SEC-OGC Opinion No. 24-01: Re: Foreign Ownership, Control and Administration of Educational Institutions; Applicability of the Foreign Investments Negative List to Educational Institutions

The Securities and Exchange Commission (“SEC”) issued SEC-OGC Opinion No. 24-01 (“Opinion”) on 2 January 2024, which explained primarily the applicability of the Foreign Investment Negative List (“FINL”) to educational institutions. 

The Opinion stemmed from an inquiry made by a law firm for a Japanese Foreign Corporation (“JFC”) intending to establish a domestic corporation or subsidiary in the Philippines with 99% of the shares to be owned by the JFC, and 1% by a Filipino citizen (“Proposed Corporation”). The purpose of the Proposed Corporation is to offer non-degree certification courses particularly to develop, promote, and offer non-degree business, management, and corporate leadership courses through training, testing, seminars, practical demonstration, accreditation, certification, and other related services. In their inquiry, they sought to determine, among others, whether the Proposed Corporation would be subject to the 40% foreign equity requirement for educational institutions. 

Exemption from 40% Foreign Equity Requirement

Answering their inquiry, the SEC discussed that “short-term high-level skills development” are exempt from the 40% foreign equity requirement. 

Under the Foreign Investments Act (“FIA”), foreigners are allowed to invest up to 100% of the equity of a domestic enterprise unless otherwise restricted by the Constitution and other pertinent laws.

The constitutional and statutory restrictions are enumerated in the FINL which is updated by the National Economic Development Authority. According to List A Item No. 19 of the 12^th FINL, foreigners may own up to 40% equity in educational institutions, other than those established by religious groups and mission boards, for foreign diplomatic personnel and their dependents, and other foreign temporary residents, or for short-term high-level skills development that do not form part of the formal education system as defined in Section 20 of the Batas Pambansa No. 232 (“BP 232”).

Based on the 12^th FINL, the 40% foreign equity limitation does not apply to short-term high-level skills development that do not form part of the formal education system, as defined in Section 20 of BP 232.

Non-Degree Certification Courses are Short-term High-Level Skills Development

The SEC declined to give an opinion on whether the non-degree certification courses to be offered by the Proposed Corporation qualify as short-term high-level skills development, which qualifies it under the exception in the FINL. 

What constitutes as “short-term high-level skills development that do not form part of the formal education system as defined in Section 20 of BP 232” is to be determined by the Technical Education and Skills Development Authority which has the jurisdiction to interpret Section 20 of BP 232. 

99% Ownership of the JFC

The SEC opined that the proposed 99% foreign equity ownership by the JFC would be allowed if the Proposed Corporation falls within the exception in the 12th FINL. 
However, as to the proposal to have the Filipino citizen as the sole director of the Proposed Corporation, the SEC opined that while the Revised Corporation Code (“RCC”) removed the minimum number of directors for corporations, this removal must be read in conjunction with Section 115 and 121 of the RCC which provides that the rule on sole directorship applies only to One Person Corporations.