Sales (Saturday/5:00-7:00 PM) Atty. Lydia A. Bundac

Castaeda, Ma. Jean B.Delfin, Clarice A.Oreta, Samantha Joy H.Paria, Ann Margarette D.

CHAPTER 16 RETAIL TRADE LIBERALIZATION ACT OF 2000

REPUBLIC ACT NO. 8762 (The Retail Trade Liberalization Act of 2000) was enacted into law on 07 March 2000 which repealed Republic Act No. 1180 (The Retail Trade Nationalization Law).

IMPORTANCE OF RETAIL TRADE The infinite variety of articles, goods and commodities needed for daily life are placed within the easy reach of consumers.

LIBERAL POLICY UNDER RTLA 2000 RTLA 2000 liberalizes the retail trade industry to further the declared policy of the State to promote consumer welfare in attracting, promoting and welcoming productive investments that will bring down prices for the Filipino consumer, create more jobs, promote tourism, assist small manufacturers, stimulate economic growth and enable Philippine goods and services to become globally competitive.

DEFINITION AND COVERAGE OF RETAIL TRADE

RETAIL TRADE Any act, occupation or calling of habitually selling direct to the generalvpublic merchandise. Commodities or goods for consumption.

1. Elements of Retail Tradea. Habitual act or business of selling;b. To the general public;c. Of merchandise, commodities or goods for consumption

2. Exempted Transactionsa. Sales by a manufacturer, processor, labourer, or worker, to the general public of the products manufactured, processed or produced by him if his capital does not exceed P100,000.00;

b. Sales by a farmer or agriculturist, of the products of his farm, regardless of capital;

c. Sales in 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;

d. Sales to the general public, through a single outlet owned by a manufacturer of products manufactured, processed or assembled in the Philippines, irrespective of capitalization;

e. 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; and

f. Sales to the government and/or its agencies and government-owned and controlled corporations.

3. Special Exemption for Former Natural-Born Filipinos A natural-born citizen of the Philippines who lost his Philippine citizenship but who resides in the Philippines shall be granted the same rights as Filipino citizens for purposes of retail trade under RTLA 2000.

CATEGORIES OF RETAIL TRADE ENTERPRISES

For purposes of determining who are qualified to invest in retail trade in the Philippines, RTLA 2000 provides for Four (4) categories of retail trade enterprises based on capital level, namely:

1. Category A Enterprises with paid-up capital, of the peso equivalent of less than US$2.5 Million;

2. Category B Enterprises with a minimum paid-up capital of the peso equivalent of US$2.5 Million, but less than US$7.5 Million, provided that in no case shall the investments for establishing a store be less than the peso equivalent of US$30,000.00;

3. Category C Enterprises with a paid-up capital of the peso equivalent of US$7.5 Million or more, provided that in no case shall the investments for establishing a store be less than the peso equivalent of US$830,000.00; and

4. Category D Enterprises specializing in high-end or luxury products with a paid-up capital of the peso equivalent of US$250,000.00 per store.

HIGH-END OR LUXURY GOODS refers to goods which are not necessary for life maintenance and whose demand is generated in large part by the higher income groups, which 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.

GRANDFATHER RULE is a process of characterizing the citizenship of shares in one corporation held by another corporation by attributing the controlling interest of individual stockholders in the second layer of corporate ownership.

REQUIREMENTS OF FOREIGN INVESTORS Foreign investors 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.

FOREIGN INVESTORS ACQUIRING SHARES OF STOCK OF LOCAL RETAILERS Foreign investors acquiring shares from the existing retail stores whether or not publicly listed whose net worth is in excess of the peso equivalent of US$2.5 Million (i.e. Category B), may purchase only up to a maximum of sixty percent (60%) of the equity thereof within the first two (2) years from the effectivity of the RTLA 2000 and thereafter, they may acquire the remaining percentage consistent with the allowable foreign participation.

PUBLIC OFFERING OF SHARES OF STOCK All retail trade 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.

FOREIGN RETAILERS

IRR of RTLA 2000 define a foreign retailer as an individual who is not a Filipino citizen, or a corporation, partnership, association or entity that is not wholly-owned by Filipinos, engaged in retail trade, which would include domestic partnerships, associations, and corporations which are not wholly-owned by Filipinos, and would require the application of the grandfather rule. (Sec. 1 (d), Rule I, IRR)

1. Prequalification Requirements

Before a foreign retailer is allowed to establish or organize an entity that will engage in the retail trade business or invest in a retail store in the Philippines, it must possess all of the following qualifications:

(a) A minimum Net Worth, of:(i) US $200 Million of the registrant corporation in Categories B and C; and(ii) US $50 Million of the registrant corporation in Category D.

Net Worth (Sec. 1 (k), Rule I, IRR)

(b) 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 US $25 Million;

Franchise (Sec. 1 (e), Rule I, IRR)Store/Branch (Sec. 1 (s), Rule I, IRR)

(c) Five (5) year track record in retailing; and

(d) They must be nationals from, or juridical entities formed or incorporated in, countries which allow the entry of Filipino retailers. (Sec. 1, Rule IV, IRR)

For purposes of determining compliance with the requirements: Sec. 1, Rule IV, IRR

For purposes of determining the track record of a foreign retailer: Sec. 1, (t), Rule I, IRR

For publicly traded companies, net worth may be determined by: Sec. 1, Rule IV, IRR

2. Application for Prequalification Request for prequalification; Duly signed and acknowledged under oath by an authorized officer of the foreign retailer; Must be submitted to the Board of Investments before filing a formal application to engage in retail or invest in a retail store; and Application must be accompanied by a certification by the proper official of the home state of the applicant-foreign retailer or the local embassy/consulate of the home-country, 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. (Sec. 2, Rule IV, IRR)Reciprocity rights (Sec. 1, (n), Rule I, IRR)Notwithstanding RTLA 2000 allowing 100% foreign ownership of retail activities subject to the capitalization requirements, a foreign retailer shall be allowed to own only up to the extent of the foreign ownership allowed for retailing in its home country.

3. Branches/Storesa. Direct Opening of Branches/Stores

A registered foreign retailer may open branches and/or stores in the Philippines falling under Categories B and C, provided that the investments for each branch/store must be no less than the peso equivalent of US $830,000.00. (Sec. 2, Rule III, IRR)Such requirement shall be complied with also, when at least 51% of the outstanding capital stock of any existing retail store is acquired by a single foreign retailer. (Sec. 63, Rule IV, IRR)

b. Acquiring/Investing in Existing Retail Stores

Whenever a foreign investor is also engaged in retail trade and such foreign investor acquires 51% or more of the outstanding capital stock of an existing retail store, no transfer of shares to any such foreign investor shall be recorded by the Corporate Secretary in the corporate books thereof, unless a Certificate of Compliance with Prequalification is presented. (Sec. 2, Rule IV, IRR)

4. Promotion of Locality-Manufactured Products

For ten (10) years after the effectivity of RTLA 2000, at least thirty (30) of the aggregate cost of the stock inventory of foreign retailers falling under Categories B and C and ten percent (10%) for Category D shall be made in the Philippines. (Sec. 9, R.A. No. 8762)

5. Prohibited Activities of Qualified Foreign RetailersNot allowed to engaged in certain retailing activities outside their accredited stored 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.

(Sec. 10, R.A. No. 8762)

6. Binding Effect of License to Engage in Retail on Private Parties

Under the old Retail Trade Nationalization Law: Dando v. Fraser, 227 SCRA 126 (1993)The Court held that when a license to engage in a cocktail lounge and restaurant is issued in the name of a Filipino citizen, such license shall be conclusive evidence of the latters ownership of the said retail business as far as private parties are concerned. Only the government can question the matter, and the existence of such license in binding on private individuals. The ruling would have equal application to RTLA 2000.Penalty ClauseAny person who shall be found guilty of violation of any provision of RTLA 2000 shall be punished by:(a) Imprisonment of not less than six (6) years and one (1) day but not more than eight (8) years; and(b) Fine of not less than P1.0 Million, but not more than P20.0 Million.

(Sec. 12, R.A. No. 8762)

In case of associations, partnerships or corporation: 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 or employee: He shall, in addition to the penalty prescribed herein, suffer dismissal and permanent disqualification from public office.

APPLICATION OF ANTI-DUMMY LAW

Anti-Dummy Law penalizes Filipinos who permit aliens to use them as nominees or dummies to enjoy privileges reserved to Filipinos or Filipino corporations.

Who are covered by criminal sanctions? President Manager Board Member or person in charge of the violating entity

IMPLEMENTING AGENCY Department of Trade and Industry (DTI) Department of Justice (DOJ) Securities and Exchange Commission (SEC)Page 1 of 6