2016 Mercantile Law, Q1

What does “doing business in the Philippines” under the Foreign Investments Act of 1991 mean? (5%)

Quick check

What key concept defines 'doing business in the Philippines' under Section 3(d) of the Foreign Investments Act of 1991?

Which test under Philippine jurisprudence determines if a foreign corporation is continuing the body or substance of its business?

Which transaction is explicitly excluded from the statutory definition of 'doing business' under R.A. No. 7042?

Does appointing an independent local distributor who transacts business in its own name constitute 'doing business' by a foreign supplier?

Which primary statute governs foreign investments and defines 'doing business' for foreign entities in the Philippines?

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1. Doing Business Test
Under Section 3(d) of the Foreign Investments Act of 1991 (Republic Act Number 7042), doing business in the Philippines implies a continuity of commercial dealings or arrangements and contemplates the performance of acts or works in pursuit of commercial gain. Under jurisprudence, courts apply two legal benchmarks: the substance test, which examines whether the foreign entity is continuing the body or substance of its business in the Philippines, and the continuity test, which determines whether there is an intention to continue commercial transactions rather than engaging in isolated, casual, or incidental business activities.

2. Included Commercial Acts
Under Section 3(d) of Republic Act Number 7042, statutory acts constituting doing business include soliciting orders, service contracts, or opening liaison offices or branches within the Philippines. It also encompasses appointing representatives or distributors domiciled in the Philippines or residing in the country for at least one hundred eighty days in any calendar year. Additionally, participating in the management, supervision, or control of any domestic business, firm, or corporation in the Philippines constitutes doing business, as these activities demonstrate active corporate presence and commercial engagement in the local economy.

3. Excluded Passive Transactions
Under Section 3(d) of the Foreign Investments Act, doing business explicitly excludes specific non-qualifying acts such as mere investment as a shareholder in domestic corporations or exercising voting rights pertaining to such stock. Furthermore, appointing an independent local distributor who transacts business in its own name and for its own account does not constitute doing business by the foreign principal. Similarly, maintaining a nominee director, participating in isolated or casual transactions, or performing services ancillary to an isolated contract are excluded, as they do not show continuous commercial operations.

About these questions and answers
The questions reproduced here are the official texts of the Philippine Bar Examinations, published by the Supreme Court. They are reproduced for study purposes.The suggested answers are the author’s own.

They are not official answers, have no connection with the Supreme Court, the Office of the Bar Confidant, or any bar review institution, and are not endorsed by any of them. Official answer keys, where released, should be preferred over anything here.Nothing on this page is legal advice, and reading it creates no lawyer-client relationship. Do not rely on any suggested answer in an actual legal matter. Consult counsel on your own facts.Suggested answers reflect the law and jurisprudence the author considers applicable as of the date shown.

Where a question comes from an earlier examination, the suggested answer applies the law as it now stands, which may differ from the law in force when the question was given, and may therefore differ from what would have been the correct answer at that time. Where the difference is material, the answer notes it.The practice scoring feature measures wording overlap with the suggested answer. It is not a grade, carries no official weight, and says nothing about whether your reasoning is sound.Errors are possible. If you find one, please tell me and I will correct it.Last reviewed: October 2026