I.R.R. R.A. 8762

RULES AND REGULATIONS IMPLEMENTING REPUBLIC ACT NO. 8762,
AN ACT LIBERALIZING THE RETAIL TRADE BUSINESS,
REPEALING REPUBLIC ACT NO. 1180, AS AMENDED

Pursuant to the provisions of Section 11 of Republic Act No. 8762, the following rules and regulations are hereby promulgated.

RULE I. DEFINITION OF TERMS

Section 1. For purposes of this Rules and Regulations -

1. "Retail Trade" shall mean any act, occupation or calling of habitually selling direct to the general public merchandise, commodities or goods for consumption. (Section 3, par. 1)
2. "High-end or Luxury Goods" shall refer to goods which are not necessary for life maintenance and whose demand is generated in large part by the higher income groups. Luxury goods shall include, but are not limited to, products such as: jewelry, branded or designer clothing and footwear, wearing apparel, leisure and sporting goods, electronics and other personal effects. (Section 3, par. 2)
3. "Investment" shall mean assets, tangible or intangible including but not limited to buildings, leasehold rights, furniture, equipment and inventory. (Section 5, Category C)
4. "Foreign Retailer" shall mean a non-Filipino citizen, if a natural person, or if a juridical person, a duly formed and organized corporation, partnership, association or entity that is not wholly-owned by Filipinos, engaged in retail trade. (Section 8)
5. "Foreign Investor" shall mean a non-Filipino citizen, if a natural person, or if a juridical person, a duly formed and organized corporation, partnership, association or entity that is not wholly-owned by Filipinos, whether or not engaged in retail trade. (Section 6)
6. "Natural-born Filipino citizen" are those who are citizens of the Philippines from birth without having to perform any act to acquire or perfect their citizenship. Those who elect Philippine citizenship in accordance with Article IV, paragraph 3 of the 1987 Constitution shall be deemed natural-born citizens. (Article IV, Section 3 of the 1987 Constitution, Section 4 of RA 8762)
7. "Consumption" shall mean the utilization of economic goods in the satisfaction of want resulting in immediate destruction, gradual decay or deterioration or transformation into other goods. (Section 3, par. 1)
8. "Manufacturer" refers to a person who alters raw material or manufactured or partially manufactured products, or combines the same in order to produce finished products for the purpose of being sold or distributed to others. (Section 3, pars. 1a, 1d)
9. "Processor" refers to a person who converts raw materials into marketable form by special treatment or a series of action that changes the nature or state of the product, like slaughtering, milling, pasteurization, drying, or dessicating, quick freezing and the like. Mere packing, packaging, sorting or classifying does not make a person a processor. (Section 3, par. 1a)
10. "Farmer or Agriculturist" refers to an individual personally engaged in dairy farming, fish farming, aquaculture, poultry or livestock raising, and his principal income is derived from any one or more of the foregoing operations. (Section 3, par. 1b)
11. "Capital" shall mean the working capital for sole proprietorships and partnerships, while for corporations, it shall be the paid-up capital. (Section 3, par. c)
12. "Paid-Up Capital" shall mean the total investment in a business that has been paid-in in a corporation or partnership or invested in a single proprietorship, which may be in cash or in property. It shall also refer to inward remittance or assigned capital in the case of foreign corporations.
13. "Retail Store" shall mean the company that owns the retail store and/or the physical location, such as a shop, where goods are sold on a retail basis. It includes the administrative offices, warehouse, preparation facility or storage facility of such goods, regardless of whether or not it is adjacent to such outlet. (Section 5, Category C, Section 6)

    In cases where the administrative office, warehouse, preparation facility or storage facility services several stores, the capital for such administrative office, warehouse preparation or storage facility to be included in the investment requirement for one store shall be pro-rated to the number of stores being serviced.

14. "Locally Manufactured Goods" shall mean goods produced in the Philippines. (Section 3, par. 1d, Section 9)
15. "Branch Office" shall mean an office of a foreign company that carries out the business activities of such head office and derives income from the host country. (Section 8, par. b)
16. "Franchise" shall mean a business relationship wherein, for a consideration, the franchisor grants to the franchisee a licensed right, subject to agreed-upon requirements and restrictions, to conduct business utilizing the trade and/or service marks of the franchisor, and also provides to the franchisee, advice and assistance in organizing, merchandising, and managing the business conducted pursuant to the license. This type of agreement may include a licensing agreement or any similar arrangement. (Section 8, par. b)
17. "Net Worth" shall mean total equity of a business; total assets less total liabilities. (Section 8, par. a)
18. "Track record" - shall include the track record of the applicant-foreign retailer, its predecessors, or its principal stockholders, affiliates and subsidiaries. (Section 8, par. c)
19. "Reciprocity Rights" shall denote the relation between two states when each of them, by their respective laws or by treaty, gives the citizens or nationals of the other certain privileges, as in the undertaking of retail trade activities, on condition that its own citizens or nationals shall enjoy similar privileges in the latter state.

    Notwithstanding the law allowing one hundred percent foreign ownership of retail activities subject to the capitalization requirements, a foreign retailer shall only be allowed to own up to the extent of the foreign ownership allowed for retailing in its home country." (Section 8, par. d)

20. A former natural born Filipino citizen is deemed "residing in the Philippines" if he physically stays in the country for at least one hundred eighty (180) days within a given year. (Section 4)

Section 2. Sales Not Considered As Retail. - The following sales are not considered as retail:

1. Sales of a manufacturer, processor, laborer, or worker of products manufactured, processed or produced by him to the general public whose capital does not exceed One hundred thousand pesos (100,000.00);
2. Sales by a farmer or agriculturist selling the products of his farm, regardless of capital;
3. Sales arising from restaurant operations by a hotel owner or inn-keeper irrespective of the amount of capital, provided, that the restaurant is incidental to the hotel business
4. Sales through a single outlet owned by a manufacturer of products manufactured, processed or assembled in the Philippines, irrespective of capitalization;
5. Sales to industrial and commercial users or consumers who use the products bought by them to render service to the general public and/or produce or manufacture of goods which are in turn sold by them; or (Senate Deliberations)
6. Sales to the government and/or its agencies and government-owned and controlled corporations. (Section 3, Senate Deliberations)

RULE II. RIGHTS OF FORMER NATURAL BORN FILIPINOS TO ENGAGE IN RETAIL TRADE (Section 4)

Section 1. Rights of Former Natural born Filipinos. - Any natural born Filipino citizen who has lost his Philippine citizenship and who has legal capacity to enter into a contract under Philippine laws may be allowed to engage in retail trade, provided that he resides in the Philippines.

Section 2. Documentary Evidences. - Any person who meets the requirements provided for under the preceding paragraph shall be considered as a Filipino citizen for purposes of this Act, upon showing any of the following documents:

1. Copy of birth certificate (I) certified by the local civil registrar or the National Statistics Office; or (ii) for those born abroad, certificate of birth from the appropriate government agency of the country where the birth is recorded showing the father or mother to be a Filipino at the time of birth or if the citizenship of the parents is not indicated, additional proof that the parent/s is a Filipino citizen or has not lost his/her Filipino citizenship at the time of the applicant's birth; or (iii) those born before 17 January 1973 of Filipino mothers must additionally submit all of the following: certified true copies of his/her sworn statement of election of Filipino citizenship, oath of allegiance from the civil registrar where the documents were filed and/or forwarded, and identification certificate issued by the Bureau of Immigration;
2. In case of loss and/or destruction of the record of birth or non-registration of birth, a (I) Certificate of non-availability of birth certificate on account of loss and/or destruction of birth record from the local civil registrar and/or appropriate government agency if birth was registered abroad; or (ii) copy of birth certificate of mother or father certified by the local civil registrar or the NSO; and (iii) affidavit of two (2) disinterested persons attesting to their personal knowledge that at the time of the applicant's birth, the child was born of a Filipino mother or father.

Any document executed or issued abroad must be authenticated by the Philippine Embassy/Consulate having jurisdiction over the place of execution or issuance of the document.

RULE III. CAPITALIZATION AND EQUITY REQUIREMENTS (Section 5)

Section 1. Foreign Equity Participation. - Foreign-owned partnerships, associations and corporations formed and organized under the laws of the Philippines may, upon registration with the Securities and Exchange Commission (SEC), or in case of foreign-owned single proprietorships, with the Department of Trade and Industry (DTI), engage or invest in the retail trade business, subject to the following categories.

Category A - Enterprises with paid-up capital of the equivalent in Philippine Pesos of less than Two million five hundred thousand US dollars (US$2,500,000.00) shall be reserved exclusively for Filipino citizens and corporations wholly owned by Filipino citizens.

Category B - Enterprises with a minimum paid-up capital of the equivalent in Philippines Pesos of Two million five hundred thousand US dollars (US$2,500,000.00) but less than Seven million five hundred thousand US dollars (US$7,500,000.00) may be wholly owned by foreigners except for the first two (2) years after the effectivity of this Act wherein foreign participation shall be limited to not more than sixty percent (60%) of total equity.

Category C - Enterprises with a paid-up capital of the equivalent in Philippine Pesos of Seven million five hundred thousand US dollars (US$7,500,000.00) or more may be wholly owned by foreigners.

Category D - Enterprises specializing in high-end or luxury products with a paid-up capital of the equivalent I Philippine Pesos of Two hundred fifty thousand US dollars (US$250,000.00) per store may be wholly owned by foreigners.

Section 2. Branches/Stores. Opening of branches/stores by the registered foreign retailer shall be allowed, provided that the investments for each branch/store established by registered foreign retailers falling under Categories B and C must be no less than the equivalent in Philippine Pesos of Eight hundred thirty thousand US dollars (US$830,000.00).

RULE IV. PREQUALIFICATION OF FOREIGN RETAILERS (Section 8)

Section 1. Prequalification Requirements. - Before a foreign retailer is allowed to engage in the retail trade business or invest in an existing retail store in the Philippines, it must possess all of the following qualifications:

1. A minimum of Two hundred million US dollars (US$200,000,000.00) net worth in its parent corporation for Categories B and C, and Fifty million US dollars (US$50,000,000.00) net worth in its parent corporation for Category D;
2. 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 Twenty-five million US dollars (US$25,000,000.00):
3. Five (5)-year track record in retailing; and

   For purposes of determining compliance with the above requirements, the net worth, track record and existence of branches and franchises of the parent company, its branches and subsidiaries and of its affiliate companies, as well as their predecessors, which substantially owns, controls or administers the operations of the applicant shall be considered.

4. 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.

Section 2. Application for Pre-Qualification. - A request for pre-qualification by the aforementioned foreign retailer must be submitted to the Board of Investments before filing a formal application to engage in the retail business or invest in an existing retail store. Said request for pre-qualification must be accompanied by the following documents:

1. Latest Annual Financial Statement showing the net worth of the applicant;
2. Certification by a responsible officer of the applicant-foreign retailer duly authenticated by the Philippine Embassy/Consulate stating that:
   1. it has been engaged in retailing for the past five years; and
   2. has at least five (5) retailing branches anywhere in the world, or at least one branch is capitalized at a minimum of Twenty-five million US dollars (US$25,000,000.00);
3. Copies of franchise or licensing agreements between the applicant and its franchisee/licensee if the applicant fails to meet the preceding requirement of at least five (5) retailing branches; and
4. Certification by the proper official of the home state of the applicant-foreign retailer to the effect that the laws of such state allows or permits reciprocal rights to Philippine citizens and enterprises together with the extent of participation allowed.

Section 3. Enterprises composed of Two (2) or More Stockholders/Partners. - If a single retailing corporation/partnership to be formed and organized under Philippine laws will be owned by several foreign retailers and foreign investors, an application for all of the stockholders/partners for pre-qualification must be filed with the BOI. The foreign retailer-stockholder/partner with the highest equity in said company should satisfy the conditions mentioned under Rule IV, Sections 1 & 2.

However, In cases where all or two or more of the foreign stockholders/partners have equal shares, the prequalification condition shall be deemed complied with if the stockholders/partners owning or controlling at least majority of the stocks or interests meet the aforementioned conditions.

Section 4. Issuance of Certificate of Compliance with Prequalification. - The Board of Investments (BOI), shall issue, within twenty (20) working days from submission of all necessary documents, after evaluation and verification, a Certification that the foreign retailer meets the qualifications prescribed by the law.

Section 5. List of Qualified Foreign Retailers. - The DTI through the Board of Investments (BOI) shall keep a record of foreign retailers who have been pre-qualified to establish retail stores in the Philippines. It shall ensure that the parent retail trading company of the foreign investor complies with the qualifications on capitalization and track record.

RULE V. INVESTMENTS IN EXISTING RETAIL STORES (Section 6)

Section 1. Foreign Investments in Existing Stores. - Any foreign investor, whether or not it is presently engaged in retail trade, may be allowed to invest in existing retail stores, publicly listed or not, subject to the paid up capitalization amounts expressed in net worth, investment per store and equity requirements under Rule III hereof.

Section 2. Pre-qualification Requirements. - In addition to the foregoing, foreign investors which are also retailers that will invest in existing retail stores are required to be pre-qualified before they may actually buy shares thereto.

RULE VI. HIGH-END OR LUXURY GOODS (Section 3, paragraph 2)

Section 1. List of Retailers selling High-End or Luxury Goods. - An annual list of foreign retailers selling high-end or luxury goods shall be formulated and regularly updated by the Inter-Agency Committee on Tariff and Related Matters of the National Economic Development Authority (NEDA) Board, in coordination with the relevant organizations and the private sector concerned. (Section 8, second to the last paragraph)

Section 2. Annual Report to Congress. - The Inter-Agency Committee on Tariff and Related Matters of the National Economic Development Authority (NEDA) Board shall annually report to Congress the list of foreign retailers selling high-end or luxury goods. (Section 8, last paragraph)

RULE VII. APPLICATION FOR REGISTRATION (Section 5)

Section 1. Filing of Application.

Applications for registration together with supporting documents, shall be filed with the Securities and Exchange Commission (SEC) in the case of domestic corporations or partnerships that are owned wholly or partially by foreign retailers, or the DTI through its Regional and Provincial Offices, in the case of single proprietorships.

All applications shall be subject to the payment of the prescribed filing fees.

Section 2. Certificate of Compliance with Pre-qualification Requirements. - No corporation/partnership/association or sole proprietorship owned wholly or partially by foreign retailers may be allowed to register without securing the necessary certificate of compliance with the prequalification conditions from the Board of Investments.

Section 3. Issuance of Certificate of Incorporation/Business Name. - Upon submission of all the required documents, the Securities and Exchange Commission (SEC), in cases of corporations/partnerships/association and the Department of Trade & Industry, through its Regional or Provincial Offices in cases of sole proprietorships, shall issue the Certificate of Incorporation and the Business Name, respectively, granting legal personality to the applicant-retailer.

In addition, the foreign retailers shall secure all necessary permits and licenses from the concerned government agencies.

Section 4. BSP Registration of Inward Remittance. - Prior to operations, foreign retail stores and foreign investors shall register their investments with the Bangko Sentral ng Pilipinas (BSP) to ensure that the inward remittance of the required capital investment is fully documented.

The BSP shall issue the Bangko Sentral Registration Certificate (BSRC) upon submission of a bank certification of remittance of foreign exchange converted and sold to pesos through the authorized agent bank and compliance with such other BSP rules for such registration. (Section 5, pars. 2, 3)

Section 5. Establishment of Branches. - All registered foreign retailers that will establish additional branches shall be required to file an application with the DTI, supported by documents showing proof of compliance with the US$830,000 investment requirement per branch, and the Certificate of Incorporation/DTI Certificate issued to the retailer.

Section 6. Reporting Requirements. - Every registered foreign retail enterprise shall submit annually to the Department of Trade and Industry (DTI) the following reports:

1. A general information sheet in the prescribed form showing, among others, the accredited stores of the enterprise and the status of operations of the entity;
2. An audited financial statement and income tax return;
3. Certification by a responsible officer of the company showing the maintenance of the required minimum capital unless the foreign investor has notified the SEC and the DTI of its intention to repatriate its capital and cease operations in the Philippines;

RULE VIII. PROHIBITED ACTIVITIES OF QUALIFIED FOREIGN RETAILERS (Section 10)

Section 1. Accredited Stores. - Qualified foreign retailers shall not be allowed to engage in certain retailing activities outside their accredited 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 such other similar retailing activities.

Section 2. List of Prohibited Activities. - A detailed list of these prohibited activities shall be formulated by the DTI.

RULE IX. COMPLIANCE REQUIREMENTS

Section 1. Maintenance of Prescribed Minimum Capital. The foreign investor shall be required to maintain in the Philippines the full amount of the prescribed minimum capital, unless the foreign investor has notified the SEC and the DTI of its intention to repatriate its capital and cease operations in the Philippines.

The SEC shall establish mechanisms to monitor the actual use in Philippine operation of the inwardly remitted minimum capital requirement.

Failure to maintain the full amount of the prescribed minimum capital prior to notification of the SEC and the DTI, shall subject the foreign investor to penalties or restrictions on any future trading activities/business in the Philippines.

(Section 5, last 3 paragraphs)

Section 2. Public Offering of Shares of Stock. - All registered retail 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. (Section 7)

Affected registered retailers shall then be required to list their shares at any stock exchange duly formed and organized under Philippine laws.

Compliance with this requirement shall be supervised and monitored by the SEC.

Section 3. - Promotion of Locally Manufactured Products. - For ten (10) years after the effectivity of this Act, at any given time, at least thirty percent (30%) of the aggregate cost of the stock inventory situated in the Philippines of foreign retailers falling under Categories B and C and ten percent (10%) for Category D shall be made in the Philippines. (Section 9)

All registered foreign retailers shall be required to maintain books of accounts showing the inventory situated in the Philippines and its origin at all times and these books may be examined at any time, by the duly authorized representative of the Department of Trade and Industry.

Furthermore, these registered foreign retailers shall be required to submit quarterly statements under oath certifying the ratio of their local and imported inventory.

Section 4. Visitorial Powers. - In the public interest and/or for the enforcement of any applicable law, rules and regulations, the DTI/BOI, SEC or any government office having jurisdiction on the matter may, through any of its duly authorized representatives, conduct necessary examination of records, inventory and books of accounts of the registered foreign retail enterprise in the Philippines, make pertinent inquiries from its officials and take such action as may be necessary for the proper exercise of its authority.

Section 5. Implementing Agency. - The monitoring and regulation of foreign sole proprietorships, partnerships, associations, or corporations allowed to engage in retail trade shall be the responsibility of the DTI. This shall include resolution of conflicts, through mediation. (Section 11)

Section 6. Withdrawal/Closure of Retail Establishments. - Applications for withdrawal or closure of retail establishments shall be filed with the Securities and Exchange Commission for corporations/partnerships/associations or the DTI, through its Regional or Provincial Offices with respect to sole proprietorships.

The DTI shall be notified by the concerned agency of actions taken on requests for withdrawal or closure of foreign retail establishments. (Section 5, last paragraph)

Section 7. Penalties. - Any person who shall be found guilty of violation of any provision of this Act, or its implementing rules and regulations, or other terms and conditions of its registration, shall be punished by imprisonment of not less than six (6) years and one (1) day but not more that eight (8) years, and a fine of not less than One million pesos (P1,000,000.00) but not more than Twenty million pesos (P20,000,000.00).

In the case of associations, partnerships or corporations, the penalty shall be imposed upon its partners, president, directors, manager and other officers responsible for the violation. If the offender is not a citizen of the Philippines, he shall be deported immediately after service of sentence. If the Filipino offender is a public officer of employee, he shall, in addition to the penalty prescribed herein, suffer dismissal and permanent disqualification from public office. (Section 12)

RULE X. REPEALING AND EFFECTIVITY CLAUSES

Section 1. All other rules and regulations or parts thereof, inconsistent with the foregoing rules and regulations are repealed, amended or modified accordingly.

Section 2. These Rules shall take effect fifteen (15) days upon publication in two (2) newspapers of general circulation.

APPROVED

DTI
SEC
NEDA
BSP

35 Buchanan St., North Greenhills San Juan, Metro Manila 1502 PHILIPPINES
Tel. Nos. (+63 2) 725-2799, (+63 2) 727-1437 Fax Nos. (+63 2) 725-2799, (+63 2) 727-1437 ext. 104 E-Mail: info@disini.ph

Copyright © 2000-2002 Disini & Disini. All rights reserved.
Please view Terms of Use and Disclaimer