC) formulated the National Climate Change Action Plan (NCCAP) which outlines the country’s agenda for climate adaptation and mitigation for 2011 to 2028. The NCCAP includes a framework to assign economic value to natural resources. The Philippine Development Plan (2017-2022) also calls for strengthened law enforcement to enhance compliance with existing environmental laws and innovative waste and pollution management strategies (to include mitigating effects from COVID-19 response and medical waste). The NCCAP also encourages public investment in climate change action, while the People’s Survival Fund (managed by the CCC) offers local government units dedicated funding to finance local climate adaptation programs and projects.
Foreign investment restrictions remain in the renewable energy sector. While foreign companies can fully own and operate biomass and geothermal projects in the country, the National Renewable Energy Board interprets the Constitutional provision “all natural resources with energy potential should undergo service contracting” as restricting wind and solar projects to the common 40 percent foreign equity ceiling (similar to public utilities). These restrictions hamper badly needed foreign investment in the wind and solar energy sectors.
Corruption is a pervasive and long-standing problem in both the public and private sectors. The country’s ranking in Transparency International’s 2021 Corruption Perceptions Index declined to the 117th spot (out of 180), its worst score in nine years. The 2021 ranking was also dragged down by the government’s poor response to COVID-19, with Transparency International characterizing it as abusive enforcement of laws and accusing the government of major human rights and media freedom violations. Various organizations, including the World Economic Forum, have cited corruption among the top problematic factors for doing business in the Philippines. The Bureau of Customs is still considered to be one of the most corrupt agencies in the country.
The Philippine Development Plan 2017-2022 outlines strategies to reduce corruption by streamlining government transactions, modernizing regulatory processes, and establishing mechanisms for citizens to report complaints. A front-line desk in the Office of the President, the Presidential Complaint Center, or PCC (https://op-proper.gov.ph/contact-us/ ), receives and acts on corruption complaints from the general public. The PCC can be reached through its complaint hotline, text services (SMS), and social media sites.
The Philippine Revised Penal Code, the Anti-Graft and Corrupt Practices Act, and the Code of Ethical Conduct for Public Officials all aim to combat corruption and related anti-competitive business practices. The Office of the Ombudsman investigates and prosecutes cases of alleged graft and corruption involving public officials. Cases against high-ranking officials are brought before a special anti-corruption court, the Sandiganbayan, while cases against low-ranking officials are filed before regional trial courts.
The Office of the President can directly investigate and hear administrative cases involving presidential appointees in the executive branch and government-owned and controlled corporations. Soliciting, accepting, and/or offering/giving a bribe are criminal offenses punishable by imprisonment, a fine, and/or disqualification from public office or business dealings with the government. Government anti-corruption agencies routinely investigate public officials, but convictions by courts are limited, often appealed, and can be overturned. Recent positive steps include the creation of an investors’ desk at the office of the ombuds Office, and corporate governance reforms of the Securities and Exchange Commission.
The Philippines ratified the United Nations Convention against Corruption in 2003. It is not a signatory to the OECD Convention on Combating Bribery.
Contact at the government agency or agencies that are responsible for combating corruption:
Office of the Ombudsman
Ombudsman Building, Agham Road, North Triangle
Diliman, Quezon City
Hotline: (+632) 8926.2662
Telephone: (+632) 8479.7300
Email/Website: firstname.lastname@example.org / http://www.ombudsman.gov.ph/
Presidential Complaint Center
Gama Bldg., Minerva St. corner Jose Laurel St.
San Miguel, Manila
Telephone: (+632) 8736.8645, 8736.8603, 8736.8606
Email: email@example.com / https://op-proper.gov.ph/presidential-action-center/
Contact Center ng Bayan
Text: (+63) 908 881.6565
Email/Website: firstname.lastname@example.org / https://contactcenterngbayan.gov.ph/
10. Political and Security Environment
Terrorist groups and criminal gangs operate around the country. The Department of State publishes a consular information sheet and advises all Americans living in or visiting the Philippines to review the information periodically. A travel advisory is in place for those U.S. citizens considering travel to the Philippines.
Terrorist groups, including the Islamic State East Asia (IS-EA) and its affiliate Abu Sayyaf Group (ASG), the Maute Group, Ansar al-Khalifa Philippines (AKP), the communist insurgent group the New People’s Army, and elements of the Bangsamoro Islamic Freedom Fighters (BIFF), periodically attack civilian targets, kidnap civilians – including foreigners – for ransom, and engage in armed attacks against government security forces. These groups have mostly carried out their activities in the western and central regions of Mindanao, including the Sulu Archipelago and Sulu Sea. Groups affiliated with IS-EA continued efforts to recover from battlefield losses, recruiting and training new members, and staging suicide bombings and attacks with improvised explosive devices (IEDs) and small arms that targeted security forces and civilians.
The Philippines’ most significant human rights problems are killings allegedly undertaken by vigilantes, security forces, and insurgents; cases of apparent governmental disregard for human rights and due process; official corruption; shrinking civic spaces; and a weak and overburdened criminal justice system notable for slow court procedures, weak prosecutions, and poor cooperation between police and investigators. In 2021, the Philippines continued to see red-tagging (the act of labelling, branding, naming, and accusing individuals or organizations of being left-leaning, subversives, communists, or terrorists that is used as a strategy by state agents against those perceived to be “threats” or “enemies of the State”), arrests, and killings of human rights defenders and members of the media.
President Duterte’s administration continued its nationwide campaign against illegal drugs, led primarily by the Philippine National Police (PNP) and the Philippine Drug Enforcement Agency (PDEA), which continues to receive worldwide attention for its harsh tactics. In 2021, the government retained its renewed focus on antiterrorism with a particular emphasis on communist insurgents. In addition to Philippine military and police actions against the insurgents, the Philippine government also pressured political groups and activists – accusing them of links to the NPA, often without evidence. The Anti-Terrorism Act of 2020, signed into law on July 3, intends to prevent, prohibit, and penalize terrorism in the country, although critics question whether law enforcement and prosecutors might be able to use the law to punish political opponents and endanger human rights. Following the passage of the Antiterrorism Act of 2020, various human rights groups and private individuals filed petitions questioning the constitutionality of the act. On December 9, the Supreme Court announced its ruling that only two specific provisions of the bill were unconstitutional: first, making dissent or protest a crime if such act had an intent to cause harm; and second, allowing the Anti-terrorism Council to designate someone a terrorist based solely off UN Security Council designation. The petitioners and other human rights groups said, however, that the ruling against the two provisions still does not provide protection to the Filipino people.
The upcoming May 2022 elections could impact the political and security environment in the country, given the Philippines’ history of election-related violence. The Philippine police and military keep a close watch on certain areas they classify as “election hotspots.”
11. Labor Policies and Practices
Managers of U.S. companies in the Philippines report that local labor costs are relatively low and workers are highly motivated, with generally strong English language skills. As of December 2021, the Philippine labor force reached 49.5 million workers, with an employment rate of 93.4 percent and an unemployment rate of 6.6 percent. These figures include employment in the informal sector and do not capture the substantial rates of underemployment in the country. Youths between the ages of 15 and 24 made up more than 28.9 percent of the unemployed. More than half of all employment was in the services sector, with 56.6 percent. Agriculture and industry sectors constitute 25.6 percent and 17.8 percent, respectively.
Compensation packages in the Philippines tend to be comparable with those in neighboring countries. Regional Wage and Productivity Boards meet periodically in each of the country’s 16 administrative regions to determine minimum wages. The non-agricultural daily minimum wage in Metro Manila is approximately USD 10, although some private sector workers receive less. Most regions set their minimum wage significantly lower than Metro Manila. Violation of minimum wage standards is common, especially non-payment of social security contributions, bonuses, and overtime. Philippine law also provides for a comprehensive set of occupational safety and health standards. The Department of Labor and Employment (DOLE) has responsibility for safety inspection, but a shortage of inspectors has made enforcement difficult.
The Philippine Constitution enshrines the right of workers to form and join trade unions. The trend among firms using temporary contract labor to lower employment costs continues despite government efforts to regulate the practice. The DOLE Secretary has the authority to end strikes and mandate a settlement between parties in cases involving national interest. DOLE amended its rules concerning disputes in 2013, specifying industries vital to national interest: hospitals, the electric power industry, water supply services (excluding small bottle suppliers), air traffic control, and other industries as recommended by the National Tripartite Industrial Peace Council (NTIPC). Economic zones often offer on-site labor centers to assist investors with recruitment. Although labor laws apply equally to economic zones, unions have noted some difficulty organizing inside the zones.
The Philippines is signatory to all International Labor Organization (ILO) core conventions but has faced challenges with enforcement. Unions allege that companies or local officials use illegal tactics to prevent workers from organizing. The quasi-judicial National Labor Relations Commission reviews allegations of intimidation and discrimination in connection with union activities. Meanwhile, the NTIPC monitors the application of international labor standards.
Reports of forced labor in the Philippines continue, particularly in connection with human trafficking in the commercial sex, domestic service, agriculture, and fishing industries, as well as online sexual exploitation of children.
14. Contact for More Information
John Avrett, Economic Officer
U.S. Embassy Manila
1201 Roxas Boulevard, Manila, Philippines
Telephone: (+632) 5301.2000