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Nationality Tests for Philippine Corporations

The document discusses the nationality of corporations under Philippine law. It states that the primary test used is the incorporation test, where a corporation's nationality is determined by the place of its incorporation. It also describes foreign corporations and several other tests used like the domiciliary test, control test, and grandfather rule test. The control test and grandfather rule test are used to determine a corporation's eligibility to engage in industries reserved for Filipinos, such as those requiring at least 60% Filipino ownership. An example illustrates how the grandfather rule test computes ownership levels across multiple corporate entities.

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Kristine Sacatropez
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229 views2 pages

Nationality Tests for Philippine Corporations

The document discusses the nationality of corporations under Philippine law. It states that the primary test used is the incorporation test, where a corporation's nationality is determined by the place of its incorporation. It also describes foreign corporations and several other tests used like the domiciliary test, control test, and grandfather rule test. The control test and grandfather rule test are used to determine a corporation's eligibility to engage in industries reserved for Filipinos, such as those requiring at least 60% Filipino ownership. An example illustrates how the grandfather rule test computes ownership levels across multiple corporate entities.

Uploaded by

Kristine Sacatropez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd

NATIONALITY OF CORPORATION

□ DOCTRINE OF INCORPORATION- means that the nationality of the corporation is determined by


the pace of its incorporation or the law that created such corporation

FOREIGN • is one formed, organized or existing under laws other than those of the
CORPORATION Philippines’ and whose laws allow Filipino citizens and corporations to do
business in its own country or State.

• It shall have the right to transact business in the Philippines after obtaining a
license for that purpose in accordance with this Code and a certificate of
authority from the appropriate government agency

□ TEST OF NATIONALITY OF CORPORATION

➢ INCORPORATION TEST ✔
▪ The Primary test under the Philippine jurisdiction in determining the nationality of a
corporation.
▪ It is determined by the place of incorporation regardless of the nationality of its
stockholders.
▪ National of the country under which laws it was incorporated

➢ DOMICILIARY TEST/RESIDENCY TEST


▪ It is determined by the principal place of business of the corporation

➢ CONTROL TEST
▪ Eligibility Test
▪ Test used to determine the eligibility of a corporation, which has a foreign equity
participation in its ownership structure, to engage in nationalized or partly
nationalized activities.
▪ LIBERAL RULE:
• It is determined by the nationality of the controlling stockholders or members
 If at least 60% Filipino-owned, the all shares are recorded as Filipino
shares.
(refer to R.A. 7042 Foreign Investment Act of 1991 for Nationality requirement in
certain industries reserved for Filipinos)

➢ GRANDFATHER RULE TEST (Investment Test)


▪ Is applied to a corporation where the 60%-40% Filipino-Foreign ownership is in doubt.
▪ is 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,
▪ STRICT RULE:
• in cases where corporate shareholders are present in the situation, by
attributing the nationality of the second or even subsequent tier of ownership to
determine the nationality of the corporate shareholder.
 If less than 60% Filipino-owned, the corresponding percentage belonging
to Filipino shall be the only shares to be recorded as Filipino shares.
(Proportionate)

Example:

SVT Corporation is applying to engage in a manufacturing of firearms


(70%-30% Filipino-Foreign ownership).

Under RA. 7042:


Manufacturing of Firearm= required minimum ownership, at least 60%
Filipino-owned.

Upon investigation:

CORPORATION Page 1
Filipino-owned.

Upon investigation:

ABC Corp.(59-41 Filipino-Foreign Ownership) grandfather


• Parent Company of DEF Corp.

DEF Corp (60-40 Filipino-Foreign Ownership) father


• Subsidiary of ABS Corp.
• Parent Company of SVT Corp.

SVT Corp son


• Subsidiary of DEF Corp.
• (therefore, Filipino-Foreign ownership is in doubt)

Illustration (computation):

ABC Corp
59% x 60% = 35.40% Filipino
41% x 60% = 24.6% Foreign
DEF Corp = 40% Foreign

DEF Corp
35.40% x 70% = 24.78% Filipino
64.60% x 70% = 45.22% Foreign
SVT Corp = 305 Foreign

SVT Corp
24.78% Filipino
; not allowed to engage in manufacturing of Firearm

Shortcut:
(70% x 60% x 59%) = 24.78%

Compliance with the requires minimum ownership of Filipino or maximum ownership of foreigners in
industries reserved to Filipinos
(refer to R.A. 7042 Foreign Investment Act of 1991 for Nationality requirement in certain industries reserved for
Filipinos) (for complete list)
Mass Media 100% reserved for Filipino
Advertising 70% reserved for Filipino
Public Utility 60% reserved for Filipino
Educational Institution 60% reserved for Filipino
Exploration, evaluation and development of natural resources 60% reserved for Filipino
Ownership of Land 60% reserved for Filipino

CORPORATION Page 2

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