Regulatory updates

Before the outgoing administration ends its term several high profile legislative measures were passed within the last quarter. Amongst others:

Foreign Investment Act Amendment

On 2 March 2022, the Philippines took another step forward into their economic recovery plan, after President Rodrigo R. Duterte signed in law Republic Act Nos. 11647 (an Act Promoting Foreign Investments, Amending Thereby Republic Act No. 7042, otherwise known as the “Foreign Investment Act”, as amended and for other purposes).

Among the key changes made by the amendments to the Foreign Investment Act from 1991, as amended in 1996, is the relaxation of the 200,000 USD paid-in capital rule under specific circumstances. Generally, domestic market enterprises with paid-in capital of less than 200,000 USD are reserved exclusively to Philippine citizens. R.A. No. 11647 modified the excep-tions found in the previous FIA, where a micro or small sized domestic enterprise may have a paid-in capital of 100,000 USD under the following circumstances:

They are involved in advanced technology, as determined by the Philippine Government’s Department of Science and Technology;
They are endorsed as a start-up or start ena-bler as determined by the lead host agencies under the Innovative Start-up Act; and
The majority of their direct employees are Filipinos, but in any case shall be not less than 15 ( a reduction from the previous 50 employees).

Another exception to the paid-in capital rule are industries covered by Republic Act No. 8762, otherwise known as the Retail Trade Liberalization Act, or other relevant laws.

12th foreign direct investment negative list

In this second class of exception, the paid-in capital requirement is governed by the specific law regulating such industry. In this re-gard, the publication of the 12th foreign direct investment negative list is highly an-ticipated. It will remain to be seen when the new administration takes up this matter and whether we may see further liberalization of industries as it was the case with the past administrations.

inter-agency investment promotion coordination committee

Other changes under the amended FIA are the establishment of an inter-agency investment promotion coordination committee. Similar to what we have seen under the CREATE Tax reform in 2021, such an inter-agency body shall act as an umbrella organization to consolidate the investment promotion efforts of various agencies. For larger investment projects, the power of the President to provide tailor-made investment terms is widened, which, however, may also lead to the President effectively vetoing certain investment conditions based on national interests.

Public Service Act Amendment

Another step taken by the Philippines towards economic recovery was made with the passage of Republic Act. No.11659. Republic Act No. 11659 (Public Service Act), amending Commonwealth Act No. 146, was signed by President Duterte on 21 March 2022.

Public Utilities

A key amendment introduced by the Public Service Act, is to name specific public services as “Public Utilities”, such as those operating in the following industries:

Electricity distribution;
Electricity transmission;
Petroleum and petroleum products pipeline transmissions systems;
Water pipeline distribution systems and wastewater pipeline systems;
Seaports;
Public utilities vehicles.

As a consequence, only the aforementioned industries are subject to the Philippine citizenship threshold found in the Philippine Constitution. Stated otherwise, industries outside the above list are generally allowed to have 100 percent foreign ownership. This is in contrast to the former legislation, where “public utilities” and the corresponding “public services” generally did not allow a participation of foreigners. Other changes made by R.A. 11659, include the increase in penalty for its violation.

Increase of Minimum Wage

Due to the escalating prices of basic goods, commodities, petroleum and other products and services in the Philippines, subject to the authority of R.A. 6727 (The Wage Rationalization Act), several Regional Tripartite Wages and Productivity Boards are discussing or recently issued wage orders providing for an increase of the minimum wage.

After approval of the National Wage and Productivity Commission and the Department of Labor and Employment:

based on Wage Order NCR-23.2022 issued on 13 May 2022 and effective as of 4 June 2022, the Minimum Wage in the National Capital Region will increase for the first time since 2018 by 33 PHP to 533/day PHP in the agricultural and 570/day PHP in the non-agricultural sectors;
based on Wage Order RBVI-26.2022 issued on 13 May 2022 and effective as of 5 June 2022, the Minimum Wage in Region VI (= Western Vi-sayas) will increase for the first time since 2019 by 55 PHP to 450/day PHP for those employing more than 10 workers and by 110/day PHP to 420 PHP for those employing 10 or less workers.

Other Regions´ Tripartite Wages and Productivity Boards such as Ilocos, Cagayan and Caraga have submitted their recommendations for review.

Please note: Depending on the applicable regulations, retail and service establishments regularly employing not more than 10 workers, and establishments affected by natural calamities and/or human-induced disasters - including the pandemic -, may apply for exemp-tion from compliance with the issued wage or-ders.

Increase in PhilHealth Social Security Contribution Rate

With reference to Section 10 of Republic Act No. 11223 (The Universal Health Care Act), PhilHealth Circular No. 2020-0005 and PhilHealth Advisory No. 0010-2022, the premiums for all direct contributors will increase by 1.0 percent to 4.0 percent with an income floor of 10,000 PHP and an income ceiling of 80.000 PHP (raised from 60.000 PHP).

The rate increase will be effective as of 1 June 2022, but will be applied retrospectively from 1 January 2022. Members and employers who have already paid their contribution based on the previous rate of 3 percent for the period January – May 2022 can generate a corresponding statement for remittance of the differential until 31 December 2022 in the PhilHealth Portal.

For employees terminated within the period from 1 January to 31 May 2022, according to our confirmation with Philhealth, only the employer´s share will be taken into account. Further guidelines and details are still to be released by PhilHealth.