How a Foreigner Can Participate in Retail Trade in the Philippines

Can a foreigner participate in retail trade 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 present their overseas business locally. We have foreign clients who sell pharmaceuticals, cosmetics, Dead Sea religious items, and various other products.

They have the capital. They have the source. And they have the technical knowledge of marketing. However, Philippine laws have established certain limitations before these foreigners can engage in retail business.

Rightly so, retail is reserved for the Filipinos. Filipinos who do not have as much capital as these foreigners will be deprived of a living from their sari-sari shops.

The Immigration Office has repeatedly warned foreigners not to engage in retail without complying with the requirements, lest they be arrested or deported for violating immigration and retail trade laws. (December 2012, IDB Bulletin)

When is a company a RETAIL business?

If one habitually sells merchandise, commodities, or consumer goods to the general public, then he is engaged in a retail business as defined by law.

What is the requirement before a foreigner can 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 US 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, sales by a manufacturer of products manufactured by it, when its capital does not exceed one hundred thousand pesos (P100,000.00), is not considered retail trade.

The same happens with a farmer who sells the products of his farm.

Sales in restaurant operations by a hotel owner or innkeeper, regardless of the amount of capital, are also exempt when the restaurant is ancillary to the hotel business.

Finally, sales that are limited only to products manufactured, processed or assembled by a manufacturer through a single point of sale, regardless of their capitalization, are also 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 but not more than $ 7.5 million, the foreigner can own up to sixty percent (60%) of the business. If the capitalization is at least $ 7.5 million, then it may be wholly foreign-owned.

Likewise, companies specializing in high-end or luxury products with a paid-up capital equivalent in Philippine pesos to two hundred and fifty thousand US dollars (US $ 250,000.00) per store may be wholly owned by foreigners.

Is the foreigner obliged to keep the capitalization amount in a Philippine bank?

While the foreign investor will be required to keep the full amount of the prescribed minimum capital in the Philippines, it is not required to be kept in the bank. It is required to actually be used in their operations in the Philippines. The actual use of the funds will be supervised by the Securities and Exchange Commission.

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