According to Felix Sy, Managing Partner at Insights Philippines Legal Advisors,
“we have a strong e-commerce infrastructure in place, which means we can easily access payment solutions, foreign exchange administration, and merchant acquiring services.”
Besides that, if you are a foreign player, you must be aware of data privacy requirements as well as consumer protection in order to conduct business.
Governing legislation/ framework
The Philippine legal framework for E-commerce consists of various laws governing retail trade, consumer protection laws and regulations, i.e., data protection, intellectual property rights law, most of which were passed years before the growth of the E-commerce industry but are currently being applied to regulate it.
Depending on the industry and nature of the activities that an entity is engaged in, the following are the agencies that are generally responsible for the regulation of transactions made through E-commerce:
- Department of Trade and Industry (“DTI”)
- Securities and Exchange Commission (“SEC”)
- Bangko Sentral ng Pilipinas (“BSP”)
- Intellectual Property Office of the Philippines (“IPOPHL”)
- Department of Health (“DOH”)
- Food and Drug Administration (“FDA”)
- Department of Agriculture (“DA”)
- National Privacy Commission (“NPC”)
- Bureau of Internal Revenue (“BIR”)
Licensing & market entry requirements
A sole proprietorship, partnership, corporation, and cooperative, may engage in E-commerce in the Philippines.
Before a business entity can enter the Philippine market and engage in E-commerce activities, it has to secure incorporation or registration certification applicable to the specific type of entity. Further, it shall also secure a business permit from the respective local government unit, and register with the BIR and with various labour regulatory agencies.
Depending on the industry, an entity may be required to secure special permits and licences to be able to legally operate or trade its goods and services, e.g., food and drugs must be cleared and certified by the FDA prior to their introduction to the market.
Foreign equity restrictions
Foreign equity restrictions vary depending on the industry or business activity in accordance with the Foreign Investments Act of 1991 (“FIA”). Pursuant to FIA, the Philippine government issues, on a periodical basis, a Foreign Investment Negative List (FINL) where industry restrictions in terms of maximum capital investment may be found.
Generally, foreigners may own at most 40% of the equity in domestic market enterprises. However, if the enterprise injects a minimum paid-up capital of USD200,000, the 40% equity cap can be lifted to allow foreigners to fully own the domestic market enterprise.
With regard to retail trading, foreigners can own corporations engaged in retail trading, whether through traditional means or E-commerce, if the following is satisfied:
- if the minimum paid-up capital is equal to or more than the peso equivalent of USD2.5 million, the retail corporation may be 100% owned by foreigners; and
- enterprises selling high-end or luxury products with a paid-up capital of the peso equivalent of USD250,000 per store may also be wholly owned by foreigners.
Payment solutions, foreign exchange administration and merchant acquiring services
- Payment solutions: There are a wide range of payment solutions and options made available to facilitate E-commerce transactions. There are:
- e-wallets and e-money which are regulated digital wallets approved and registered with the BSP
- online banking which allows bank-to-bank transfers
- payment gateways which refer to the process of authenticating and processing payments in online transactions, e.g., Paymaya
- cash on delivery
- credit and debit cards
Note that cashless payment channels available in the Philippines should be registered with the BSP. A license to operate must first be secured before one can validly operate an entity offering payment gateways and/or processing of cashless payments.
- Foreign exchange administration: The exponential growth and use of the internet has made cross-national merchant or E-commerce transactions possible. As an indirect consequence, the various payment gateways and processing allow the quick conversion of currencies from one to another. Thus, it is now possible to use local currency in E-commerce platforms notwithstanding the absence of an entity’s physical or local presence in the Philippines. Note, however, that there might be “doing business” implications if an E-commerce platform does business and operates in the Philippines without being validly licensed, i.e., without establishing a presence in the country.
- Merchant acquiring services: The BSP is the primary agency that regulates credit and/or debit card operations including merchant acquiring services or the process by which an entity accepts and facilitates processing of credit transactions/ payments for a merchant. The National Payment Systems Act, together with the various BSP issuances relevant to it, primarily governs these merchant acquiring processes. Briefly, before a payment system may operate in the Philippines, it must secure prior authority from the BSP, which assumes that the entity is already incorporated or registered with the SEC.
The Consumer Act of the Philippines and its implementing rules and regulations, as amended, govern the protection of consumers in the Philippines. It applies to all consumer products and services, whether sold or merely offered or advertised, except food, drugs, devices, cosmetics and hazardous substances and agricultural products, which are under the jurisdiction of the concerned agencies. The Consumer Act of the Philippines sets out the various rights accorded to consumers, such as protection against deceptive, unfair and unconscionable sales acts and practices, and minimum standards a product manufacturer, importer, or supplier or seller should comply with, such as observance of truth and accuracy in advertising.
Product liabilities involving food and drugs/medicine are governed by the Food, Drug and Cosmetic Act of the Philippines, as amended, and its implementing rules and regulations. The law provides for the prohibited acts in the manufacture, sale, offer for sale or transfer of any food and drug, as well as the requirement for registration of each food and drug that would be introduced and circulated in the Philippine market.
The Data Privacy Act of 2012 (DPA) would apply to the processing of personal data by merchants or the E-commerce platform if they are located or established in the Philippines, if the processing of personal data is done in the Philippines, or if the processing relates to the personal data of a citizen or resident of the Philippines.
E-commerce platforms may use the personal data they collect to conduct data analytics for marketing and advertisement purposes, provided the data subjects consented to these particular purposes.
There is no specific law on the protection of consumers transacting online or through E-commerce.
In 2008, the DTI, DOH and DA issued Joint DTI-DOH-DA Administrative Order No. 01, or the Rules and Regulations for Consumer Protection in a Transaction covered by the Consumer Act of the Philippines through Electronic Means under the E-Commerce Act. The joint administrative order essentially requires retailers, sellers, distributors, suppliers or manufacturers engaged in E-commerce with consumers to adopt fair and reasonable business practices and reiterate their obligation to comply with existing consumer protection laws and regulations.
Under the joint administrative order, business operators engaged in E-commerce shall provide its consumers and purchasers with at least three types of information: (i) about the retailers, sellers, distributors, suppliers or manufacturers engaged in E-commerce; (ii) about the products or services; and (iii) about the consumer transaction.
The information about the retailers, sellers, distributors, suppliers or manufacturers engaged in E-commerce may include:
- their registration details with DTI or SEC;
- name/s of their owners, directors or officers;
- their principal geographical address;
- their contact details; and
- other relevant local or foreign government registration/license numbers, such as Tax Identification Number.
The information about the products or services shall contain the following:
- fair, accurate, clear and easily accessible information describing the products or services offered for sale;
- fair, accurate, clear and easily accessible information sufficient to enable consumers to make informed decision whether or not to enter into the transaction; and
- such other information that allows the consumers to maintain an adequate record of the information about the products and services offered for sale.
The information about the consumer transaction may include:
- sufficient, clear, accurate and easily accessible information about the terms, conditions and costs of the transaction;
- price tag of the product or service and the applicable currency; as well as any applicable costs like delivery, shipping charges, taxes, among others;
- payment mechanisms that are reliable, easy to use and offer security that is appropriate for the transaction and details of payment terms;
- terms of delivery; and
- details about any available warranties and guarantees, among others.
For more information about e-commerce across ASEAN, download the comparative guide, ASEAN Insiders: Electronic Commerce in ASEAN.