Doing Business In... 2022

Last Updated July 12, 2022

Philippines

Law and Practice

Authors



Villaraza & Angangco was established in 1980 and is a full-service law firm based in the Philippines with consistently recognised expertise in the areas of litigation and dispute resolution, corporate and commercial law, intellectual property, and labour and employment. The firm is headed by legal luminaries and practitioners who are deemed experts in their respective fields, and has about 70 lawyers and over 80 highly trained non-legal staff who capably provide comprehensive, multi-layered, innovative and practical solutions to both foreign and domestic clients. With decades of experience in serving at the forefront of the evolving landscape of Philippine law, Villaraza & Angangco continues to gain the confidence of prominent individuals, multinational corporations and business leaders across practice areas, and to establish itself as one of the leading firms in both the international and domestic legal spheres offering professional service of the highest calibre.

The Philippine legal system is a blend of civil law and common law. The civil law origins of statutes and principles are evident in areas such as family relations, property, succession, contract and criminal law, while common law operates in areas such as constitutional law, remedial law, corporation law, taxation, banking, insurance and labour.

The Philippine judicial order is a hierarchical organisation consisting of the municipal and regional trial courts, the Court of Appeals, and the Supreme Court as the top tier exercising supervision over all lower level courts, including all court personnel.

As a general rule, foreign individuals, corporations or other entities are allowed to engage in business in the Philippines, except in activities or industries that are partially or fully reserved for Filipino nationals, as provided in the Constitution and existing legislation. In particular, the extent of equity participation by foreigners in certain businesses and/or activities is restricted or limited as enumerated in the Foreign Investment Negative List (FINL) issued by the President of the Philippines pursuant to Republic Act No 7042, or the Foreign Investments Act of 1991, as amended (FIA). The maximum equity interest held by a foreigner in a corporation will therefore depend on the type of activity in which the entity will engage.

Philippine law requires foreign corporations to obtain a licence from the Securities and Exchange Commission (SEC) to do business in the Philippines. A foreign corporation found to be doing business in the Philippines without a licence can be sued in Philippine courts, but cannot sue or maintain suits to enforce its rights. Under the Revised Corporation Code, a foreign corporation may also be subject to fines and penalties at the discretion of the court.

In addition, SEC approval is required for the primary registration of foreign investments that will trigger the foreign equity restrictions in the FIA and FINL. New corporations with more than 40% foreign equity are required to apply for authority to do business under the FIA by submitting the requisite SEC Application Form (SEC Form No F-100) and declaring their percentage of foreign equity and intention to operate either a domestic market enterprise or an export market enterprise, as defined under the FIA. Existing corporations increasing their foreign equity to more than 40% are also required to file the requisite SEC Application Form No F-101 with the SEC, while existing corporations that have more than 40% foreign equity but are further increasing the percentage of their foreign equity participation under the FIA are required to file SEC Application Form No F-102.

Foreign corporations intending to establish a branch or representative office are also required to submit the requisite SEC Application Form prior to registration (SEC Form No F-103 and F-104, respectively).

Upon registration with the SEC (or with the Department of Trade and Industry in the case of a sole proprietorship), a non-Filipino national may engage in business in the Philippines without need for any further approval. While not mandatory, foreign direct investments may be registered with the Bangko Sentral ng Pilipinas as a requirement for purchasing foreign currency from the local banking system for purposes of remittance of related earnings and repatriation of capital. Registration with the Board of Investments (BOI) is also optional in order to qualify for applicable incentives.

Upon receiving the relevant application forms as discussed in 2.1 Approval of Foreign Investments, the SEC evaluates the application to ascertain its compliance with the FIA. The entire evaluation and approval process takes approximately one to two months from the submission of the application and documentary requirements.

If there are incomplete details or inconsistencies in the application forms, the SEC allows the applicant to rectify the deficiency in the form, to ensure compliance. If deficiencies are not satisfactorily remedied, the SEC may deny the application for non-compliance with the requirements of the FIA or other applicable laws.

The FIA provides that a violation of any provisions of the law or the terms and conditions of registration (which necessarily include the foreign equity restrictions) shall give rise to fines, penalties and the forfeiture of all benefits granted under the FIA. In addition, the president and/or officers responsible therefor shall also be subject to a fine. The imposition of these penalties, however, is without prejudice to the administrative sanctions that may be imposed by the SEC.

In addition, the evasion or circumvention of nationality restrictions may constitute a crime under Commonwealth Act No 108, as amended by Presidential Decree No 715 (otherwise known as the Anti-Dummy Law), which is punished by imprisonment and a fine of not less than the value of the right, franchise or privilege that is enjoyed or acquired in violation of the law. Presidents or managers and directors of corporations that falsely simulate the existence of minimum stock or capital as owned by Filipino citizens for the purpose of evading the foreign equity restrictions may also be punished by imprisonment. Furthermore, a corporation that allows the use, exploitation or enjoyment of a right, franchise or privilege by persons or entities not qualified to do so shall forfeit such right, franchise or privilege, as well as the property or business enjoyed or acquired in violation of the law.

The SEC evaluates an application for registration for compliance with the minimum capitalisation rules. Certain corporations are subject to minimum capitalisation requirements pursuant to special laws, including investment houses and those engaged in the insurance business or the issuance of pre-need plans.

Under the FIA, a domestic corporation or Philippine subsidiary that produces goods for sale, renders services or otherwise engages in any business in the Philippines is known as a “domestic market enterprise”. Foreigners can invest as much as 100% equity in domestic market enterprises, except in areas included in the FINL. The minimum paid-up capital for an entity (either a corporation that is more than 40% foreign-owned or a foreign branch office) engaged as a domestic market enterprise is generally USD200,000. This amount may be reduced to USD100,000 if the enterprise involves advanced technology as determined by the Department of Science and Technology, or is endorsed as a start-up or start-up enabler by the lead host agencies pursuant to Republic Act No 11337 (otherwise known as the Innovative Startup Act), or if it employs at least 15 Filipinos who constitute a majority of its direct employees.

On the other hand, an enterprise wherein a manufacturer, processor or service enterprise exports 60% or more of its output is known as an “export enterprise”. In export market enterprises, foreigners can invest as much as 100% equity, except in areas included in the FINL. The minimum paid-up capital requirement for the establishment of an entity engaged in an export market enterprise is PHP5,000. Export enterprises shall register with the BOI and submit the required reports to ensure compliance with the 60% export requirement.

In addition, certain corporate vehicles require specific minimum paid-up initial capitalisation. For the establishment of a Philippine representative office, at least USD30,000 must be remitted into the Philippines, or its equivalent in other acceptable foreign currency. For Regional Headquarters (RHQ), an initial inward remittance of USD50,000 is required; thereafter, USD50,000 is required to be inwardly remitted annually to cover operating expenses. The establishment of a Regional Operating Headquarters (ROHQ) requires a one-time remittance of USD200,000 as capital.

In addition to the required minimum initial capitalisation, a branch office shall also be required to deposit securities with an actual market value of at least PHP500,000 with the SEC within 60 days of the issuance of its SEC licence.

There is no specific remedy under the law for a foreign investor to challenge the SEC’s denial of its application.

If there are deficiencies in the submitted application, the SEC usually recommends modification and rectification of the application to ensure compliance, instead of denying the application outright.

If a foreign investor has questions of law with respect to the interpretation and application of the FIA vis-a-vis the circumstances of its intended investments, it may request a Legal Opinion from the SEC Office of the General Counsel (SEC-OGC) for guidance prior to filing an application with the SEC. However, the issuance of the Legal Opinion may take several months, depending on the complexity of the issues involved and the workload of the SEC-OGC.

There are several legal vehicles available for a foreign investor to do business in the Philippines.

The most common form of legal entity is a corporation or a domestic subsidiary. Where a domestic subsidiary of a foreign corporation is created, two separate and distinct corporate entities shall exist, so the Philippine subsidiary becomes a legally independent unit as a domestic corporation. Registration with the SEC requires the following:

  • at least two incorporators (either a natural or juridical person);
  • the indication of at least two but not more than 15 directors, who shall be elected for a term of one year; the nationality of the directors must comply with nationality restrictions where applicable (eg, if the corporation intends to own land, it must be at least 60% Filipino-owned, and 60% of the total number of members of the board should be Filipinos); and
  • a treasurer-in-trust (a resident of the Philippines).

A branch office is considered an extension of the parent company. No independent juridical entity is created by the establishment of a branch office, so any judgment or claim for liability against the branch office in the Philippines is a liability of the head office or the foreign corporation. The assets of both the branch office and the foreign corporation may be charged with any liability of the branch office. For the registration of a branch office with the SEC, a resident agent is required.

The SEC verifies compliance by an applicant for registration as a Foreign Branch Office with the following financial ratios:

  • solvency ratio of 1:1;
  • liquidity ratio of 1:1; and
  • debt to equity ratio of 3:1.

A representative office is considered a mere extension of a head office in the Philippines. It is not authorised to engage in activities that would generate income/revenue and is fully subsidised by its head office. It deals directly with the clients of the parent company and undertakes activities such as information dissemination and promotion of a company's product as well as quality control of products. For the registration of a representative office with the SEC, a resident agent is required. The applicant must comply with the financial solvency ratio of 1:1.

On the other hand, the activities of an RHQ are limited to acting as a supervisory, communication and co-ordinating centre for its subsidiaries, affiliates and branches in the Asia-Pacific region. It does not derive income from sources within the Philippines and does not participate in any manner in the management of any subsidiary or branch office it might have in the Philippines.

Lastly, an ROHQ performs the following qualifying services for its affiliates, subsidiaries and branches in the Philippines:

  • general administration and planning;
  • business planning and co-ordination;
  • sourcing/procurement of raw materials components;
  • corporate finance advisory services;
  • marketing control and sales promotion;
  • training and personnel management;
  • logistic services;
  • research and development services and product development;
  • technical support and communications; and
  • business development.

ROHQs are prohibited from offering services to entities other than their affiliates, branches or subsidiaries as declared in their registration with the SEC, nor shall they be allowed to directly and indirectly solicit or market goods and services on behalf of their parent company, branches, affiliates, subsidiaries or any other company.

Please see 2.3 Commitments Required From Foreign Investors regarding the required inward remittance for the above legal entities.

In general, the main steps involved in the incorporation of a domestic corporation or the registration of a legal entity (such as a branch, representative office, RHQ or ROHQ) are as follows:

  • preparation, drafting, execution and notarisation/legalisation of the required documentation;
  • remittance of the required initial capitalisation to a treasurer-in-trust for account;
  • securing a favourable endorsement with relevant government entities, if the proposed corporation will engage in an industry requiring a special licence; and
  • submission of the incorporation or registration documents to the SEC and the payment of filing fees.

Application documents submitted to the SEC must generally include the following information:

  • the proposed name of the corporation or legal entity, in a format that follows the rules on naming issued by the SEC, and that is available for use or not similar to an existing corporate name as may be indicated in the name reservation platform of the SEC; and
  • the primary purpose of the corporation (or, for a branch, representative office, ROHQ or RHQ, the purposes for which it intends to pursue business in the Philippines).

Incorporation or registration with the SEC is done through the SEC’s online platform, called the SEC Company Registration System. The application is assigned to an SEC examiner, who shall evaluate the submitted documents and endorse the application for the approval of SEC directors and the issuance of a Certificate of Incorporation or Registration.

In terms of timing, the SEC generally takes one to two months after the submission of complete documents to issue a Certificate of Incorporation, or a Licence to Transact Business in the Philippines in the case of a branch, representative office, ROHQ or RHQ.

Upon the incorporation of a domestic corporation or the registration of a foreign corporation with the SEC, post-registration requirements are secured from different government agencies, including a local business permit from the local government unit where the principal office is located, and securing a Certificate of Registration from the Bureau of Internal Revenue (BIR).

In general, Philippine corporations are required to file the following annual reports with the SEC:

  • a General Information Sheet (GIS) must be filed within 30 calendar days of the annual stockholders’ meeting; and
  • the Annual Financial Statements (AFS), as stamped “received” by the BIR, must be filed with the SEC within 120 calendar days from the end of the fiscal year or following the schedule as may be imposed by the SEC.

Branch offices and representative offices of foreign corporations, as well as ROHQs and RHQs, are required to file the following with the SEC:

  • a GIS within 30 days of the anniversary of the issuance of the SEC Licence; and
  • the AFS, as stamped received by the BIR, within 120 calendar days from the end of the fiscal year or following the schedule as may be imposed by the SEC.

An RHQ further needs to submit a Certificate of Inward Remittance to the SEC within 30 days from the anniversary date of the issuance of its SEC registration and licence, showing that it has made its required annual remittance of at least USD50,000.

For domestic corporations, an amended GIS is submitted to the SEC for any relevant changes during the year, including changes in the directors or officers of the corporation. A Notification Update Form is required for any change in the principal office address, officers or additional subsidiaries of branch offices and representative offices of foreign corporations, as well as ROHQs and RHQs.

All SEC-registered domestic corporations are also required to identify their beneficial owners, defined as natural persons who ultimately own, control or exercise ultimate effective control over the corporation. The corporation’s GIS shall include a beneficial declaration page in compliance with said SEC directive.

Listed and public companies, as well as companies with secondary licences, are subject to more stringent reportorial and disclosure requirements with the SEC, including required reports on changes in beneficial ownership of securities, and the submission of quarterly reports.

There is no explicit requirement for a specific management structure in the Philippines. However, the Revised Corporation Code of the Philippines provides that the board of directors or trustees shall exercise the corporate powers, conduct all business and control all properties of the corporation. Directors are elected by those stockholders who are entitled to vote, in a meeting where the owners of the majority of the outstanding capital stock are present.

The Revised Corporation Code also requires the appointment of the following officers after incorporation:

  • a President, who must be a director;
  • a Corporate Secretary, who must be a Filipino citizen and a Philippine resident;
  • a Treasurer, who must be a Philippine resident; and
  • such other officers as may be provided in the by-laws.

If the corporation is vested with public interest, the board shall also elect a compliance officer. The officers shall manage the corporation and perform such duties as may be provided in the by-laws and/or resolved by the board of directors.

A director holds a position of trust and is considered a fiduciary of the corporation. Directors or trustees who wilfully and knowingly vote for or assent to patently unlawful acts of the corporation, or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees, shall be liable jointly and severally for all resulting damages suffered by the corporation, its stockholders or members and other persons.

In addition, following the doctrine of separate juridical personality, corporations in the Philippines are treated as separate and distinct legal entities from the natural persons comprising them. By virtue of this doctrine, the stockholders of a corporation enjoy the principle of limited liability, so the corporate debt is not the debt of the stockholders.

However, the Supreme Court has warranted the piercing of the corporate veil in situations when the separate personality of a corporation is used as a means to perpetuate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation or the circumvention of statutes, or to confuse legitimate issues.

Therefore, whether or not the separate personality of the corporation should be pierced hinges on the facts of each case. Any piercing of the corporate veil has to be done with caution, although the Philippine Supreme Court has held that it shall not hesitate to disregard the corporate veil when it is misused or when doing so is necessary in the interests of justice.

The employment relationship is primarily governed by the Labour Code of the Philippines, rules and regulations issued by the Department of Labour and Employment (DOLE), and cases decided by the Supreme Court. The employment relationship may be further defined by the employment contract and collective bargaining agreement (CBA), if any, as long as such is not contrary to the Labour Code and established case law.

An employment contract is perfected by mere consent. The Labour Code does not require a specific form or a written employment contract to prove the existence of an employer-employee relationship, but it is advisable to have a written employment contract to clearly define the relationship between the parties. Notably, an employee is presumed to be a regular employee unless there is a written employment contract showing that they are a non-regular employee, such as a probationary, casual, project, seasonal or fixed-term employee.

The normal working hours for any employee must not exceed eight hours a day. It is permissible to exceed eight hours a day if the employee is paid the corresponding overtime pay. An employee may render overtime only if they are obliged or permitted by the employer to do so.

Employees are also entitled to a rest period of not less than 24 consecutive hours after every six consecutive normal work days.

“At will employment” is not recognised under Philippine law; an employee may only be terminated for just or authorised causes for dismissal. This policy is anchored on the principle of the security of tenure of employees, which is not only statutorily provided but is constitutionally enshrined.

The just causes for termination are as follows:

  • serious misconduct or wilful disobedience;
  • gross and habitual neglect of duties;
  • fraud or wilful breach of trust;
  • loss of confidence;
  • commission of a crime or offence by the employee against the employer, the employer’s immediate family or their duly authorised representatives; and
  • other causes analogous to the foregoing.

The authorised causes for the termination of a contract are as follows:

  • the installation of labour-saving devices;
  • redundancy;
  • retrenchment to prevent losses;
  • the closure or cessation of business; and
  • a disease not curable within six months as certified by a competent public authority, and when the continued employment of the employee is prejudicial to their health or to the health of their colleagues.

The cause of dismissal determines which procedure must be followed prior to the dismissal. For just causes, an employer must:

  • serve the employee a written notice containing the specific causes or grounds of termination, and giving them an opportunity to provide an explanation to clarify their defence, within at least five days of receiving notice;
  • conduct a hearing or conference to allow the employee to explain their defences, present evidence and rebut the evidence presented against them; and
  • serve the employee a written notice of termination indicating that all circumstances involving the charge against them have been considered, as well as the grounds to justify the severance of their employment.

Severance pay is not required for just cause dismissals but may be granted in exceptional circumstances.

For authorised causes, the employer must send written notices to the employee and to the DOLE regional office at least 30 days before the intended date of termination of the employment contract. The employee must also be granted severance pay at the rate prescribed by the Labour Code or by the CBA with the union.

Failure to comply with the procedural requirements shall not invalidate a dismissal where just or authorised causes exist. However, an erring employer may be held liable for nominal damages of up to PHP30,000 per employee for just causes, or up to PHP50,000 per employee for authorised causes.

There is no legal requirement to notify a union prior to a termination, but such a requirement may be provided in the CBA. Furthermore, no employee class may be exempt from termination, subject to regulations on the termination of employment contracts for authorised causes as may be prescribed in a CBA.

Employees and employers are encouraged to form labour management councils to facilitate the exercise of the employees’ right to participate in the company’s policy and decision-making processes. Employee representatives to labour management are elected by at least the majority of all employees in the establishment.

Employees also have a constitutionally protected right to self-organisation. Rank-and-file and supervisory employees are free to form, join or assist unions of their own choosing for purposes of collective bargaining.

Unions are "locally" formed within a company through specific bargaining units and are open only to employees within that company. To exercise the rights granted by law to unions, a union must be duly registered with the DOLE either as an independent union (which must generally consist of at least 20% of all the employees in the bargaining unit where it seeks to operate) or as a local chapter created by a national union or federation through the issuance of a charter certificate. A bargaining unit is a group of employees sharing mutual interests within a given employer unit comprised of all or a portion of the entire body of employees in the employer unit, or any specific occupational or geographical grouping within that employer unit.

A union selected as the sole exclusive bargaining representative shall retain this status as follows:

  • for one year from the last certification election;
  • during the course of negotiations for a CBA;
  • during a bargaining deadlock; and
  • during the five-year validity of a CBA, except within the last 60 days prior to its expiry.

Once selected, the bargaining representative and the employer have a duty to bargain collectively.

Based on Section 42(A)(3) of the Tax Code, compensation for labour or personal services performed within the Philippines is considered as income earned from the Philippines, and is therefore subject to Philippine income tax.

As a general rule, an employee who is a resident citizen, non-resident citizen or a resident alien shall be subject to Philippine income tax at rates ranging from 0% to 35%, depending on the amount of taxable income earned within the Philippines for the taxable year. For the resident citizen, income from compensation rendered abroad is also subject to Philippine income tax. Under Revenue Regulation No 08-2018, taxable income for compensation earners is defined as the gross income minus non-taxable income/benefits such as the 13th Month Pay and other benefits, de minimis benefits, and the employee’s share in government-mandated employee social service contributions and union dues.

On the other hand, an employee who is a non-resident alien not engaged in trade or business within the Philippines is subject to Philippine income tax at the rate of 25% of the income received from salaries and wages earned within the taxable year.

Employers are required to withhold certain amounts from compensation paid to employees. The amounts to be withheld and remitted to the National Government depend directly on the taxable income of the employee.

A corporation doing business in the Philippines is subject to various taxes at varying rates, depending on its classification.

Domestic corporations, or those created or organised in the Philippines, are taxed on their net income from all sources. They are generally subject to the following Philippine taxes:

  • Regular Corporate Income Tax (RCIT) at the rate of 25% (may be reduced to 20% if certain criteria are met) based on the net taxable income derived during each taxable year from all sources within and without the Philippines, or Minimum Corporate Income Tax (MCIT) at the rate of 1% based on the gross income derived during each taxable year, beginning on the fourth taxable year, from all sources within and without the Philippines, whichever is higher;
  • Expanded Withholding Tax (EWT) on certain income provided under Revenue Regulation No 02-98, as amended, which is creditable against RCIT;
  • Final Withholding Tax (FWT) at varying rates depending on the type of passive income;
  • Value-Added Tax (VAT) at the rate of 12% of the gross selling price for the sale of goods or properties, or 12% of the gross receipts for the sale of services, whichever is applicable, or Percentage Tax at the rate of 1%;
  • local taxes imposed by the Local Government Units (LGU); and
  • other taxes depending on product, activity or transaction, such as Documentary Stamp Tax and Excise Taxes.

Resident Foreign Corporations are subject to the same taxes, except that only income derived from sources within the Philippines is taxable. Resident Foreign Corporations are also subject to the Branch Profit Remittance Tax at the rate of 15% of total profits applied or earmarked for remittance.

Finally, Non-Resident Foreign Corporations are subject to the following Philippine taxes:

  • FWT at the rate of 25% (generally) based on the gross income derived from sources within the Philippines and other applicable rates for certain types of passive income; and
  • VAT at the rate of 12% of the gross selling price for the sale of goods or properties or 12% of the gross receipts for the sale of services, whichever is applicable.

The amount of income taxes paid or incurred during the taxable year by a domestic corporation to any foreign country may be claimed as a tax credit in the Philippines. However, there are limitations on the tax credits that may be claimed under the Tax Code.

Tax consolidation is not available in the Philippines. Parent companies, subsidiaries and affiliates are taxed separately.

There are no thin capitalisation rules in the Philippines.

Transfer pricing rules are applicable in the Philippines. Section 50 of the Philippine Tax Code provides that the Commissioner of Internal Revenue is authorised to distribute, apportion or allocate gross income or deductions between or among organisations that are owned or controlled directly or indirectly by the same interests, if they determine that such distribution, apportionment or allocation is necessary in order to prevent the evasion of taxes or to clearly reflect the income of any organisation.

There are anti-tax evasion rules in the Philippines. Section 254 of the Philippine Tax Code provides that any person who wilfully attempts to evade or defeat any tax provided under the Tax Code shall be punished by imprisonment and fine, in addition to the other penalties provided by law.

The Guidelines on the Computation of Merger Notification Thresholds (Merger Rules) provide the rules on determining whether a merger, an acquisition of shares or assets, or a joint venture is subject to compulsory notification.

Notification is compulsory if the transaction breaches the following compulsory notification thresholds:

  • the aggregate annual gross revenues in, into or from the Philippines, or the value of the assets in the Philippines of the ultimate parent entity (UPE) of at least one of the acquiring or acquired entities, including that of all entities that the UPE controls, directly or indirectly, exceeds PHP50 billion (Size of the Party Test); and
  • the value of the transaction exceeds PHP50 billion (Size of the Transaction Test).

The current increased threshold of PHP50 billion for both the Size of the Party Test and the Size of the Transaction Test was legislated pursuant to Republic Act No 11494 (otherwise known as the Bayanihan to Recover as One Act, or Bayanihan Law 2), in order to encourage mergers and acquisitions as part of the economic recovery from the COVID-19 pandemic. The increased threshold shall be effective until 14 September 2022; the Philippine Competition Commission (PCC) may set different thresholds to become effective on 15 September 2022.

Computing the value of the transaction depends on the type of transaction.

For mergers or acquisitions of assets in the Philippines, the amount is computed based on the value of the assets that are the subject of the transaction or the gross revenues generated in the Philippines of such assets.

For an acquisition of voting shares of a corporation or of an interest in a non-corporate entity, the amount is computed based on the aggregate value of the assets of the acquired entity or gross revenues generated by such assets in the Philippines. Furthermore, as a result of the proposed acquisition, the entity acquiring the shares, together with its affiliates, should own voting shares or interests of:

  • more than 35%; or
  • more than 50%, if the entity or entities already own more than 35%.

For joint ventures, the amount is computed based on the aggregate value of the assets that will be contributed into the proposed joint venture or the gross revenues generated by such assets, including any amount of credit or any obligations of the joint venture that any of the joint venture parties agreed to extend or guarantee.

A merger or acquisition consisting of successive transactions that shall take place within a one-year period between the same parties or entities under common control shall be treated as one transaction (Creeping Transactions).

Parties that breach the thresholds are required to notify the PCC within 30 days of the execution of the definitive agreement.

For Creeping Transactions, if a binding preliminary agreement provides for such successive transactions, the entities shall provide notification on the basis of such preliminary agreement. If there is no binding preliminary agreement, notification shall be made when the parties execute the agreement relating to the last transaction that satisfies the thresholds, when taken together with the preceding transactions.

Parties that breach the thresholds are required to notify the PCC within 30 days of the execution of the definitive agreement. The notification process is as follows.

  • Prior to filing the notification, the parties required to notify may inform the PCC of the proposed merger or acquisition and request a pre-notification consultation, in which they may seek non-binding advice as to what information is required to be specified in the notification.
  • Each party shall submit a Notification Form. Documents and detailed information required in the Notification Form are provided through appendices.
  • Upon submission of the Notification Form, the PCC shall determine within 15 days whether the Notification Form and other relevant requirements are complete, and shall inform the parties of other information and/or documents they may have failed to supply, or issue a notice to the parties that the notification is sufficient for the purposes of commencing a Phase 1 review of the merger or acquisition. In the case of the former, a Notice of Deficiency shall be issued, listing the missing information. In the case of the latter, an Order of Payment shall be issued, requiring the payment of a fixed fee of PHP250,000 within ten days from the receipt of such order. After the payment, a Notice of Sufficiency shall be issued, informing the parties that their notification is complete, and a Phase 1 review shall commence. Note that the appropriate periods for the phases of review shall commence only upon the PCC’s determination that the notification is complete. If the parties fail to provide the requested information in the Notice of Deficiency within the period provided in the request, the notification shall be deemed expired and the parties will have to refile the notification. If the parties need additional time to put together the requested information, they may request an extension, in which case the periods for review shall be extended accordingly.
  • The Phase 1 review lasts for a maximum of 30 days from complete notification and payment of the filing fee. It involves an assessment to determine if the notified merger or acquisition raises any competition concerns under the Philippine Competition Act (PCA) that would warrant a more detailed review. If no competition concerns are raised, the merger or acquisition may be cleared within the period for Phase 1 review.
  • If, after the conduct of a Phase 1 review, the PCC is unable to conclude that the notified merger or acquisition does not raise competition concerns, it will provide the notifying parties a notice and request for additional information for the purpose of commencing a Phase 2 review. An Order of Payment shall be sent to the parties within five days from such notice. The Phase 2 review fee shall be 1% of 1% of the value of the transaction, which shall not be less than PHP1 million nor more than PHP5 million. A Phase 2 review lasts for a maximum of 60 days and is a more detailed and in-depth assessment of the merger or acquisition. The additional 60-day period shall begin on the day after the request for information is received by the parties. In no case shall the total period of review by the PCC exceed 90 days from the time the initial notification of the parties is deemed complete.
  • At any time before the PCC has rendered a final decision, the parties may propose commitments that remedy, mitigate or prevent the substantial lessening of competition arising from the merger or acquisition; if the PCC approves the proposed commitments, the merger or acquisition may be allowed to proceed subject to the commitments accepted by the PCC.
  • At the end of the Phase 1 or 2 review process, the PCC may decide to:
    1. approve the merger or acquisition;
    2. prohibit the merger or acquisition; or
    3. prohibit the merger or acquisition, subject to conditions that it considers appropriate to remedy, mitigate or prevent anti-competitive transactions. If no decision is promulgated upon the lapse of the periods of review, the merger or acquisition shall be deemed approved.

Philippine law prohibits agreements whose object or effect is to substantially prevent, restrict or lessen competition. In particular, the PCA prohibits agreements between and among competitors that restrict competition in terms of price, or components thereof, or other terms of trade, or those fixing prices at an auction or in any form of bidding, bid suppression, bid rotation and market allocation and other analogous practices of bid manipulation.

The PCA likewise prohibits agreements between or among competitors that have the object or effect of substantially preventing, restricting or lessening competition, such as those setting, limiting or controlling production, markets, technical development or investment, or those dividing or sharing the market, whether by volume of sales or purchases, territory, type of goods or services, buyers or sellers or any other means.

Nevertheless, agreements that contribute to improving the production or distribution of goods and services, or that contribute to promoting technical or economic progress while allowing consumers a fair share of the resulting benefits, are not considered a violation of Philippine law on anti-competitive agreements.

The PCA specifically prohibits situations wherein one or more entities abuse their dominant position by engaging in conduct that would substantially prevent, restrict or lessen competition, including:

  • selling goods or services below cost with the object of driving competition out of the relevant market;
  • imposing barriers to entry or committing acts that prevent competitors from growing within the market in an anti-competitive manner, except those that develop in the market as a result of or arising from a superior product or process, business acumen, or legal rights or laws;
  • making a transaction subject to acceptance by the other parties of other obligations which, by their nature or according to commercial usage, have no connection with the transaction;
  • setting prices or other terms or conditions that discriminate unreasonably between customers or sellers of the same goods or services, where such customers or sellers are contemporaneously trading on similar terms and conditions, where the effect may be to lessen competition substantially, subject to permissible price differentials; and
  • imposing restrictions on the lease or contract for sale or trade of goods or services concerning where, to whom, or in what form goods or services may be sold or traded, such as fixing prices, giving preferential discounts or rebates upon such price, or imposing conditions not to deal with competing entities, where the object or effect of the restrictions is to prevent, restrict or lessen competition substantially, provided that the following are not prohibited:
    1. permissible franchising, licensing, exclusive merchandising or exclusive distributorship agreements such as those that give each party the right to unilaterally terminate the agreement; or
    2. agreements protecting intellectual property rights, confidential information or trade secrets.

The PCA likewise prohibits the following:

  • making the supply of particular goods or services dependent upon the purchase of other goods or services from the supplier that have no direct connection with the main goods or services to be supplied;
  • directly or indirectly imposing unfair purchase or selling prices on competitors, customers, suppliers or consumers, provided that prices that develop in the market as a result of or due to a superior product or process, business acumen or legal rights or laws shall not be considered unfair prices; and
  • limiting production, markets or technical development to the prejudice of consumers.

In 2019, the PCC decided its first abuse of dominance case, involving a property developer that imposed a sole internet service provider on its residents, thereby preventing the residents from utilising alternative, cheaper internet services. As a corrective measure, the PCC ordered the property developer to pay a fine of PHP27 million and invited other internet service providers to offer their services to residents.

A patent is a bundle of exclusive rights granted to the owner of a technical solution, such as a product or process, which is new, involves an inventive step, is industrially applicable, and is not excluded by law from patent protection.

Patent applications must be filed within 12 months from the priority date, if any. A national phase entry application under the Patent Co-operation Treaty (PCT) must be filed within 30 months from the priority date or the international filing date, if no priority is claimed, subject to a one-month extension upon payment of a surcharge fee.

A patent application undergoes both formal and substantive examination. Currently, it takes around three years from filing before an application is examined. Depending on the issues and objections found, the examination stage takes around two years. Once allowed, a Letters Patent Certificate is issued.

A patent owner has the exclusive right to restrain, prohibit and prevent any unauthorised making, using, offering for sale, selling or importing of a patented product or a product obtained from a patented process. If the patent application was filed prior to 1 January 1998, the term of the patent is 17 years from the issuance of the patent; otherwise, the term is 20 years from the filing of the application.

Any violation of the patent owner’s exclusive rights constitutes patent infringement. To claim damages and secure an injunction against an infringing activity, the infringement action may be filed as an administrative complaint with the Philippine Intellectual Property Office (IPOPHL), or as a civil case with the commercial courts. A criminal action for patent infringement may only be pursued if the infringement is repeated after a court has found the defendant guilty of a previous infringement.

A trade mark is any visible sign capable of distinguishing the goods or services of an enterprise, including a stamped or marked container of goods.

The Philippines follows the first-to-file rule for trade mark protection. An application is granted a filing date upon the filing of complete requirements, then undergoes substantive examination to determine registrability. If registrable, the mark is published for opposition. If no opposition is filed within 30 days of said publication, the mark is deemed registered and a Certificate of Registration is issued in due course.

A trade mark registration remains in force for ten years, unless it is cancelled or removed sooner. It may be renewed for ten-year periods by filing a request for renewal before the expiration, or within six months after expiration subject to the payment of a surcharge.

A trade mark application or registration must be kept active by filing a Declaration of Actual Use (DAU) together with proofs of use of the mark within the following periods:

  • three years from its filing date;
  • six years from its registration date; or
  • one year from its renewal date.

Failure to comply with these DAU requirements will result in the refusal of the application or the removal of the registered mark.

A trade mark registrant has the exclusive right to prevent anyone from using an identical or confusingly similar mark in relation to the same or related goods and/or services covered by the trade mark registration. A violation of this right constitutes trade mark infringement and/or unfair competition, which may be filed before the IPOPHL as an administrative case, or before the regular courts as a civil and/or criminal case. To claim damages, it must be shown that the infringer had prior notice of the mark’s registration. Where fraud or deception is employed to pass off one’s goods as those of another, with or without a registered mark, an unfair competition case may be filed.

An industrial design is a composition or combination of shapes, lines or colours, or a three-dimensional form, which produces an aesthetic and ornamental effect and gives a special appearance to and can serve as a pattern for an industrial product or handicraft.

Only a formality examination is conducted for industrial design applications, which can take around eight months depending on the issues and objections found. Once allowed, a Certificate of Registration is issued.

An industrial design is registered for five years from its filing date, and may be renewed for not more than two consecutive five-year periods.

Like patents, an industrial design owner has the exclusive right to restrain, prohibit and prevent any unauthorised making, using, offering for sale, selling or importing of a registered design, and may pursue an infringement action against violations, to claim damages and/or secure an injunction.

Copyright is a statutory right granted to the creator of an original literary, artistic or scientific work for its exclusive use and enjoyment to the extent specified by the law.

Works are protected starting from their creation. Nonetheless, an author/creator or their heirs or assignees may register the work with the National Library, the Supreme Court Library (for works in the field of law) or the Bureau of Copyrights of the IPOPHL, and will be issued a certificate of copyright registration. Copyright transfers, assignments or exclusive licences may also be recorded with the National Library or the Bureau of Copyright, and a notice of the record will be published in the IPOPHL E-Gazette.

Copyright is generally protected until 50 years after the death of the author/creator. An author’s right to attribution shall last for their lifetime and in perpetuity after their death, while other moral rights are coterminous with the economic rights. While the economic rights may be assigned or licensed in whole or in part through a written instrument, moral rights and resale rights are not alienable. Moral rights may be waived, subject to conditions, but resale rights may not.

The author/creator enjoys the exclusive right to use, authorise and prevent others from the reproduction, publication or communication of their work, subject to fair use exceptions. In the case of infringement, the author/creator may institute an administrative, civil or criminal case with a claim for damages and injunctive relief within four years from the cause of action. Copyright infringement can take the form of direct infringement, beneficial infringement, or contributory or causal infringement.

Trade Secrets

A trade secret is a plan or process, tool, mechanism or compound known only to its owner and those employees to whom it is necessarily communicated. Trade secrets are not registered with the IPOPHL. Philippine laws are instead tailored towards preventing compulsory disclosure of such secrets, and parties usually resort to non-disclosure agreements.

Plant Variety

A plant variety may be a seed, transplant, plant, tuber, tissue culture plantlet or other forms that can be defined by the expression of the characteristics resulting from a given genotype or combination of genotypes, distinguished from any other plant groupings by the expression of at least one characteristic, and considered as a unit with regard to the suitability for being propagated unchanged.

An application for plant variety protection is filed with the National Plant Variety Protection Board and, if allowable, a Certificate of Plant Variety Protection is issued. The term of protection is 25 years from the date of the grant of protection for trees and vines, and 20 years for all other types of plants.

Indigenous/Traditional Knowledge

Traditional knowledge is knowledge, know-how, skills and practices that are developed, sustained and passed on from generation to generation within a community, often forming part of its cultural or spiritual identity. Through the Indigenous People’s Rights Act of 1997, indigenous cultural communities and peoples are entitled to recognition of the full ownership, control and protection of their cultural and intellectual rights.

Under Republic Act No 10173, otherwise known as the Data Privacy Act of 2012 (DPA), the collection, processing, sharing and retention of personal data shall be allowed, subject to adherence to general principles laid out in said law, including the implementation of adequate and appropriate safeguards to ensure the integrity and confidentiality of the data.

In addition, the law requires entities that process or collect data to designate data protection and/or compliance officers to be accountable for establishing compliance with data privacy and security policies under the applicable laws and regulations enacted by the National Privacy Commission (NPC). The law likewise provides for acts made punishable under the law and the consequent penalties, which include the imposition of fines and possible imprisonment. The Implementing Rules and Regulations of the DPA and issuances of the NPC also prescribe the minimum standards for qualifications of the designated data protection officer, the factors to be taken into consideration in the registration of entities processing or collecting data, and the procedure for rectifying data breaches.

The DPA applies extraterritorially, particularly to an act or practice engaged in and outside of the Philippines by an entity if:

  • the act, practice or processing relates to personal information about a Filipino citizen or resident;
  • the entity has a link with the Philippines and is processing personal information in the Philippines, or even if the processing is outside the Philippines as long as it is about Filipino citizens or residents, such as:
    1. a contract is entered into in the Philippines;
    2. a juridical entity is unincorporated in the Philippines but has central management and control in the country; and
    3. an entity that has a branch, agency, office or subsidiary in the Philippines and the parent or affiliate of the Philippine entity has access to personal information; and
  • the entity has other links in the Philippines, such as but not limited to:
    1. the entity carries on business in the Philippines; and
    2. the personal information was collected or held by an entity in the Philippines.

The NPC administers and implements the DPA. Its tasks include monitoring and ensuring the Philippines' compliance with international standards set for data protection, and receiving complaints, instituting investigations and awarding indemnity on matters affecting personal information.

If processing is found to be detrimental to national security and public interest, the NPC is also empowered to issue cease and desist orders and to impose bans, whether temporary or permanent, on the processing of personal information. It can also recommend prosecution and the imposition of penalties specified under the DPA.

The Philippines held its general elections on 9 May 2022, and new executive and legislative officials were elected at national, provincial and regional levels, including the president and vice president, 12 of the 24 seats in the Senate and all 316 seats in the House of Representatives. It is relevant to note that, in the Philippines, much of the legislation considered by Congress originates from the Executive branch, which is usually outlined in the President’s State of the Nation (SONA) address to be held on the fourth Monday of July. Thus, with the change in administration and the pending appointment of several key positions in the Executive branch, the President’s main policies and, consequently, the government’s main policies have yet to be determined.

There has also been a change in Congress, which necessitates the refiling of all pending bills for the 19th Congress’ consideration. At the time of writing, there is no clear indication as to what the new administration’s priority bills would be.

One of the pending bills that would have to be resubmitted is the proposed amendments to Republic Act No 8293, otherwise known as the Intellectual Property Code, as stated in House Bill No 8620 endorsed by the Philippine IPOPHL. The bill provides welcome improvements to the current IP system in the country by, among others, providing more stringent penalties for IP rights violations and stronger enforcement powers for the IPOPHL. IP rights are guaranteed a higher level of protection that would undoubtedly promote their creation, use and commercialisation in the Philippines.

The Philippines also acceded to the Beijing Treaty on Audiovisual Performances (BTAP) in April 2021, which focuses on performers’ rights and ensures their protection in all contracting countries. In relation to this, the IPOPHL has issued the draft rules for the implementation of the BTAP, as well as the draft implementing rules for sound performers’ rights and sound record producers' rights pursuant to the World Intellectual Property Organization Performances and Phonograms Treaty (WPPT), which are all currently undergoing public consultation.

On an administrative level, the IPOPHL has also issued the draft rules on geographical indications, which provide the framework for the sui generis protection of geographical indications, including the creation of a specific Registrar under the Bureau of Trademarks. The draft is also under public consultation.

In response to the pandemic, the IPOPHL has issued draft guidelines for the use of special compulsory licences and compulsory licenses by the Department of Health when procuring medicines that may warrant the use of the TRIPS Agreement flexibilities.

Villaraza & Angangco

11th Avenue corner 39th Street
Bonifacio Triangle
Bonifacio Global City 1634
Metro Manila, P.O. Box 3559
Makati Central
Philippines

+632 8988 6088

+632 8988 6000

info@thefirmva.com www.thefirmva.com
Author Business Card

Trends and Developments


Authors



Villaraza & Angangco was established in 1980 and is a full-service law firm based in the Philippines with consistently recognised expertise in the areas of litigation and dispute resolution, corporate and commercial law, intellectual property, and labour and employment. The firm is headed by legal luminaries and practitioners who are deemed experts in their respective fields, and has about 70 lawyers and over 80 highly trained non-legal staff who capably provide comprehensive, multi-layered, innovative and practical solutions to both foreign and domestic clients. With decades of experience in serving at the forefront of the evolving landscape of Philippine law, Villaraza & Angangco continues to gain the confidence of prominent individuals, multinational corporations and business leaders across practice areas, and to establish itself as one of the leading firms in both the international and domestic legal spheres offering professional service of the highest calibre.

Labour and Employment

Engaging Filipino workers – employees or contractors?

Technological advances have enabled establishments to undertake cross-border operations and engage individuals around the world without need for relocation. The Philippines is an international hotspot where establishments look to remotely engage workers who remain based locally. It is not unusual for foreign establishments to engage Filipino workers for their business endeavours. Onboarding Filipino workers through either direct employment or individual independent contractorship has become the trend.

These two modes of worker acquisition are fundamentally different. Direct employment entails assuming employer obligations. In the Philippines, this includes compliance with the statutory terms and conditions of employment, and upholding the worker’s right to security of tenure. Employment relationships are necessarily governed by the Labour Code and other local labour laws.

On the other hand, parties to an independent individual contractor agreement are given more leeway to dictate the terms of their engagement. Parties in this relationship are within the purview of the provisions of the Civil Code. This relationship is often perceived as a more attractive option as it avoids the obligations that are associated with employment.

Misclassification arises when a worker initially engaged as an independent individual contractor turns out to actually be an employee. In this case, the corresponding employer obligations automatically attach. Naturally, this involves plenty of administrative and fiscal responsibilities over the employee. The best way to address the issue of misclassification is prevention.

An individual independent contractor is characterised by two distinguishing traits:

  • they must possess unique skills and talents that set them apart from employees in general; and
  • they must perform work in accordance with their own means and methods, free from the control of the principal.

Together, these are the benchmarks for a worker to be properly classified as an individual independent contractor. Thus, it is imperative that an engagement characterised as an individual independent contractor agreement conforms with these requirements, lest the parties run the risk of misclassification.

In engaging individual independent contractors, it is also imperative that scope of control is limited to the result of the contractor’s work. Control that spills over to the means and methods is indicative of employment.

The complication lies in what can be considered as “unique skills or talents”. Jurisprudence provides examples such as columnists, broadcasters and basketball referees, which were all decided during the mid to late 2000s when advances in technology were not as they are today. For now, great care is needed to determine what is unique in terms of skill and talents, and these necessarily vary across different industries.

Foreign Investments

Liberalising telecommunications, logistics, transportation infrastructure and other public services

In a landmark legislation that amends the 86-year-old Public Service Act (PSA), the Philippine government passed Republic Act (RA) No 11659 (PSA Amendment), which effectively relaxes the nationality requirement for certain industries or activities historically covered by the Constitutional restriction imposed on public utilities. The PSA Amendment took effect on 9 April 2022, but its implementing rules and regulations (IRR) have yet to be issued.

The Philippine Constitution limits the ownership and operation of public utilities to Filipino citizens and corporations that are at least 60% owned by Filipinos. With the PSA Amendment coming into effect, only the following remain as public utilities:

  • the distribution of electricity;
  • the transmission of electricity;
  • petroleum and petroleum products pipeline transmission systems;
  • water pipeline distribution systems and wastewater pipeline systems, including sewerage pipeline systems;
  • seaports; and
  • public utility vehicles.

All other public services that used to be considered public utilities have been released from the 40% foreign equity limit under the Constitution. These include but are not limited to the following services:

  • telecommunications;
  • logistics and freight forwarding;
  • shipping;
  • air carriers;
  • airports;
  • railways and subways;
  • expressways and tollways; and
  • transport network companies.

Except for telecommunications, which is specifically classified as a “critical infrastructure” by the PSA Amendment, all other public services not considered public utilities may now be 100% foreign-owned. An additional condition of reciprocity is imposed in order for a critical infrastructure, such as telecommunications, to be more than 50% foreign-owned. Therefore, if the country of a foreign national does not accord reciprocal rights to Filipinos, such foreign national may only own up to 50% of the capital of a telecommunications company or other public service that may later be declared as critical infrastructure.

Furthermore, an entity controlled by or acting on behalf of a foreign government or foreign state-owned enterprise is prohibited from owning capital (or investing additional capital if such entity had already invested capital prior to the PSA Amendment coming into effect) in any public service that is classified as a public utility or critical infrastructure.

Lowering investment hurdles for foreign retailers

Foreign brands and retailers may now set up shop in the Philippines with significantly less investment compared to the capitalisation requirements applicable prior to the recent amendment of the Retail Trade Liberalisation Act (RTLA). The amendatory law, RA 11595 (RTLA Amendment), took effect on 21 January 2022, while its IRR became effective on 27 March 2022.

Provided that the foreign retailer’s country of origin does not prohibit the entry of Filipino retailers, a foreign retailer may, upon registration, engage or invest in retail trade business in the Philippines, either through physical stores or through online channels, subject to a minimum paid-up capital requirement of PHP25 million (approximately USD500,000). For foreign corporations or branch offices, the minimum paid-up capital requirement applies to the assigned capital. If the foreign retailer operates more than one physical store, there must be a minimum investment of PHP10 million (approximately USD200,000) per store.

The IRR of the RTLA define a “foreign retailer” as “a foreign national, partnership, association, or corporation of which more than forty percent (40%) of the capital stock outstanding and entitled to vote is owned and held by such foreign national, engaged in retail trade.” Thus, a corporation that is at least 60% Filipino-owned does not need to comply with the minimum capital or investment requirements.

Prior to the RTLA Amendment, retail trade was fully reserved to Filipinos and corporations 100% owned by Filipinos, unless the requirements for a minimum paid-up capital of USD2.5 million and a per-store investment of USD830,000 were satisfied. The RTLA Amendment has substantially lowered the investment hurdles to less than a quarter of the previous amounts, and has allowed foreign nationals to invest in retail trade up to 40% of an entity’s capital without having to comply with minimum capitalisation or investment requirements.

In addition, pre-qualification requirements for foreign retailers have been removed in the RTLA Amendment. Previously, foreign retailers were required to have a net worth of at least USD200 million, a five-year track record in retailing, and either at least five retailing branches/franchises anywhere around the world or at least one store capitalised at a minimum of USD25 million.

Easing barriers to entry for foreign SMEs

Under the Foreign Investments Act (FIA), micro and small domestic market enterprises with paid-in equity capital of less than USD200,000 are generally reserved for Filipinos and corporations at least 60% owned by Filipinos.

With the amendment of the FIA through RA 11647 (FIA Amendment), the following non-Filipino enterprises can utilise a lower capitalisation threshold of USD100,000:

  • those that involve advanced technology as determined by the Department of Science and Technology;
  • those that are endorsed as start-ups or start-up enablers by the lead host agencies pursuant to RA 11337, also known as the Innovative Startup Act; or
  • those that employ at least 15 Filipino employees, who represent a majority of the direct employees of the enterprise.

The FIA Amendment also created the Inter-Agency Investment Promotion Co-ordination Committee (IIPCC) to promote and facilitate efforts to encourage foreign investments in the Philippines. The IIPCC is tasked with developing a comprehensive and strategic Foreign Investment Promotion and Marketing Plan (FIPMP).

Furthermore, the FIA Amendment imposes stiffer penalties on public officials and employees involved in foreign investment promotion who commit acts of graft and corruption, in addition to the penalties contained in the Anti-Graft and Corrupt Practices Act.

The FIA Amendment became effective on 17 March 2022; at the time of writing, its IRR have yet to be issued.

Nullifying nationality-based licensing regulations in construction

In a unanimous decision on 10 March 2020, the Philippine Supreme Court En Banc ruled in the case of Philippine Contractors Accreditation Board (PCAB) v Manila Water Company (GR No. 217590) that construction is not among the activities reserved to Filipinos by the Constitution, and struck down the regulation imposed by the PCAB requiring applicants for regular contractor’s licences to be at least 60% Filipino-owned. The Court clarified that the PCAB does not have the authority to impose equity limitations unless provided by the Constitution or by existing laws and executive issuances.

In a Resolution dated 5 October 2021 and published on 3 March 2022, the Court denied the motion for reconsideration filed by the PCAB and petitions and motions for third-party interventions filed by various parties.

Once the decision becomes final, foreign-owned domestic corporations may qualify for a regular contractor’s licence without having to comply with the prohibitive equity requirement of at least PHP1 billion for a Quadruple A licence.

Taxation

Attracting investments through tax reform

Over the last couple of years, significant amendments to the Philippine Tax Code have been introduced as part of the Comprehensive Tax Reform Programme (CTRP). The first package of the CTRP is RA 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN), which took effect on 1 January 2018. The second package is RA 11534 or the Corporate Recovery and Tax Incentives for Enterprises (CREATE), which became effective on 11 April 2021.

A number of amendments that are expected to attract and encourage investments in the Philippines have been introduced by the CREATE Law.

The CREATE Law reduced the Philippine corporate income tax rate from 30% to 20% for domestic SMEs, 25% for large domestic corporations and 25% for resident foreign corporations, retroactive to 1 July 2020. A non-resident foreign corporation (NRFC) is now generally subject to 25% final tax on its gross income with a Philippine tax situs. Dividends received by NRFCs may be subject to a reduced tax rate of 10% applying the tax sparing rule, or the applicable preferential rate under relevant tax treaty.

Fiscal incentives have been rationalised by the CREATE Law, as follows:

  • an income tax holiday (ITH) is available for four to seven years for qualified enterprises as a uniform primary incentive;
  • a 5% special corporate income tax rate or enhanced deduction for qualified export enterprises is available for ten years after the expiration of the ITH, as a uniform secondary incentive; and
  • an enhanced deduction for qualified domestic market enterprises is available for five years after the expiration of the ITH, as a uniform secondary incentive.

The CREATE Law further expands and strengthens the framework for tax-free exchanges of property for shares of stock under Section 40(C)(2) of the Tax Code and specifically removes the requirement for a confirmatory ruling from the Bureau of Internal Revenue (BIR) to avail of the tax exemption. Revenue Memorandum Circular No 19, Series of 2022, clarifies that parties may proceed to implement a tax-free exchange without obtaining a tax ruling but may be subject to a post-transaction audit by the BIR.

Capital Markets

Driving ESG and sustainability

Sustainability reporting will be mandatory for publicly listed companies in the Philippine Stock Exchange (PSE) by 2023. There is also a proposal to introduce an ESG compliance index for publicly listed companies in the PSE as a guide for sustainability-focused investors. Philippine companies with foreign investors are now deliberately incorporating ESG standards and reports in company policies, in keeping with global and regional trends.

Intellectual Property

The Intellectual Property Office of the Philippines (IPOPHL) continues to move towards digitalisation for IP prosecution and litigation, despite the easing of restrictions due to COVID-19. Trade mark, copyright, patent, utility model and industrial design applications are now made online through the IPOPHL’s website. The IPOPHL now issues electronic Registration Certificates for trade marks, inventions, utility models and industrial design in lieu of hard copy certificates.

The rules on the electronic filing of pleadings and submissions for inter partes and IP violation cases filed with the IPOPHL Bureau of Legal Affairs remain applicable, while the service of orders and final decisions are done through electronic mail, pursuant to IPOPHL Memorandum Circular No 2021-015.

Patents

The IPOPHL has been moving towards creating a more inclusive and diversified system for patent applications by launching various assistive programmes. In 2022, the IPOPHL launched the “Juana Patent and Juana Design” programme, which aims to increase the participation of women inventors and designers in the country’s innovation scene by lessening or waiving certain fees related to the application, publication and substantive examination for invention, utility model and industrial design registration. In the past year, the IPOPHL recorded a record high 137% increase in patent co-operation treaty (PCT) applications from 2020, which may be attributed to the PCT Filing Assistance Programme.

Trade marks

The IPOPHL has issued the draft revised rules for trade marks, service marks, trade names and marked or stamped containers for public consultation. The main revisions include the following:

  • the definition of “trade names” as the “business name, company name or corporate name”;
  • the inclusion of new rules for priority claims relating to motion marks and hologram marks;
  • the new formal requirements for applications covering 3D marks, colour marks without form, position marks, motion marks and hologram marks;
  • the new deadline for responses to office actions and other trade mark-related issuances, which shall be counted from the date they were sent by the IPOPHL to the official email of the applicant/registrant or their agent;
  • public access to files and published applications, including Declarations of Actual Use and proofs of use submitted for the same;
  • the mandatory use of IPOPHL-prescribed forms for submissions to the Office; and
  • the requirement of legalisation, authentication or apostille of trade mark transfer documents for purposes of recordation with the Bureau of Trademarks.

The IPOPHL has also issued its draft rules for geographical indicators (GI), which provide for a sui generis system of registration and protection for GIs under the Bureau of Trademarks.

Copyright

2021–2022 was an exciting period for copyright and related rights. The IPOPHL strengthened the Bureau of Copyrights and Other Related Rights (BCRR) in late 2020 when it issued the new rules on copyright registration and deposit, which streamlined the registration and deposit process under the BCCR, including the recordal of exclusive copyright licences and assignments. The IPOPHL also issued:

  • the new rules on the resolution of disputes on copyright licensing, which placed the original jurisdiction over such disputes with the Director of the BCRR;
  • the rules on resale rights in relation to paintings, sculptures and manuscripts; and
  • the rules on copyright for government works.

The IPOPHL furthered its promotion of copyright protection with the accession of the Philippines to the Beijing Treaty on Audovisual Performances (BTAP) in 2021, especially for local music and audiovisual works. The IPOPHL hosted the first ever International Copyright Summit in November 2021, which focused on educating the public on copyright protection in various sectors of the creative industry, and published a Copyright Reference Book and a quarterly Copyright Bulletin, both of which are available for free from its website.

In late 2021, the IPOPHL issued:

  • its draft implementing rules of the BTAP;
  • the draft implementing rules on sound performers’ rights and on sound record producers’ rights under the World Intellectual Property Organization Performances and Phonograms Treaty (WPPT); and
  • the draft implementing rules on copyright protection and the public domain, which are currently under public consultation.

Aside from this, the IPOPHL also entered into a partnership with the Motion Picture Association of the United States trade group for purposes of monitoring piracy, and to support the creation of a piracy monitoring system and site-blocking regime to further protect IP rights in this jurisdiction.

With these improvements, the IPOPHL is on trend to further promote and strengthen copyright protection in the Philippines, especially for local creatives and talents.

Mediation and alternative dispute resolution

The IPOPHL is promoting a shift towards alternative modes of settling IP disputes by partnering with the Office of Alternative Dispute Resolution. In the stakeholders’ meeting held in April 2022, IPOPHL officers and other key speakers discussed the importance of ADR as a part of the recovery phase of the business sector in terms of IP matters. As part of its efforts to minimise litigious expenses, the IPOPHL has been actively upgrading its processes and launching new mediation services to cater to stakeholder needs. In 2021 alone, the Bureau of Legal Affairs mediated 195 cases, which is 47% higher than the 133 cases it mediated in 2020. The IPOPHL has also issued new rules for the mediation of IP cases outside of litigation, with the hopes of de-clogging its dockets.

Villaraza & Angangco

11th Avenue corner 39th Street
Bonifacio Triangle
Bonifacio Global City 1634
Metro Manila, P.O. Box 3559
Makati Central
Philippines

+632 8988 6088

+632 8988 6000

info@thefirmva.com www.thefirmva.com
Author Business Card

Law and Practice

Authors



Villaraza & Angangco was established in 1980 and is a full-service law firm based in the Philippines with consistently recognised expertise in the areas of litigation and dispute resolution, corporate and commercial law, intellectual property, and labour and employment. The firm is headed by legal luminaries and practitioners who are deemed experts in their respective fields, and has about 70 lawyers and over 80 highly trained non-legal staff who capably provide comprehensive, multi-layered, innovative and practical solutions to both foreign and domestic clients. With decades of experience in serving at the forefront of the evolving landscape of Philippine law, Villaraza & Angangco continues to gain the confidence of prominent individuals, multinational corporations and business leaders across practice areas, and to establish itself as one of the leading firms in both the international and domestic legal spheres offering professional service of the highest calibre.

Trends and Development

Authors



Villaraza & Angangco was established in 1980 and is a full-service law firm based in the Philippines with consistently recognised expertise in the areas of litigation and dispute resolution, corporate and commercial law, intellectual property, and labour and employment. The firm is headed by legal luminaries and practitioners who are deemed experts in their respective fields, and has about 70 lawyers and over 80 highly trained non-legal staff who capably provide comprehensive, multi-layered, innovative and practical solutions to both foreign and domestic clients. With decades of experience in serving at the forefront of the evolving landscape of Philippine law, Villaraza & Angangco continues to gain the confidence of prominent individuals, multinational corporations and business leaders across practice areas, and to establish itself as one of the leading firms in both the international and domestic legal spheres offering professional service of the highest calibre.

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