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Foreign nationals and the practice of real estate service

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Al Whilan A. Baljon

Taxwise Or Otherwise

The real estate industry is rapidly changing. Shared workspaces and serviced offices are sprouting to meet demand for mobility, connectivity, and flexibility. Townships and mixed-use developments are sprawling inside and outside Metro Manila. Aggressive government infrastructure projects and road network expansions advance real estate development.

This growth must ideally be complemented by skilled real estate service practitioners. Currently, aspiring real estate service practitioners (i.e., brokers, appraisers, and consultants) must graduate from a four-year degree program and pass the related licensure examination. Unlicensed real estate service practitioners may suffer a penalty of not less than P200,000 or imprisonment of not less than four years, or both, upon the discretion of the court.

Real estate services may be performed through a corporation. However, authorized persons acting for the corporation must be composed of duly registered and licensed real estate brokers, appraisers, or consultants, as the case may be.

Foreign citizens may also practice real estate services in the Philippines, subject to conditions imposed by the Professional Regulations Commission (PRC) and foreign treaties on reciprocity. A special/temporary permit may be issued to foreign citizens whose services are urgently needed in the absence or unavailability of local real estate service practitioners.

Given the advent of international real estate brokerage and consulting corporations in the Philippines, can foreigners invest in corporations engaged in the business of real estate services?

According to an opinion by the Securities and Exchange Commission (SEC), no foreign participation is allowed in this industry. Hence, corporations engaged in the practice of real estate service should be 100% owned by Filipinos based on the provisions of the 1987 Constitution, earlier versions of the Foreign Investment Negative Lists (FINL), and previous decisions of the SEC.

While the SEC took note of the 10th FINL which expressly allows foreigners to participate in real estate services, it did not adopt the shift to a liberal policy; instead, the SEC sought clarification from the National Economic and Development Authority (NEDA), the lead agency tasked to endorse the amendments to the FINL. Incidentally, the issue may be settled in the forthcoming 11th FINL, which is currently under review by the Office of the President.

At present, the Senate is also planning to review Republic Act 7042, or the Foreign Investments Act of 1991 — the law which requires the formulation of the FINL. The Senate wants to determine whether the 27-year-old law is still “appropriate to the present times” and whether the Philippines is reaping the rewards envisioned by our lawmakers when it was drafted.

The penalty for violating the Foreign Investments Act is steep. Any person who participates, aids, or abets any violation of the law shall be subjected to a fine not exceeding P100,000. If the offense is committed by a juridical entity, the fine will be assessed as a fraction of 1% of total paid-in capital but not more than P5,000,000. The president and/or officials responsible for the violation shall also be subjected to a fine not exceeding P200,000.

In reviewing the Foreign Investments Act, the Senate must also look at Commonwealth Act No. 108, or the Anti-Dummy Law, which prohibits foreigners from being appointed or elected to management positions in wholly or partially nationalized industries. The Senate should review whether foreign practitioners can be allowed to hold management positions in corporations practicing professions.

Historically, government intervention tends to increase given the passage of time. However, the current administration’s policy towards liberalization of foreign investment is obvious in how it is openly encouraged. Perhaps this is its way of attracting foreign investors to activities which significantly contribute to the economy. The shift in policy may also be an implied admission that a prohibitory nationalistic policy is a handicap in the current global marketplace.

In fact, the Office of the President issued Memorandum Order No. 16, directing NEDA and its member agencies to exert utmost efforts to lift or ease foreign equity restrictions in various areas. This includes the “practice of professions where allowing foreign equity participation will redound to the benefit of the public.”

Understandably, local professionals are concerned about the influx of foreign practitioners — being competitors in their area of expertise. But lest we forget, competition is necessary for a healthy and vibrant economy. After all, they can bring their skill, knowledge, and experience to complement the local work force.

Ultimately, we have to accept that foreign real estate brokers, appraisers, and consultants are drivers of foreign investment, as well as real estate innovators who can introduce foreign practices and trends in the local market. However, most of them will not be coming to hand out flyers on the street — but participate in large real estate service corporations in the country.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.

 

Al Whilan A. Baljon is a Senior Consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

+63 (2) 845-2728

al.whilan.a.baljon@ph.pwc.com