A couple of friends recently told me how their very clever Philippine attorney got around the Philippine rule that non-Philippine citizens can not own real estate in the Philippines by forming a Philippine corporation. The corporation buys the property, then they use a variety of documents to avoid the 40/60 rule that limits non-citizens equity ownership to 40 percent. This all sounds nice but my question to them, did their attorney discuss the Philippine Anti-Dummy Law with you?
Their question to me, what is the Anti-Dummy Law?
The Anti-Dummy Law is a law created to penalize those who violate foreign equity restrictions and evade nationalization laws of the Philippines. The Anti-Dummy Law prohibits dummy, or using what I call a proxy arrangement to accomplish a transaction not allow under Philippine law.
To get around the Philippine land ownership rules for example, non-citizens may arrange for a Filipino citizen to purchase land and register the land title to the Filipino citizen’s name, but with the agreement that the whole right to the land belongs to the foreigner. In this case, the Filipino citizen is the “proxy,” thus the “dummy arrangement.” Another common approach, is to create a corporation. The problem with using a corporation to avoid the land restrictions rules, the 40-60 ratio that applies (40 percent foreign ownership, 60 percent Filipino ownership).
Therefore, a variety of dummy arrangements are used to keep control of the corporation in the hands of the foreigner.
This is only a limited overview of the broad reaching anti-dummy rules. If you are setting up a business or acquiring real property in the Philippines, you need to be aware of how the anti-dummy rules may be applied to the transaction. If you’re caught violating the Anti-Dummy Law, you may be convicted for 5-15 years or receive a hefty fine. Non-Citizens and Filipino citizens who engaged in the dummy arrangement will both be held liable.
The bottom line: If you don’t want your dream business or property investment in the Philippines to turn into a legal nightmare you need to consider how the Anti-Dummy Law will apply to what you want to do.
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Author’s email: wolff2000@earthlink.net
