Foreign direct investment (FDI) in the Philippines

FDI in Figures

According to UNCTAD's World Investment Report 2024, foreign direct investment inflows to the Philippines increased from USD 5.9 billion in 2022 to USD 6.2 billion in 2023. At the end of the same period, the total stock of inward FDI stood at USD 118.9 billion. In the same year, the majority of inflows were directed towards manufacturing (53%), real estate (13%), and financial and insurance (10%); whereas Japan (51%) was the main investor, followed by the U.S. (13%), Singapore (12%), and Germany (8% - data Central Bank). Preliminary figures show that the cumulative FDI level rose by 4.4%, reaching USD 8.6 billion in January-November 2024, up from USD 8.2 billion in the same period of 2023 (data Central Bank).

Despite growing FDI inflow levels, the Philippines continues to lag behind regional peers, in part because the Filipino constitution limits foreign investment, and also due to the threat of terrorism in some parts of the country. This can be partially explained by the fact that the country is evolving into a service society with low capital strength, which means that it needs only minimal equipment. In addition, the government favours subcontracting agreements between foreign companies and local enterprises rather than FDI in the strict sense of the term. Lastly, factors such as corruption, instability, inadequate infrastructure, high power costs, lack of juridical security, tax regulations and foreign ownership restrictions discourage investment. Nonetheless, the country offers many comparative advantages, including an English-speaking and well-skilled workforce, exposure to an emerging market, and a geographical location in a dynamic region. Furthermore, the Philippines has been substantially improving its business climate in recent years. The country now permits international investors to establish and wholly own small and medium-sized enterprises, with full equity ownership also granted in sectors where foreign investment was already permissible. Previously, foreign investors were restricted to investing in small businesses only if they employed a minimum of 50 Filipino workers. The Philippines’ Strategic Investment Priority Plan (SIPP) outlines investment activities eligible for incentives from the Board of Investments (BOI). Fiscal incentives include income tax holidays, enhanced tax deductions, and a 5% corporate tax rate, while non-fiscal incentives cover employment of foreign nationals, simplified customs procedures, duty exemptions on imported capital equipment and spare parts, consigned equipment imports, and bonded manufacturing warehouses. Foreign-owned companies must meet a stricter export performance criterion (70% of production) compared to Filipino-owned firms (50%) to qualify for SIPP incentives. The Philippines ranks 53rd among the 133 economies on the Global Innovation Index 2024 and 88th out of 184 countries on the latest Index of Economic Freedom.

What to consider if you invest in the Philippines

Strong Points

The country's main strong points in terms of FDI attractiveness include: 

• A skilled young English-speaking workforce
• A large domestic market (with a population of over 114 million people)
• A gateway to other countries in the region facilitated by the country's membership in ASEAN
• An economy that has successfully integrated enterprise outsourcing (BPO)
• A very advanced legal system
• Considerable natural wealth

Weak Points

The main weaknesses of the country include:

• Political instability
• Poor quality of its infrastructure  
• Restrictions on foreign investment in certain sectors
• Legal uncertainty and a lack of transparency of procedures (total banking secrecy favouring money laundering) generating tensions and a lack of confidence of the business community towards the legal system
• High level of corruption in the administration and various state agencies 
• Strong disparities in development according to the regions: income and security inequalities (problematic security situation in the Muslim regions of the South)

Government Measures to Motivate or Restrict FDI

Legislation liberalising business practices has opened up more areas for investment, granting foreign investors the same incentives as other ASEAN members while simplifying procedures. The government has planned to increase investments to improve infrastructure (roads, bridges, railways, health and education) and to encourage social programs (child vaccinations, support for poor families, extension of health insurance coverage, primary education).
Recent changes to the Foreign Investment Negative List (FINL) allow foreign companies to have a 100% investment in internet businesses (not a part of mass media), insurance adjustment firms, investment houses, lending and finance companies, and wellness centres; as well as 40% in construction and repair of locally funded public works (the previous cap was at 25%).

Bilateral investment conventions signed by the Philippines

To see the list of investment treaties signed by the Philippines, consult UNCTAD's International Investment Agreements Navigator.