NATIONALITY

Tests to Determine Nationality of a Corporation

1. Place of Incorporation Test – place of incorporation

2. Domiciliary Test – principal place of business
3. Control Test – nationality of the controlling stockholders or members of the corporation
4. Grandfather Rule – nationality is attributed to the percentage of equity in the corporation used in nationalized or partly
nationalized area

 The control test was adopted by the Foreign Investment Act of 1991 (RA 7042) as a general guideline in determining
the nationality of corporations engaged in a nationalized activity.

Who are considered as Philippine Nationals under the Foreign Investment Act of 1991

1. Corporations organized under Philippine laws of which 60% of the capital stock outstanding and entitled to vote is
owned and held by Filipino citizens. (Provided, That where a corporation and its non-Filipino stockholders own stocks
in a SEC registered enterprise, at least 60% of the capital stocks outstanding and entitled to vote of both corporations
must be owned and held by citizens of the Philippines and at least 60% of the members of the Board of Directors of
both corporations must be citizens of the Philippines, in order that the corporations shall be considered a Philippine
national)

 In this case, all of the shares shall be recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital
stock or capital of the corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall
be counted as owned by Filipinos and the other 50,000 shall be recorded as belonging to aliens.

2. Corporations organized abroad and registered as doing business in the Philippines under the Corporation Code of which
100% of the capital stock entitled to vote belong to Filipinos.

Grandfather Rule

 Applies only when the 60-40 Filipino-foreign equity ownership is in doubt. “Doubt” refers to various indicia that the
“beneficial ownership” and “control” of the corporation do not in fact reside in Filipino shareholders but in foreign
stakeholders.

 The method by which the percentage of Filipino equity in a corporation engaged in nationalized and/or partly
nationalized areas of activities, provided for under the Constitution and other nationalization laws, is computed, in
cases where corporate shareholders are present, by attributing the nationality of the second or even subsequent tier of
ownership to determine the nationality of the corporate shareholder. Thus, to arrive at the actual Filipino ownership and
control in a corporation, both the direct and indirect shareholdings in the corporation are determined.

Nationalized Activities

 The term “capital” under Section 11, Article XII of the 1987 Constitution refers to shares with voting rights, as well as
with full beneficial ownership, which must be owned and held by citizens of the Philippines.
(vote + ownership = control)
 Legal title without beneficial title of stocks is not sufficient to meet the ownership requirement

100% Filipino Owned

(Zero percent (0%) foreign equity)

1. Cooperatives (Art. 26, Ch. III, R.A. 6938);

2. Manufacture of Firecrackers and other pyrotechnic devices (Sec. 5, R.A. 7183).
3. Manufacture, repair, stockpiling and/or distribution of biological, chemical and radiological weapons and Anti-
personnel mines (Various treaties to which the Philippines is a signatory and conventions supported by the Philippines).
4. Mass media except recording
5. Utilization of Marine resources (Sec. 2, Art. XII, Constitution);
6. Manufacture, repair, stockpiling and/or distribution of Nuclear weapons (Sec. 8, Art. II, Constitution);
7. Cockpits (Sec. 5, P.D. 449);
8. Small-scale Mining (Sec. 3, R.A. 7076);
9. Private Security agencies (Sec. 4, R.A. 5487);
10. Retail trade enterprises with paid-up capital of less than US$2.5 M (Sec. 5, R.A. 8762);

80 % Filipino Owned
(Up to twenty percent (20%) foreign equity)

1. Private Radio Communications network (R.A. 3846).

75 % Filipino Owned
(Up to twenty percent (25%) foreign equity)

1. Contracts for the construction and repair of Locally funded public works (Sec. 1, CA 541, LOI 630) except:
a. infrastructure/development projects covered in R.A. 7718; and
b. projects which are foreign funded or assisted and required to undergo international competitive bidding (Sec. 2[a],
R.A. 7718);
2. Private Recruitment, whether for local or overseas employment (Art. 27, P.D. 442);
3. Contracts for the construction of Defense-related structures (Sec. 1, CA 541).
4. Under the Flag Law, in the purchase of articles for the Government, preference shall be given to materials and supplies
produced, made, or manufactured in the Philippines, and to domestic entites. Domestic entites means any citizen of the
Philippines or commercial company at least 75% of the capital of which is owned by citizens of the Philippines (Sec.
1, CA 138)

70 % Filipino Owned
(Up to twenty percent (30%) foreign equity)

1. Advertising (Art. XVI, Constitution)

2. Corporations engaged in pawnshop business (Sec. 8, P.D. 114)

60 % Filipino Owned
(Up to twenty percent (40%) foreign equity)

1. Contracts for the supply of materials, goods and commodities to GOCC, agency or municipal
1. corporation (Sec. 1, R.A. 5183);
2. Ownership of private Lands (Sec. 7, Art. XII, Constitution; Sec. 22, Ch. 5, CA 141; Sec. 4, R.A. 9182);
3. Ownership/establishment and administration of Educational institutions (Sec. 4, Art. XIV, Constitution);
4. Adjustment Companies (Sec. 323, P.D. 613);
5. Culture, production, milling, processing, trading excepting retailing, of rice and corn and acquiring, by barter, purchase
or otherwise, Rice and corn and the by-products thereof (Sec. 5, P.D. 194);
6. Exploration, development and utilization of Natural resources (Sec. 2, Art. XII, Constitution);
7. Ownership of Condominium units where the common areas in the condominium project are co-owned by the owners
of the separate units or owned by a corporation (Sec. 5, R.A. 4726).
8. Operation and management of public Utilities (Sec. 11, Art. XII, Constitution; Sec. 16, CA 146);
9. Project Proponent and Facility Operator of a BOT project requiring a public utilities franchise (Sec. 11, Art. XII,
Constitution; Sec. 2a, R.A. 7718);
10. Manufacture, repair, storage and/ or distribution of products/ Ingredients requiring PNP clearance (R.A. 7042 as
amended by R.A. 8179);
11. Operation of Deep sea commercial fishing vessel (Sec. 27, R.A. 8550);
12. Corporations engaged in Coastwise shipping (Sec. 806, P.D. 1464)

40 % Filipino Owned
(Up to twenty percent (60%) foreign equity)

1. Financing companies regulated by the SEC(Sec. 6, R.A. 5980 as amended by R.A. 8556);
2. Investment houses regulated by the SEC(Sec. 5, P.D. 129 as amended by R.A. 8366).