A lot of foreigners are looking to invest in the Philippines because of the country’s strategic location. And it also helps that most Filipinos can speak English. Are you a foreign entrepreneur who wishes to set up your corporation in the country. Take note of these important facts.
Foreign investors need to register their business with the SEC or the Securities of Exchange Commission whether it be a corporation, a partnership, a branch office, or a representative office. For sole proprietorships, they need to register with the DTI or Department of Trade and Industry’s Bureau of Trade Regulation and Consumer protection.
According to accounting services in the Philippines, foreign investors usually have the same rights that Filipino citizens enjoy. The definition of foreign ownership of corporations can be found in the Corporation Code of the Philippines. The Foreign Investment Act or the R.A. 7042 in 1991 which was amended by R.A. 8179 liberalized foreign investment to enter the Philippines.
Businesses with Foreign Investment Restrictions
The 1991 Foreign Investment Act or the FIA has two negative lists. It is knows known as the “Foreign Investment Negative List” which defines the foreign investments that are restricted and limited by specific laws and the constitution. The two negative lists are negative list B and negative list A.
Negative list A contains investment areas of foreign ownership that are limited by specific laws and the mandate of the constitution. On the other hand, the negative list B is restricted due to reasons of defense, security, health risk, morals, and protection of SMEs or small and medium scale enterprises.
The president of the Philippines may amend the negative list with the exception of activities where the restrictions on foreign equity are imposed under the Philippine constitution. Tax services in Manila noted that this can only be amended once every two years by the president of the country.
Subsidiary Domestic Corporations
If your company has Filipino ownership of at least 60%, your company is considered to have Philippine nationality. However, if your company is foreign-owned by more than 40%, then your company is considered a foreign-owned domestic corporation.
In case your company is more than 40% and up to 100% foreign-owned by a Domestic Market Enterprise, note that you are only allowed that if your paid-in capital cost a minimum of USD 200,0000. If you employ a minimum of 50 direct employees or if you use advanced technology, you can have a paid-in capital of less than USD 100,000.
Retail Trade Enterprises
Professional tax and accounting services in the Philippines reiterated that 100% foreign ownership is allowed for retail trade enterprises in the Philippines if it has a paid-up capital of USD 2,500,000 or more given that the investments for establishing a store will not be less than USD 830,000 or if it specializes in high-end luxury products given that the paid-up capital each store will not be less than USD 250,000.
You need to have foreign equity of more than the above-mentioned capital for a retail trade enterprise to be allowed.
An export business or enterprise is defined as a business that exports at least 60% of its output. Your export business can be 100% foreign-owned. You can file with the Securities of Exchange Commission or SEC for an exemption of the USD 200,000 paid-up capital requirement. Some examples of Philippine Export Enterprises include BPO, Back Office, IT, call centers, and Web Development.
If you are a foreign company that’s looking to do business in the Philippines, you can get in touch with our team as we’re a one-stop shop for foreign and domestic clients. Apart from accounting and bookkeeping, we can also help you with business registration services and other tax compliance measures with the BIR. Reach out to our accounting services in Pasig and take advantage of our free 30-minute consultation.