Buying Land to start a business... Business protection

[Tiger32]

Hello folks, I'm new here so please be patient with me. Have been doing a lot of research and uncertain about things as things seem to be changing in Phils, so need some help.

I am planning, with another expat friend, to set up hospitality business, by buying a rice farm that is for sale.

My friend has a Philippina girl friend of 1.5 years, that he has been in a small business with, in another Asian country, not in Philippines.

My understanding, I don't know how out of date this model is, is that we would be "best" to set up a land-holding company 60%-40% to buy the land, and then set-up a 50 year, nominal amount, lease to second to company, that will be the actual business. All written up by lawyers, of course.

Will that provide legal protection for the business and ensure safety of the land holding?

[Jollygoodfellow]

The real law states that only Filipinos can own land. Some will say lease or some will say some dodgy idea so up to you. 

[Tiger32]

3 minutes ago, Jollygoodfellow said:

The real law states that only Filipinos can own land. Some will say lease or some will say some dodgy idea so up to you. 

Isn't there a law that foreigners can be 40% shares in an incorporated land-holding company? I found that on web. Is that no longer applicable in Phils?

[Dave Hounddriver]

11 minutes ago, Chris32 said:

Will that provide legal protection for the business and ensure safety of the land holding?

While JGF is correct that foreigners cannot own land.  They can own 40% of a corporation that owns land.

https://www.sec.gov.ph/wp-content/uploads/2015/08/EONo.-184-The-Tenth-Regular-Foreign-Investment-Negative-List.pdf

BUT it gets more complicated than that.  When you form the corporation, even if 40% is good enough for you, you have to state the purpose of the corporation and you cannot deviate too much from that purpose without consequences.  If the purpose of the land purchase is to operate any kind of retail establishment then you might be screwed as this item comes into play.

That being said, there are lots of people who try convoluted methods to beat the system.  Some get away with it.

[Tiger32]

3 minutes ago, Dave Hounddriver said:

While JGF is correct that foreigners cannot own land.  They can own 40% of a corporation that owns land.

https://www.sec.gov.ph/wp-content/uploads/2015/08/EONo.-184-The-Tenth-Regular-Foreign-Investment-Negative-List.pdf

BUT it gets more complicated than that.  When you form the corporation, even if 40% is good enough for you, you have to state the purpose of the corporation and you cannot deviate too much from that purpose without consequences.  If the purpose of the land purchase is to operate any kind of retail establishment then you might be screwed as this item comes into play.

That being said, there are lots of people who try convoluted methods to beat the system.  Some get away with it.

Dave, thank you very much for providing that information. Your help is greatly appreciated.

[Dave Hounddriver]

1 minute ago, Chris32 said:

Dave, thank you very much for providing that information. Your help is greatly appreciated.

With all that said.  There is a new "Foreign Negative List" that has been sitting on Duterte's desk for months waiting for his signature.  No one is saying what the contents are but there are rumours he intends to open more foreign investment.  I suppose it is still sitting on his desk while he talks it over with advisors.  It may be worth waiting for that one to be approved before making any investment decisions.  No telling how long that will be though.

[Tiger32]

I am taking from that, that the 40% of land holding company (for what that is worth), is best option, and that we are in the clear for a hospitality business (not retail) that then leases the land; to be 100% foreign owned.

I am trying very hard to not apply confirmation bias, so happy to be told I'm an idiot IF peeps please provide reasons why I am wrong. The business value currently is about $40k land, then $100k buildings etc... that would be newly built on the land.

a) In this scenario; how protected by law is the hospitality lessee company from the Filipina 60% land holder, should that individual take on themselves to attempt to scrounge extra payments? (Assuming solid lawyer written contracts)

[Tiger32]

P.S. Is this model OK with the Anti-Dummy Law? 

[Dave Hounddriver]

1 hour ago, Chris32 said:

a hospitality business (not retail)

There is the problem.  What is retail?  Best to consult an expert on that.  We will not be the ones judging you if someone decides you are violating the law.  You may think "hospitality" is not retail but here is what the Philippines think of that:

https://www.doe.gov.ph/sites/default/files/pdf/ocsp/ra_8762.pdf

So if you are asking my opinion then the only time you can own any piece of the hospitality industry or the land it sits on is if you have millions of dollars tied up, like the Hilton for example.  The average guy with a resort has it in his wife's name and just works for her OR does it by trying to beat the system.  Not a secure way.  That may be why some guys will start a business, build it up quick, and then sell it to someone else before he gets in shit.  The wheels of justice move slowly here but they often get their man.

EDIT:  As I re-read that law It may be that you can operate a restaurant in a hotel that your company owns.  Convoluted.  Don't trust my opinion.  I know where to go to get the accurate answers but best you consult your own advisors as no one can predict what the judge will say if someone decides to put in a complaint.  (Pretty much the only time any action is taken is when someone puts in a complaint).

Edited August 31, 2018 by Dave Hounddriver

[Snowy79]

The first thing I'd check is whether a rice plantation can be transferred into the hospitality industry as farm land is protected, especially rice fields.