The rapid growth of artificial intelligence has accelerated global demand for digital infrastructure, particularly hyperscale and high-performance data centres capable of supporting AI computing, cloud services and large-scale data processing.
Co-Managing Partner and Co-Founding Partner
Sarmiento Loriega Law Office
Recognising the strategic value of this sector, the Philippine government has identified AI and data science as priority investment areas under the 2026 Strategic Investment Priority Plan, which potentially makes qualified projects eligible for fiscal and non-fiscal incentives.
In general, the operation of an AI data centre is not an activity reserved for Philippine nationals. Accordingly, a Philippine corporation established to develop and operate an AI data centre may generally be wholly foreign-owned.
The principal nationality considerations arise not from the data centre business itself, but from certain assets and resources required for its operation.
The Philippine Constitution restricts ownership of private land – as well as the appropriation of waters from natural sources – to Philippine citizens and corporations that satisfy the applicable Philippine nationality requirement.
The Water Code likewise requires a qualified person or entity to obtain a water permit for the appropriation of water from natural sources. These restrictions do not prevent substantial foreign investment in AI data centres. Rather, they require the investment and asset holding arrangements to be carefully structured. Among possible structures are the following.
Philippine majority-owned integrated company
Structure 1: Philippine majority-owned integrated company. The Foreign Investments Act defines a “Philippine national” to include a corporation organised under Philippine law of which at least 60% of the capital stock outstanding and entitled to vote is owned and held by Philippine citizens.
Compliance with applicable nationality requirements must likewise take into account relevant constitutional, statutory and jurisprudential rules.
Under an integrated structure, foreign investors may partner with Filipino investors to establish a Philippine majority-owned company that develops and operates the data centre, while also owning the underlying land and holding the required water permit.
Foreign ownership would be limited to 40% where the corporation itself must qualify to own land and appropriate water.
Although foreign investors would hold a minority equity position, their investment may be protected through appropriate governance and minority protection arrangements including board representation, reserved matters, information rights, transfer restrictions and exit mechanisms, provided these arrangements do not confer control or rights inconsistent with Philippine nationality requirements. This structure offers simplicity by consolidating the operating business and key assets within a single entity.
Flexibility in OpCo, PropCo
Structure 2: Foreign-owned OpCo with Philippine majority-owned PropCo. A potentially more flexible structure separates the unrestricted data centre business from assets subject to nationality restrictions.
A wholly or substantially foreign-owned operating company (OpCo) may develop, manage and operate the AI data centre, procure computing and related infrastructure, contract with customers, and provide data processing, cloud, AI computing and other digital services.
The land may be owned by a separate property holding company (PropCo) that satisfies the applicable Philippine nationality requirement. The PropCo may then lease the property to an OpCo under a long-term lease structured in accordance with Philippine law.
Where the project requires the appropriation of water from natural sources, the relevant water permit may similarly be held by a qualified entity. Any arrangement involving the use or supply of such water to an OpCo must be structured consistently with the Water Code, conditions of the applicable permit, and regulatory requirements.
The separation of OpCo and PropCo may provide greater flexibility for foreign investors because foreign ownership can be concentrated in the unrestricted operating business while Philippine ownership requirements are observed at the asset holding level. It may also facilitate separate financing, risk allocation and eventual divestment or monetisation of the real estate component.
Depending on the investors’ objectives and applicable regulatory requirements, the real estate component may potentially be structured for eventual REIT participation, providing an additional avenue for capital recycling and monetisation.
Structuring AI data centre investments
The Philippines presents significant opportunities for AI data centre investment. Constitutional restrictions on land ownership and water appropriation remain important structuring considerations, but they need not prevent meaningful foreign participation.
Whether investors adopt an integrated Philippine majority-owned structure, OpCo-PropCo model, or another legally viable arrangement ultimately depends on the project’s financing requirements, operational needs, desired level of foreign ownership and control, tax considerations, and long-term investment and exit strategy.
Maria Elizabeth Peralta-Loriega is Co-Managing Partner and Co-Founding Partner of Sarmiento Loriega Law Office
Sarmiento Loriega Law Office29th Floor, Discovery Centre
25 ADB Ave. Ortigas
Pasig City, Philippines 1600
Contact details:
T: +63 2 7798 8115
E: meploriega@sl-lawoffice.com
