IRR on the Amendments to Philippine Retail Trade Law

On 9 March 2022, the Department of Trade and Industry (DTI), together with the National Economic and Development Authority (NEDA) and Securities and Exchange Commission (SEC), issued the Implementing Rules and Regulations (IRR) to the Retail Trade Liberalization Act (RTLA), as amended by Republic Act 11595 on 20 December 2021. The IRR was issued under Section 10 of the amended RTLA, which directed DTI, in coordination with NEDA and SEC, to formulate and issue the IRR for the implementation of the amendments to the RTLA.

To recall, the RTLA was amended to liberalize restrictions on foreign retailers. In the IRR, “foreign retailers” was defined to “mean a foreign national, partnership, or corporation of which more than forty percent (40 percent) of the capital stock outstanding and entitled to vote is owned and held by such foreign national, engaged in retail trade.”

Under Section 5 of the Amended RTLA, the IRR provides that foreign retailers are required to have a minimum paid-up capital of P25,000,000, and the foreign retailer’s country of origin should provide for reciprocity to Filipinos.

If the registered foreign retailer will engage in retail trade through more than one physical store, it is required to comply with the minimum investment per store of at least P10,000,000 under Section 5 of the Amended RTLA. The IRR also clarified that the investment for common use and facilities, as reflected in the financial statements following the accounting standards accepted by SEC or DTI shall be pro-rated among the number of stores being served. Further, the paid-up capital may be used to purchase assets for purposes of complying with the investment requirement per store.

The IRR expressly stated that the minimum paid-up capital requirement and the minimum investment per store requirement shall not apply to corporations engaged in retail trade of which at least 60 percent of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines. Thus, it would appear that corporations engaged in retail are allowed to have foreign equity, provided that foreign equity may not exceed 40% of the capital stock outstanding and entitled to vote if the corporation does not meet the minimum paid-up capital. Notably, however, the 12th Foreign Investment Negative List, which was issued by President Rodrigo R. Duterte on 27 June 2022, provides that no foreign equity is allowed for retail trade enterprises with paid-up capital of less than P25,000,000 citing Section 2 of the Amendment to the RTLA. Thus, it appears that there is a need to harmonize the IRR and the Negative List.

The IRR expressly states that the registration requirements shall apply to foreign retailers that will engage in retail trade through purely online channels. The IRR further clarifies that for purposes of online retailing, the warehouse where goods are stored shall be deemed as a store. Thus, the minimum investment per store is applicable for the warehouse where goods are stored for purposes of online retailing.

To ensure compliance with the minimum paid-up capital and investment per store, the foreign retailers are required to submit annually to the DTI or SEC the following:

1. Maintenance and actual use of the paid-up capital requirement. The foreign retailer is also required to notify SEC and DTI of its intention to cease operations in the Philippines and repatriate its capital;
2. Number and location of stores, investment per store, and the status of operation of each store;

3. Stock inventory of locally manufactured products, if applicable; and

4. Such other reports as may be prescribed by SEC or DTI.

Registered foreign retailers are still prohibited from engaging in retailing activities outside their stores through the use of mobile or rolling stores or carts, the use of sales representatives, door-to-door selling, restaurants and sari-sari stores, and other similar retailing activities.

This article is for informational purposes only. Foreign entities intending to engage in the retail business are encouraged to seek legal opinion and advice from a licensed professional for additional information and to address any questions.

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