On February 17, 2025, the Securities and Exchange Commission (SEC) issued Opinion No. 25-03, addressing the regulatory classification of e-commerce activities by manufacturers under the Retail Trade Liberalization Act (RTLA) (R.A. 8762). The SEC determined that a manufacturer’s use of an e-commerce platform to sell directly to consumers constitutes retail trade, requiring compliance with foreign ownership restrictions and minimum capital requirements under the RTLA.

This opinion has far-reaching implications for businesses engaged in direct-to-consumer (DTC) e-commerce, particularly those currently structured as wholesale entities.

SEC Ruling on E-Commerce as Retail Trade

The SEC issued its opinion in response to a query from Yamaha Motor Philippines, which sought clarification on whether its proposed e-commerce platform would fall under the ‘single outlet’ exemption under Section 3(1)(d) of the RTLA.

Under the RTLA, retail trade is defined as ‘any act, occupation, or calling of habitually selling merchandise, commodities, or goods to the general public for consumption.’ However, the law exempts certain transactions, including:

Section 3(1)(d):
Sales which are limited only to products manufactured, processed or assembled by a manufacturer through a single outlet, irrespective of capitalization.

Yamaha argued that its e-commerce platform should be considered part of its single outlet operations and therefore exempt from retail trade restrictions. The SEC disagreed, concluding that an e-commerce platform expands customer reach beyond a single outlet, effectively classifying it as retail trade under the RTLA.

Key Legal Interpretation: ‘Single Outlet’ and Ejusdem Generis

The SEC applied the ejusdem generis principle, which states that when a general phrase follows a list of specific terms, it should be interpreted in the context of the preceding list.

Using this principle, the SEC ruled that the term ‘single outlet’ refers specifically to brick-and-mortar stores with physical locations. An e-commerce platform, which allows sales to consumers nationwide (and potentially internationally), does not fit within this single physical outlet limitation.

Implications for Manufacturers and E-Commerce Businesses

This SEC opinion has significant consequences for manufacturers and companies operating in the Philippine market, particularly those engaged in direct-to-consumer (DTC) e-commerce.

1. Amendment of Articles of Incorporation (AOI)

• Corporations primarily engaged in wholesale trade must amend their AOI to include retail trade if they plan to sell directly to consumers via e-commerce.
•  The SEC explicitly rejected the notion that e-commerce sales can be considered incidental to a wholesaling business.

2. Compliance with Retail Trade Restrictions

• Foreign-owned manufacturers that wish to engage in retail through e-commerce must comply with:
  • Minimum paid-up capital requirements (USD 500,000 for foreign retail businesses, or USD 250,000 if selling high-end products).
  • Foreign ownership restrictions, ensuring compliance with the retail trade framework.

3. E-Commerce as a Separate Business Model

• Manufacturers considering e-commerce expansion may need to establish a separate retail entity distinct from their wholesale operations.
• Companies with foreign ownership may need to structure their e-commerce activities in a way that meets RTLA capitalization and registration requirements.

4. Potential Impact on Digital Transformation Strategies

• This ruling may impact business models relying on online direct sales, requiring manufacturers to reassess whether e-commerce aligns with their legal corporate structure.
• Businesses may need to explore alternative digital sales strategies, such as:
  • Selling through third-party e-commerce platforms instead of operating their own.
  • Partnering with local retailers to distribute products via online channels.

Looking Ahead: Regulatory Considerations for E-Commerce Growth

The SEC’s interpretation in Opinion No. 25-03 highlights the evolving regulatory landscape for digital commerce in the Philippines. While the Retail Trade Liberalization Act was enacted to open the sector to greater foreign participation, its application to e-commerce models remains a crucial issue for businesses.

Companies engaged in wholesale trade that seek to expand into e-commerce must carefully evaluate:
• Their corporate structure to ensure compliance with the RTLA.
• The necessity of amending their AOI to include retail trade.
• Foreign investment restrictions affecting their ability to operate a DTC online store.

Moving forward, further guidance from the SEC and legislative updates may be necessary to harmonize existing retail trade laws with the rapidly evolving digital marketplace.

Conclusion

The SEC’s decision establishes a clear precedent: a manufacturer’s use of an e-commerce platform constitutes retail trade, not wholesale, and requires compliance with the Retail Trade Liberalization Act.

For businesses, this means:
• Amending corporate documents if engaging in online retail.
• Complying with foreign ownership and capitalization requirements.
• Considering alternative business models to maintain regulatory compliance.

As e-commerce continues to expand in the Philippines, businesses must stay ahead of regulatory developments to ensure that their operations remain both competitive and legally compliant.

For legal practitioners, this ruling presents new considerations for advising clients on corporate structuring, compliance, and e-commerce strategies in the Philippines.