Amendments to the Retail Trade Liberalization Act

On December 10, 2021, President Rodrigo Duterte approved Republic Act No. 11595 (RA 11595) entitled “An Act Amending Republic Act No. 8762 otherwise known as the ‘Retail Trade Liberalization Act of 2000’, by lowering the Paid-Up Capital Requirement for Foreign Retail Enterprises and Other Purposes.” RA 11595 amended the provisions of the Retail Trade Liberalization Act of 2000 (RTLA), particularly with regard to the capitalization and qualification requirements.

Some of the salient changes introduced by RA 11595 are as follows:

1. Capitalization and Equity Requirements

Prior to its amendment, the allowable foreign participation under the RTLA was divided into four (4) categories. The old law imposed the following requirements for the participation of foreign retailers in the Philippines:

Essentially, under the RTLA, foreign entities which intend to engage or invest in the retail trade business in the Philippines must have a paid-in capital of the equivalent in Philippine Pesos of at least US$ 2.5 million.

RA 11595 removed the categories instituted by the RTLA and effectively lowered the minimum paid-in capital requirement for foreign retailers. Under Section 5 of the new law, foreign-owned partnerships, associations and corporations may, upon registration with the Securities and Exchange Commission (SEC), or the Department of Trade and Industry (DTI), as the case may be, engage or invest in the retail trade business, under the following conditions:

• A foreign retailer shall have a minimum paid-up capital of Php 25 million;
• The foreign retailer’s country of origin does not prohibit the entry of Filipino retailers; and
• In the case of foreign retailers engaged in retail trade through more than one (1) physical store, the minimum investment per store must be at least Php l0 million: Provided, That this requirement shall not apply to foreign investors and foreign retailers who are legitimately engaged in retail trade and were not required to comply with the minimum investment per store at the time of the effectivity of RA 11595: Provided, further, That proof of qualification to engage in retail trade under RA 8762 and its implementing rules and regulations is submitted to the DTI.

The minimum paid-in capital of Php 25 million (approximately US$ 500,000.00) must be maintained in the Philippines by the foreign retailer, unless it notifies the SEC or the DTI, whichever is appropriate, of its intention to repatriate its capital and cease operations in the Philippines.

Similar to RTLA, failure to maintain in the Philippines the minimum paid-up capital prior to the notice to the SEC or the DTI, whichever is appropriate, shall subject the foreign retailer to penalties or restrictions on any future trading activities or business in the Philippines.

2. Prequalification of Foreign Retailers

The RTLA also imposed certain prequalification standards for foreign retailers. Section 8 of the RTLA provides that no foreign retailer shall be allowed to engage in retail trade in the Philippines unless all the following qualifications are met:

• A minimum of US$ 200 million net worth in its parent corporation for Categories B and C, and US$ 50 million net worth in its parent corporation for Category D;
• Five (5) retailing branches or franchises in operation anywhere around the world unless such retailer has at least one (1) store capitalized at a minimum of US$ 25 million;
• Five (5)-year track record in retailing; and
• Only nationals from, or juridical entities formed or incorporated in countries which allow the entry of Filipino retailers shall be allowed to engage in retail trade in the Philippines.

For purposes of complying with this provision, foreign retailers were required to obtain a Certificate of Prequalification Compliance with the Board of Investments (BOI). This is no longer required under RA 11595. Under the new law, foreign retailers need to only comply with the minimum paid-in capital requirements for it to be able to engage in retail trade business in the Philippines.

3. Minimum Investment Requirement Per Store

RA 11595 also lowered the required minimum investment per store to Php 10 million (approximately US$ 200,000.00) from the previous US$ 830,000.00 required under the RTLA.

Minimum investment pertains to the value of the gross assets, tangible or intangible, such as but not limited to buildings, equipment and warehouses.

4. Public Offering of Shares of Stock

The RTLA imposed a compliance requirement on foreign retailers for the public offering of their corporate shares. Pursuant to Section 7 of the RTLA, all retail trade enterprises under Categories B and C in which foreign ownership exceeds eighty percent (80%) of equity shall offer a minimum of thirty percent (30%) of their equity to the public through any stock exchange in the Philippines within eight (8) years from their start of operations.

This provision was deleted in RA 11595.

5. Preferential Use of Filipino Labor

RA 11595 further reiterated the State’s policy under Article 40 of the Labor Code of the Philippines on the employment of non-resident aliens. Section 7 of RA 11595 provides that the employment of foreign nationals by foreign retailers shall comply with the requirement under the Labor Code on the determination of nonavailability of a competent, able and willing Filipino citizen before engaging the services of a foreign national.

6. Implementing Agencies

Previously under the RTLA, the implementing agency which monitors and regulates foreign retailers is exclusively the DTI. Under RA 11595, the monitoring and regulation of foreign retailers shall be the responsibility of the SEC, with respect to partnerships, associations and corporations, or of the DTI, with respect to single proprietorships.

7. Penalties

RA 11595 reduced the penalties for violation of any of its provisions.

The penalty in RTLA of imprisonment of not less than six (6) years and one (1) day but not more than eight (8) years, and a fine of not less than Php 1 million but not more than Php 20 million was reduced in RA 11595 to imprisonment of not less than four (4) years to six (6) years and a fine of not less than Php 1 million but not more than Php 5 million.