The Anti-Dummy Law (Commonwealth Act No. 108): What Every Foreign Investor in the Philippines Must Know in 2026

Introduction

Among the constellation of laws governing foreign investment in the Philippines, few carry the deterrent force — or the misunderstood reputation — of Commonwealth Act No. 108, universally known as the Anti-Dummy Law. Enacted in 1936 under the Commonwealth government, CA 108 has been amended only twice in nine decades, yet it remains one of the most actively enforced statutes targeting foreign business operations in the country.

The reason is simple: while most Philippine investment laws operate in the regulatory or administrative sphere — imposing registration requirements, tax obligations, or reporting duties — CA 108 is a criminal statute. Violations do not result in fines or administrative sanctions alone. They result in imprisonment. They result in asset forfeiture. They result in permanent criminal records for everyone involved.

For foreign investors, the stakes could not be higher. A misstep in corporate structuring — particularly in sectors subject to foreign equity caps — does not merely create a compliance problem. It creates a criminal exposure that extends to the foreign investor’s principals, directors, and every person who knowingly participated in the arrangement.

This article provides a comprehensive, lawyer-grade analysis of Commonwealth Act No. 108 as it applies to foreign investors in 2026. We examine the constitutional and statutory foundations of the law, its specific prohibitions, the penalties it imposes, how it interacts with the Foreign Investments Act (RA 7042, as amended) and the 13th Regular Foreign Investment Negative List (EO 113, s. 2026), the enforcement mechanisms available to Philippine authorities, and — most importantly — the compliant structures that foreign investors should pursue instead of risking criminal liability.

I. Constitutional and Statutory Foundations

A. The Constitutional Mandate: Article XII of the 1987 Constitution

The Anti-Dummy Law does not exist in isolation. It is the enforcement mechanism for a deeper constitutional policy — the reservation of certain economic activities to Philippine nationals — embedded in Article XII (National Economy and Patrimony) of the 1987 Constitution.

The key provisions are:

Section 2, Article XII reserves to Filipino citizens the exploration, development, and utilization of natural resources. While large-scale projects may proceed under Financial or Technical Assistance Agreements (FTAA) allowing foreign participation during the exploration phase, the Constitution’s underlying policy is clear: natural resources are the patrimony of the Filipino people.

Section 7, Article XII provides that private land cannot be owned by foreign nationals. Corporations seeking to acquire and hold private land must be at least 60% Filipino-owned. This provision is the foundation of the “40% rule” for land-holding corporations and is directly enforced through CA 108.

Section 11, Article XII is perhaps the most consequential for foreign investors in public services and public utilities. It provides:

“No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or other entities organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens…”

This section imposes a 40% ceiling on foreign equity in any entity qualifying as a “public utility” — a category that was significantly narrowed by the New Public Service Act (RA 11659) in 2022 but remains relevant for six enumerated sectors.

B. Commonwealth Act No. 108: The Anti-Dummy Law Enacted

Against this constitutional backdrop, the Commonwealth government enacted Commonwealth Act No. 108 in 1936, officially titled “An Act to Prohibit the Evasion of the Income Tax on Foreign Corporations and Individuals, and for Other Purposes.” Despite its innocuous title, the law’s operative provisions criminalize any arrangement designed to evade the equity restrictions applicable to foreign nationals in reserved sectors.

CA 108, as amended, punishes any person who:

Acts as a dummy or nominee for a foreign national in any business, activity, or occupation reserved by law to Filipino citizens;
Conceals the identity of the true foreign beneficiary through any corporate mechanism, including nominee shareholders, proxy arrangements, or secret management contracts;
Issues shares of stock to Filipino nominees while the economic benefits, management control, and risk are effectively borne by a foreign national; or
Intervenes in the management, operation, administration, or control of a corporation beyond the foreign investor’s permitted equity ratio.

Critically, CA 108 operates on the principle that the substance of an arrangement prevails over its form. Philippine courts and enforcement agencies look past the corporate veils, the nominee shareholder registries, and the formal documentation to ask a single question: Who actually controls this entity, and who bears its economic risk?

C. The Amendments: PD 1789 and RA 8294

CA 108 was amended twice:

Presidential Decree No. 1789 (1981), issued under the Marcos government, expanded the law’s coverage and increased certain penalties.
Republic Act No. 8294 (2017) was the more consequential amendment, signed into law by President Rodrigo Duterte on June 29, 2017. RA 8294 clarified several ambiguities in the original statute, including the treatment of “secret management contracts” and the scope of the prohibition on foreign intervention in Filipino-controlled corporations.

RA 8294 is particularly important because it explicitly criminalized management arrangements — not just equity structures — as potential violations. A foreign investor who does not technically own shares but effectively controls a Filipino-majority corporation through management contracts, service agreements, or consulting arrangements with decision-making authority may be prosecuted under RA 8294.

II. What CA 108 Actually Prohibits: Specific Prohibited Arrangements

Understanding what CA 108 prohibits requires moving beyond the textbook definition to the specific mechanisms the law targets. Based on the statute’s text, its legislative history, and decades of enforcement practice, the following arrangements are the primary targets:

A. Nominee Shareholder Arrangements

The most common violation involves a foreign investor placing shares in the name of a Filipino citizen — a “dummy” or nominee — while retaining the economic benefits, voting control, and decision-making authority through a side agreement. In this structure:

The Filipino nominee appears as the registered shareholder in SEC filings and corporate records;
The foreign investor contributes all or most of the capital;
The foreign investor makes all significant business decisions through informal arrangements;
The Filipino nominee receives a fee or nominal compensation for lending their name.

CA 108 treats this as a violation because the substance of ownership — economic risk, control, and benefit — rests with the foreigner, while the form of ownership suggests a Filipino-controlled entity.

B. Secret Management Contracts and Consulting Agreements

Less obvious but equally dangerous is the arrangement where a foreign investor structures an agreement as a “management consultancy” or “technical services contract” that gives the foreign party effective control over a Filipino-majority corporation’s operations, personnel, finances, and strategic direction — without holding any shares at all.

RA 8294 specifically addressed this gap. Under the amended law, a foreign entity or individual who enters into any contract, agreement, or arrangement that effectively gives them control over a Filipino-controlled corporation in a sector reserved to Philippine nationals violates CA 108, regardless of whether shares are held.

C. Voting Trusts and Proxy Arrangements

Foreign investors sometimes attempt to consolidate control through voting trusts or irrevocable proxies held by Filipino nominees. While Philippine corporate law permits both instruments, they cannot be used to circumvent nationality-based equity restrictions. If a voting trust or proxy arrangement effectively places control of a reserved-sector corporation in foreign hands, CA 108 applies.

D. Strawman Corporations

A variation on the nominee arrangement is the “strawman” corporation — a Filipino-majority company established specifically to acquire assets, obtain licenses, or enter contracts in reserved sectors on behalf of a foreign beneficiary. The strawman may be a genuine corporation with Filipino shareholders who are unaware of or indifferent to its use, or it may be a shell corporation controlled by the foreign investor from inception.

Both scenarios violate CA 108: the first because the Filipino shareholders are being used as unwitting dummies; the second because the corporation itself is the instrument of evasion.

III. Penalties: The Full Weight of the Law

The penalties under CA 108 are severe by any standard and reflect the legislature’s view that foreign investment evasion is an offense against national economic security, not merely a regulatory infraction.

A. Imprisonment

Upon conviction, the following penalties apply:

5 to 15 years of imprisonment for any person found guilty of acting as a dummy or nominee for a foreign national;
The same penalty range applies to the foreign beneficiary who knowingly participated in the arrangement;
Corporate officers — including directors, the president, the treasurer, and the corporate secretary — who authorized or participated in the prohibited arrangement face the same penalties individually.

There is no suspended sentence for violations of CA 108. Conviction results in immediate incarceration.

B. Criminal Fines

In addition to imprisonment, convicted violators are subject to criminal fines whose amounts are tied to the gravity of the offense and the economic value of the evasion. The specific fine amounts have been updated through the amendments, but they are substantial — often running into millions of pesos.

C. Forfeiture of Property and Shares

Perhaps the most financially devastating consequence is forfeiture. Under CA 108 as amended, property, shares, or other assets acquired through a prohibited dummy arrangement are subject to forfeiture in favor of the government. The foreign investor loses the entire investment — not through a civil damages award, but through criminal confiscation.

D. Informer Rewards and Cooperator Reduction

Republic Act No. 134, the law encouraging the reporting of Anti-Dummy Law violations, grants informers a portion of the fine collected upon conviction. More significantly, RA 134 provides that a dummy who voluntarily reports the arrangement and cooperates with authorities may have their criminal liability reduced or waived — creating powerful incentives for Filipino nominees to turn on the foreign investors who retained them.

This informer mechanism is not theoretical. Philippine enforcement agencies actively solicit tips, and the reduction in liability for a cooperating dummy is sufficiently attractive that foreign investors who rely on nominee arrangements face a non-trivial risk that their Filipino partner will report them first.

IV. Enforcement Mechanisms: Who Investigates and Prosecutes

Foreign investors who assume CA 108 is a dormant or rarely enforced statute should reconsider. Enforcement of the Anti-Dummy Law has intensified significantly since 2017, driven by several institutional developments:

A. The Securities and Exchange Commission (SEC)

The SEC is the primary regulatory enforcer for corporate compliance with nationality requirements. As part of its registration and annual reporting functions, the SEC:

Reviews Articles of Incorporation and By-Laws for compliance with equity restrictions;
Requires corporations to submit beneficial ownership disclosures;
Flags suspicious share transfer patterns or changes in corporate control;
Refers suspected violations to the Department of Justice (DOJ) for criminal prosecution.

Under the 2026 Revised Corporation Code (RA 11232), corporations are required to disclose their ultimate beneficial owners, and the SEC maintains databases cross-referencing this information with immigration records, foreign investment registrations, and other indicators of concealed foreign control.

B. The Department of Justice (DOJ)

The DOJ receives SEC referrals and other complaints and is responsible for criminal prosecution of CA 108 violations. The DOJ’s National Bureau of Investigation (NBI) has a dedicated economic crimes division that handles these cases. Foreign investors should note that the DOJ has jurisdiction over offenses committed by foreign nationals outside the Philippines if the effects are felt domestically — a significant jurisdictional expansion confirmed in several post-RA 8294 prosecutions.

C. The Bureau of Internal Revenue (BIR)

While primarily a tax authority, the BIR plays a supporting enforcement role. Income earned through a dummy arrangement — and the tax returns filed by both the Filipino nominee and the foreign beneficiary — frequently form the evidentiary basis for CA 108 prosecutions. Discrepancies between declared income and actual economic benefit are among the most common triggers for investigation.

D. The National Economic and Development Authority (NEDA) and the Investment Policy Council (IPC)

For investments in sectors subject to the Foreign Investment Negative List, the IPC — chaired by the Secretary of Trade and Industry — conducts reviews of proposed investments for compliance with equity restrictions. While its primary function is advisory, IPC findings of potential CA 108 violations are routinely referred to the DOJ.

E. Inter-Agency Coordination

In practice, enforcement often involves coordinated action across these agencies. The SEC identifies structural red flags; the BIR provides financial records; the NBI investigates; the DOJ prosecutes. Foreign investors who believe they can navigate this landscape without competent Philippine counsel are taking an extremely serious risk.

V. Lawful Minority Foreign Ownership vs. Prohibited Dummy Arrangements: The Critical Distinction

One of the most important — and most frequently misunderstood — aspects of CA 108 is the distinction between lawful minority foreign ownership and prohibited dummy arrangements. Foreign investors and their counsel sometimes conflate these concepts, leading to either unnecessary caution (avoiding legitimate minority stakes) or dangerous complacency (believing that a nominal Filipino majority insulates them from liability).

The distinction turns on three factors:

A. Who Bears the Economic Risk?

In a lawful minority arrangement, the foreign investor owns a genuine equity stake, bears real economic risk proportionate to that stake, and receives returns commensurate with their investment. The Filipino majority partner genuinely bears the greater share of downside risk.

In a prohibited dummy arrangement, the foreign investor bears virtually all economic risk while the Filipino nominee bears little or none — often compensated by a flat fee rather than a share in profits.

B. Who Exercises Actual Control?

In a lawful minority arrangement, the Filipino majority exercises genuine management control consistent with their ownership stake. The foreign minority may participate in management through board representation proportionate to their shares, but does not unilaterally direct corporate policy.

In a prohibited dummy arrangement, the Filipino nominee exercises no genuine control — all major decisions are made by the foreign investor, often through informal channels. The nominee’s signature on board resolutions, contracts, and regulatory filings is a formality.

C. Is the Arrangement Transparent?

In a lawful minority arrangement, the foreign investor’s ownership is disclosed in corporate records, SEC filings, and regulatory submissions. The arrangement is transparent to authorities and the public.

In a prohibited dummy arrangement, the foreign investor’s involvement is concealed — either through nominee shareholdings, undisclosed management contracts, or other mechanisms designed to evade the equity restrictions.

The lesson for foreign investors is clear: owning less than a controlling stake does not automatically insulate you from CA 108 liability if the substance of your arrangement gives you control that would otherwise be prohibited. Conversely, a genuine minority equity investment with proper disclosure is lawful even in sectors subject to the 40% cap.

VI. Practical Scenarios for Foreign Investors

Scenario A: The Foreign Investor Seeking to Operate in a Sector Reserved to Filipinos

A foreign technology company from South Korea wishes to establish a private security agency in the Philippines — a sector reserved to 100% Filipino ownership under the 13th FINL. The company approaches a Filipino businessman and proposes a nominee arrangement: the Filipino will hold 100% of the shares nominally, while the Korean company provides all capital, technology, and management.

Analysis: This arrangement is a textbook CA 108 violation. The Korean company is the true beneficial owner and operator. The Filipino nominee lends his name in exchange for compensation but exercises no genuine control. Both parties face 5 to 15 years imprisonment, criminal fines, and forfeiture upon prosecution.

Compliant alternative: The Korean company cannot legally own a private security agency in the Philippines. If it wishes to participate in the Philippine market, it must do so through a compliant structure — such as a joint venture in an unrelated, unrestricted sector, or through a management services agreement with a genuinely Filipino-controlled security agency (not a nominee arrangement, but a bona fide commercial contract for non-covered services).

Scenario B: The Foreign Investor in an Electricity Distribution Utility

A foreign energy company from Australia acquires 40% of a Philippine electricity distribution utility — the maximum permitted under Section 11, Article XII of the Constitution. The company genuinely participates in board governance proportionate to its stake, receives dividends proportionate to its shares, and bears its share of economic risk. The Filipino majority shareholders make all major strategic decisions.

Analysis: This is a lawful minority investment. The 40% stake is the maximum permitted for public utilities, and the foreign investor’s participation is genuine, transparent, and proportionate. There is no nominee arrangement, no concealment, and no prohibited control. CA 108 does not apply.

Key takeaway: Foreign investors may lawfully hold minority stakes — up to the permitted equity cap — in restricted sectors, provided the investment is genuine, disclosed, and the Filipino partners exercise authentic control.

Scenario C: The Foreign Restaurant Franchisor

A foreign fast food brand from the United States enters into a franchise agreement with a Filipino corporation it established and fully funds. The Filipino corporation holds the franchise rights and operates the restaurants. The foreign franchisor controls all supply chains, menu decisions, pricing, and expansion strategy through the franchise agreement — effectively running the business from abroad while the Filipino entity is the nominal franchisee.

Analysis: This scenario sits in a legally grey area that requires careful analysis. The critical questions are: (i) whether the Filipino entity has genuine independent decision-making authority over its operations, or whether the franchise agreement gives the foreign franchisor control that effectively constitutes prohibited intervention in a Filipino-controlled entity; and (ii) whether the sector in which the franchise operates is subject to equity restrictions. In most cases, restaurant operations are not restricted sectors, and a bona fide franchise agreement is a legitimate commercial arrangement. However, if the foreign franchisor goes beyond normal franchise control (pricing, branding, supply chain) to exercise ownership-level control over the Filipino entity’s governance and finances, CA 108 exposure increases.

Key takeaway: Franchise arrangements are generally permissible, but the franchisor must avoid crossing the line into governance control of a Filipino-majority entity in restricted sectors.

Scenario D: The Foreign Buyer of Condominium Units for Investment

A foreign investor from Europe purchases 20 condominium units in a Manila high-rise through a Filipino-registered real estate holding corporation. The corporation is nominally 60% Filipino-owned. However, the foreign investor provides all capital, selects all properties, manages all tenancies, and retains all rental income minus a small monthly fee paid to the Filipino shareholders.

Analysis: This arrangement violates CA 108 in two ways: (i) the corporation holding the land or condominium units is a Filipino-majority corporation subject to the 40% foreign equity cap on land ownership under Section 7, Article XII of the Constitution; and (ii) the foreign investor exercises ownership-level control without genuine Filipino participation in decision-making. Forfeiture of the units is a real risk, and both the foreign investor and the Filipino shareholders face criminal exposure.

Compliant alternative: Foreign nationals can individually own condominium units directly — the 40% cap applies to the corporation holding title to the land, not to individual unit owners. Foreign investors can own condo units outright in their personal names. For investment purposes involving multiple units, each unit should be individually titled and owned directly, not held through a corporation.

VII. How CA 108 Interacts with the 13th Regular Foreign Investment Negative List (EO 113, s. 2026)

The 13th Regular Foreign Investment Negative List, promulgated by Executive Order No. 113 signed on April 13, 2026 and effective May 2, 2026, is the most current expression of the Philippine government’s foreign equity restrictions. It is essential reading for any foreign investor, because CA 108 enforcement is predicated on violations of the equity restrictions found in the Constitution, the FINL, and other statutes.

Understanding the FINL is the first step toward avoiding CA 108 exposure. The FINL has two parts:

List A enumerates sectors where foreign equity is restricted or prohibited pursuant to constitutional provisions or specific statutes. Key restrictions include:

Mass media: 0% foreign ownership
Practice of licensed professions: 0% foreign ownership
Public utilities: 40% foreign equity cap
Exploration and utilization of natural resources: 40% foreign equity cap
Private land ownership through corporations: 40% foreign equity cap
Educational institutions: 40% foreign equity cap
Advertising: 30% foreign equity cap

List B enumerates sectors where foreign equity is restricted for national security, defense, public health, or protection of small enterprises. Key restrictions include:

Manufacture and distribution of firearms, ammunition, and military equipment: 0% or heavily restricted
Private security agencies: 0%
Small and medium domestic market enterprises below capitalization thresholds: reserved to Filipinos

The general rule is: if an activity is not listed in either List A or List B, foreign investors may own up to 100% of the enterprise under the Foreign Investments Act (RA 7042, as amended by RA 11647). This is the critical point: for the majority of commercial activities in the Philippines, there is no equity restriction at all. Foreign investors do not need nominee arrangements. They can register a 100% foreign-owned corporation in most sectors and conduct business in full compliance with Philippine law.

The 13th FINL reflects the liberalization trend initiated by RA 11659 (the amended Public Service Act) and the Retail Trade Liberalization Act (RA 11534). Many sectors previously restricted are now open to full foreign ownership. This makes CA 108 violations increasingly unnecessary — and increasingly indefensible — because the restricted sectors that might tempt foreign investors to use nominees have been shrinking.

VIII. The CREATE MORE Act and CA 108: Complementary Liberalization

The CREATE MORE Act (RA 12066), signed into law on November 8, 2024, further enhances the Philippines’ attractiveness as an investment destination by offering fiscal incentives to qualifying enterprises. Importantly, RA 12066 does not modify the equity restrictions enforced by CA 108 — but it does create powerful legal pathways for foreign investors to participate in the Philippine economy through transparent, fully compliant structures that do not require nominee arrangements.

For example, a foreign technology company seeking to establish a regional operating headquarters in the Philippines can qualify for preferential tax treatment under RA 12066 and the BOI’s 2026 Strategic Investment Priority Plan (SIPP) — provided it structures as a genuinely foreign-owned entity and complies with all applicable equity restrictions. There is no incentive to use a nominee arrangement when the legal alternative is both compliant and incentivized.

IX. The Risks of Side Agreements and “Equitable Ownership”

One of the most dangerous misconceptions among foreign investors is that a side agreement — a private contract between the foreign investor and the Filipino nominee — can provide legal protection for a nominee arrangement. It cannot, for two fundamental reasons:

A. Side Agreements Are Void as Contrary to Public Policy

In Philippine law, contracts that have as their object the evasion of a statute — particularly a statute enacted for the protection of public order and national economic policy — are void and unenforceable. A side agreement between a foreign investor and a Filipino nominee, wherein the nominee agrees to hold shares “in trust” for the foreign investor or to follow the foreign investor’s instructions on all corporate matters, is void ab initio.

This means that if the Filipino nominee breaches the side agreement — sells the shares, keeps the profits, ignores the foreign investor’s instructions — the foreign investor has no legal remedy. The Philippine courts will not enforce the side agreement because to do so would be to enforce the very arrangement that CA 108 prohibits.

B. The Foreign Investor Has No Standing

Because the side agreement is void, the foreign investor who relied on it cannot seek judicial relief when things go wrong. This is not a theoretical risk — it is a well-documented pattern in Philippine business disputes. Filipino nominees who grow dissatisfied with their compensation, or who recognize the legal exposure they face, frequently terminate the arrangement and retain the assets. The foreign investor, left with no enforceable contract, has no recourse.

The informer mechanism under RA 134 makes this scenario even more likely: a Filipino nominee facing potential criminal liability under CA 108 has a strong personal incentive to report the arrangement to authorities and seek the reduction in liability that RA 134 provides for cooperating dummies.

X. Compliant Structures for Foreign Investors: The Right Way to Invest

Given the severe penalties under CA 108 and the availability of legitimate pathways for foreign investment, there is no legitimate reason for a foreign investor to rely on a nominee arrangement. The following structures are fully compliant with Philippine law:

A. 100% Foreign-Owned Corporations (Most Sectors)

Under RA 7042, as amended by RA 11647 (2022), foreign investors may own 100% of a domestic corporation in any sector not listed in the FINL. This covers the majority of commercial activities, including:

Most manufacturing activities
Information technology and software development
Business process outsourcing (BPO) services
Export-oriented enterprises (selling at least 60% of output abroad)
Retail trade enterprises with paid-up capital of at least PhP 25 million
Hotels, resorts, and tourism services
Many logistics and distribution activities

B. Export Enterprises

Export enterprises — those that sell at least 60% of their production or services abroad — generally enjoy 100% foreign ownership regardless of the sector, with no minimum capitalization requirement for wholly export-oriented businesses.

C. Qualifying for Reduced Capitalization Requirements

For domestic market enterprises not on the FINL, 100% foreign ownership is available with reduced paid-in capital requirements of:

US$100,000 if the enterprise involves advanced technology as determined by the Department of Science and Technology (DOST);
US$100,000 if the enterprise is endorsed as a startup or startup enabler under the Innovative Startup Act (RA 11337);
US$100,000 if the enterprise employs at least 15 Filipino direct employees (majority of total direct employees must be Filipino).

D. Regional Operating Headquarters (ROHQ)

Multinational corporations may establish a Regional Operating Headquarters (ROHQ) in the Philippines — a 100% foreign-owned entity that derives income by providing qualifying corporate services (financial administration, logistics, R&D, business development) to its affiliates and subsidiaries across the Asia-Pacific region. ROHQs enjoy a preferential 10% corporate income tax rate on taxable income from qualifying services.

E. Branch Offices

Foreign corporations may establish branch offices in the Philippines, which are treated as separate entities from the foreign parent but are not required to have Filipino partners. Branch offices can engage in profit-generating activities and are subject to the same equity restrictions as domestic corporations, but in sectors open to 100% foreign ownership, they operate without restriction.

F. Joint Ventures with Genuine Filipino Partners

In sectors genuinely restricted to Filipino-majority ownership, the compliant approach is a bona fide joint venture with a Filipino partner who makes genuine capital contributions, exercises authentic management control, and shares in the economic risk and reward. The foreign partner contributes technology, expertise, or capital in exchange for a minority stake and board representation proportionate to its equity. This is not a dummy arrangement — it is a genuine partnership.

XI. Strategic Recommendations for Foreign Investors

Based on the foregoing analysis, the following recommendations apply to any foreign investor considering entry into the Philippine market:

Conduct sector classification analysis first. Before structuring any investment, determine whether the target sector is restricted under the 13th FINL (EO 113, s. 2026), the Constitution, or other statutes. If the sector is unrestricted, pursue 100% foreign ownership legitimately. If restricted, determine the applicable equity cap and structure accordingly.
Never use a nominee arrangement. The risks — imprisonment, forfeiture, reputational damage, and the absence of any legal protection — vastly outweigh any perceived benefit. CA 108 and RA 8294 make nominee arrangements not merely unenforceable but criminally prosecuted.
Ensure genuine Filipino participation when Filipino partners are required. In sectors subject to equity caps, the Filipino partner must make real contributions, bear genuine risk, and exercise authentic control. The foreign investor’s role must be proportionate to their equity stake.
Disclose everything. Transparency in SEC filings, regulatory submissions, and corporate records is the foreign investor’s best protection against both CA 108 prosecution and business disputes with Filipino partners.
Engage experienced Philippine counsel before incorporating. The structure of the Articles of Incorporation, the By-Laws, the shareholders’ agreement, and the board composition all have implications under CA 108. These must be reviewed by competent Philippine counsel at the outset — not patched after problems emerge.
Beware of management contracts in restricted sectors. Even in sectors where minority foreign equity is permitted, management contracts that give the foreign party effective control over a Filipino-majority corporation may violate RA 8294. Every management, consulting, and technical services arrangement in a restricted sector should be reviewed for CA 108 compliance.
Do not rely on side agreements. As discussed, side agreements are void and provide no protection. Any arrangement that cannot stand on its own merits, disclosed openly to regulators, is not worth the risk.

XII. Conclusion

Commonwealth Act No. 108 — the Anti-Dummy Law — is not a relic of the pre-liberalization era. It is an active, aggressively enforced criminal statute that poses a genuine threat to foreign investors who attempt to circumvent Philippine ownership restrictions through nominee arrangements, proxy structures, or concealed management control.

The penalties are severe: 5 to 15 years imprisonment, criminal fines, and forfeiture of assets for both the Filipino dummy and the foreign beneficiary. The enforcement mechanisms are coordinated across the SEC, DOJ, BIR, and NBI. The informer provisions of RA 134 give Filipino nominees a powerful incentive to report the very arrangements they entered into. And the void-side-agreement doctrine leaves foreign investors with no legal recourse when their nominees inevitably become unreliable.

The good news — and there is genuinely good news — is that the Philippines has liberalized dramatically. The 13th Regular Foreign Investment Negative List (EO 113, s. 2026) reflects a consistent trend of opening sectors that were previously restricted. For the majority of commercial activities, 100% foreign ownership is not only permitted but actively encouraged. The CREATE MORE Act (RA 12066), the amended Public Service Act (RA 11659), the amended Foreign Investments Act (RA 11647), and the 2026 SIPP collectively provide a comprehensive framework for legitimate, transparent foreign investment in the Philippines.

The path of least resistance — and the only legally defensible path — is to invest transparently, within the structures that Philippine law provides. Foreign investors who do so will find a market of over 115 million people, a young and English-speaking workforce, a growing middle class, and a government that has made attracting high-quality foreign investment a national priority. Those who do not risk far more than they could ever gain.

This article is for informational purposes only and does not constitute legal advice. Foreign investors considering entry into the Philippine market should consult with qualified Philippine legal counsel before making any investment decisions.

For assistance with Philippine corporate structuring, SEC registration, foreign investment compliance, or any other legal matter, contact Tungol & Tan Law Offices.