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Amending the
Retail Trade
Liberalization Act
By Atty. Roselle U. Casiguran - July 29, 2015
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atty. roseele u. casiguran

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SENATE Bill (SB) 2121, or “An Act

Amending Republic Act 8762,
otherwise known as the Retail Trade
Liberalization Act and For Other
Purposes,” was filed last year in
order to increase investments by
foreign entities in the Philippines.
The bill will stand to eliminate the
capital and equity requirement of
foreign capitalists who will engage in
the retail business in the country.

A decade and a half ago, the Retail

Trade Liberalization Act of 2000
was enacted in order to attract and
promote consumer welfare by
bringing in productive investment.
To this end, it was forecasted that
the enactment of the law will result
to a decrease in consumer prices,
creation of more jobs, promote
tourism, assist small manufacturers,
stimulate economic growth, and
enable Philippine goods and services
to become globally competitive
through the liberalization of the
retail-trade sector.

However, the intended substantial

foreign investment was nowhere
achieved. Foreign investors have
found the requirements to engage in
retail trade to be very restrictive.
For instance, in order for a foreign
entity to be able to wholly own a
retail store, it must have a paid-up
capital of at least $2.5 million to $7.5
million, while those that will be
engaging in selling high-end or
luxury goods must have a paid-up
capital of $250,000 per store.

There are also other conditions that

the foreign investors must meet:
First, a minimum of $200-million
net worth in its parent corporation
for Categories B and C, and $50-
million net worth in its parent
corporation for Category D; second,
five retailing branches or franchises
in operation anywhere around the
world, unless such retailer has at
least one store capitalized at a
minimum of $25 million; third, a
five-year track record in retailing;
and fourth, that they must be
nationals from or juridical entities
formed or incorporated in countries
that allow the entry of Filipino
retailers.

Due to these constraints, Sen. Sergio

R. Osmeña III introduced SB 2121
on February 12, 2014. The said bill
proposes to do away with the
barriers of foreign investment by
removing the equity and
capitalization requirements in the
Retail Trade Liberalization law. As
stated in the proposed bill, by
allowing the entry of foreign
investment, it will result in the
creation of more jobs and providing
the Filipino consumers with better
choices and higher quality of goods
at lower prices.

On the other hand, Rep. Giorgidi B.

Aggabao of the Fourth District of
Isabela, filed House Bill (HB) 4403
on May 13, 2014. The house bill
contains the same goal, that is, to
address the perceived loopholes in
the existing law, particularly the
capital requirement before a foreign
entity may completely own a retail
establishment.

Other than eliminating the equity

and capitalization requirements, the
SB also seeks to expound the
requirement of maintenance of the
capital. It mandates foreign investor
to maintain in the Philippines the
full amount of its capital, or in any
case, any part of the capital is sold to
a citizen of the Philippines, or to a
partnership, association or
corporation owned and controlled
by citizens of the Philippines, the
unsold amount of its capital, unless
the foreign investor has notified the
Securities and Exchange
Commission and the Department of
Trade and Industry of its intention
to repatriate its capital and cease
operations in
the Philippines.

The said bill also seeks to remove

the requirement of public offerings
of shares of stock in retail-trade
enterprises under Categories B and
C in which a foreign ownership that
exceeds 80 percent needs to offer a
maximum of 30 percent of the
equity to the public through any
stock exchange in the Philippines
within eight years from the start of
operations.

Last, it proposes to reduce the need

for local procurement of the
aggregate cost of the stock
inventory of foreign retailers from
30 percent to 10 percent. These
proposed amendments will
definitely encourage foreign
investors to explore the Philippine
market. The elimination of the
equity and the capitalization
requirement will provide them with
the appeasement on their
investments where both they
(investors/foreign entities) and the
Philippine market will be able to
grow from this venture.

SB 2121 is pending with the

Committee on Trade, Commerce
and Entrepreneurship, while HB
4403 is with the Committee on
Trade
and Industry.

****

The author is a junior associate of

Du-Baladad and Associates Law
Offices (BDB Law), a member firm
of World Tax Services (WTS)
Alliance.

The article is for general

information only and is not
intended, nor should be construed
as a substitute for tax, legal or
financial advice on any specific
matter. Applicability of this article
to any actual or particular tax or
legal issue should be supported
therefore by a professional study or
advice. If you have any comments
or questions concerning the article,
you may e-mail the author at
roselle.casiguran@bdblaw.com.ph or
call 403-2001 local 370.

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