Anti-dummy laws in the Philippines

The Philippines imposes constitutional and statutory limits on foreign participation in certain industries and activities. The Anti-Dummy Laws support these restrictions by prohibiting arrangements designed to place reserved rights, privileges, or businesses under the control of persons who are not legally qualified to exercise them.

This article explains when an individual or entity may be considered a “dummy” and outlines the circumstances that may violate the Anti-Dummy Laws in the Philippines.

When is one deemed a “dummy” under Philippine laws?

A dummy is a Filipino citizen who allows his or her name or citizenship to be used by another person for the purpose of evading laws and regulations that require Filipino citizenship as a prerequisite for the exercise or enjoyment of a right, franchise, or privilege (i.e., nationalized or partly nationalized activities).

Anti-Dummy Laws are violated where (i) a person, corporation, or association that has, in its name or under its control, a right, franchise, privilege, property, or business expressly reserved by Philippine laws for Filipino citizens, or (ii) a corporation or association with at least 60% of its capital is owned by Filipino citizens:

• allows an unqualified person, corporation, or association to use, exploit, or enjoy said right, franchise, privilege, property, or business;
• leases, transfers, or conveys said right, franchise, privilege, property, or business to an unqualified person, corporation, or association;
• in any manner, allows said unqualified persons to acquire, use, exploit, or enjoy a right, franchise, privilege, property, or business expressly reserved for Filipino citizens; or
• allows said unqualified persons to intervene in the management, operation, administration, or control thereof, whether as an officer, employee, or laborer, with or without remuneration.

Anti-Dummy Laws are also violated when a corporation engaged in a business subject to minimum Filipino capitalization requirements falsely simulates compliance with such capitalization requirements.

Does the employment of foreign personnel violate the Anti-Dummy Laws?

Not necessarily. A foreigner may be employed as technical personnel, subject to securing the necessary authorities and permits from the Department of Justice and the Department of Labor and Employment.

May foreigners be elected as members of the board of directors of corporations engaged in partly-nationalized activities?

Yes. Foreigners may be elected as members of the boards of directors of such corporations, provided that the number of seats allocated to them is proportionate to their allowable participation in, or share of, the capital of those corporations. Notwithstanding the foregoing, foreigners may not be elected or appointed as corporate officers of such corporations.

What scenarios are considered indicators of dummy status?

The following scenarios may be considered indicators of dummy status:

• At the time the Filipino citizen acquired his or her holdings, he or she had no real or personal property, credit, or other assets equivalent in value to those holdings;
• The foreign investor provided practically all the funds of the joint investment with the Filipino partner;
• The foreign investor, while being a minority stockholder, manages the company and prepares all economic viability studies;
• The foreign investor provided all technological support for the joint venture; and
• The exercise, possession, or control by a Filipino citizen who is in a common-law relationship with a foreigner of a right, privilege, property, or business expressly reserved for Filipino citizens.

Who may be held liable under the Anti-Dummy Laws?

The following may be held liable under the Anti-Dummy Laws:

• The dummy himself/herself;
• The foreigner profiting from the relationship;
• Anyone who knowingly aids, assists, or abets the planning, consummation, or perpetration of acts constituting violations of the Anti-Dummy Laws.

In the case of a corporation, association, or partnership, its president, manager, directors, trustees, or other persons in charge may be held criminally liable.

What fines and penalties may be imposed for violating the Anti-Dummy Laws?

Violation of the Anti-Dummy Laws is subject to the following penalties:

• Imprisonment for not less than five years but not more than 15 years;
• A fine of not less than the value of the right, franchise, or privilege enjoyed or acquired in violation of the Anti-Dummy Laws, but in no case less than Php5,000.00; and
• Forfeiture of the right, franchise, privilege, and property or business enjoyed or acquired in violation of the Anti-Dummy Laws.

The content on this website is for general information only and does not constitute legal or other professional advice. You should not rely on it as a substitute for advice from a qualified lawyer who is familiar with your particular circumstances.

For legal advice, please book an appointment and/or contact us.