Amendments to the Retail Trade Liberalization Act

PRESIDENT Rodrigo Duterte has signed into law Republic Act (RA) 11595, which amended certain provisions of the Retail Trade Liberalization Act of 2000 (RTLA). It consolidated House Bill 59 and Senate Bill 1840, which were passed by the House of Representatives and the Senate on September 21 and 20, 2021, respectively.

RA 11595, uploaded to the Official Gazette on Jan. 6, 2021, significantly reduces the equity requirements for foreign retailers to engage in retail business in the Philippines.

Retail trade was previously exclusively limited to Filipino citizens or entities until 2000 when the RTLA was passed. While the law opened the retail market to foreign retailers, it imposed high capital requirements and classified the retail trade business into four different categories:

– Category A (enterprises with paid-up capital equivalent to $2.5 million, which are reserved for Filipinos);

– Category B (those with a minimum paid-up capital equivalent to at least $2.5 million but below $7 million);

– Category C (those with a paidup capital equivalent to $7 million or more); and

– Category D (those specializing in high-end or luxury products with a paid-up capital equivalent to $250,000, which may be wholly owned by foreigners).

RA 11595 did away with the above categories and simply required that a foreign entity have a minimum paid-up capital of P25 million. Also, RA 11595 reduced the investment per store requirement to at least P10 million per store.

The law also repealed certain requirements imposed by the RTLA on foreign retailers, such as:

– A minimum net worth of $200 million in its parent corporation for Categories B and C and $50 million for Category D;

– Five retailing branches or franchises in operation anywhere around the word unless the retailer has at least one store capitalized at a minimum of $25 million; and

– A five-year track record in retailing abroad.

RA 11595 further repealed the requirement under Section 7 of the RTLA that all retail trade enterprises under Categories B and C, in which foreign ownership exceeds 80 percent of equity, should offer a minimum of 30 percent to the public through any stock exchange in the Philippines within eight years from the start of operations.

RA 11505 retained the reciprocity requirement that the foreign retailer’s country of origin should not prohibit the entry of Filipino retailers.

Like the RTLA, RA 11595 also subjects the foreign retailer to penalties or restrictions on any future trading activities or business in the Philippines in the event that it fails to maintain the required paid-up capital. Any violation of the RTLA as amended by RA 11595 will be punishable by imprisonment of not less than four to six years (previously not less than six years and one day but not more than eight years) and a fine of not less than P1 million but not more than P5 million (previously not less than P1 million but not more than P20 million).

In case of partnerships, associations, or corporations, the penalty will be imposed upon its partners, president, directors, general manager and other officers responsible for the violation. If the offender is not a citizen of the Philippines, he or she shall be deported after service of sentence. If the offender is a Filipino, he or she shall, in addition to the penalty, suffer dismissal and permanent disqualification from public office.

As to registration with the Securities and Exchange Commission (SEC) or Department of Trade and Industry (DTI), the foreign retailer is required to submit a certification from the Bangko Sentral ng Pilipinas of the inward remittance of its capital investment or other proof certifying that the capital investment is deposited and maintained in a bank in the Philippines.

It should also be noted

RA 11595 now defines the terms “minimum investment per store.” Accordingly, the “minimum investment per store” includes “the value of the gross assets, tangible or intangible, including but not limited to buildings, leaseholds, furniture, equipment, inventory, and common use investments and facilities such as administrative offices, warehouses, preparation or storage facilities.”

The new Section 3, paragraph 2 also provides that the “investment for common use and facilities, as reflected in the financial statements following the accounting standards adopted by the SEC and DTI, whichever is applicable, shall be prorated among the number of stores being served.” Further, Section 3, paragraph 2, states that for purposes of complying with the investment requirement per store, the paid-up capital may be utilized to purchase assets.

With the amendments introduced by RA 11595 to the RTLA, we are hopeful that more foreign investors will be encouraged to engage in retail trade business in the Philippines.

Nica Marsha V. Gasapo is a junior associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you can email the author at info@mtfcounsel. com or visit the MTF website at www.mtfcounsel.com.