by: Kathleen Yu
Setting up a foreign-owned business in the Philippines is no walk in the park. A foreign-owned corporation must obtain the necessary permits and licenses, register with the proper government agencies, and make the required capital investments before setting up business operations inside the country. Business Registration procedures in the Philippines are different for a sole proprietorships, representative offices, branch offices, regional headquarters (RHQs), domestic corporations or subsidiaries. The type of business established by the foreign investor is determined by the kind of industry that he/she wants to engage in. Under the 1991 Foreign Investments Act (FIA), foreign investors are allowed to engage in any business enterprise, as long as it doesn’t fall under the foreign investments negative list established by the Philippine government, wherein foreign ownership is restricted to a small percentage of the company and the investor is required to establish a corporate presence inside the country.
According to Manila lawyer Amanda Carpo of business consulting firm Kittelson & Carpo Consulting,”There are a lot of things to consider before setting up a foreign-owned business in the Philippines. Domestic subsidiaries of foreign corporations are subject to our laws. Corporate law in the Philippines has some similarities to U.S. laws, making it easier for U.S. based companies to navigate the country’s legal system. Government issued tax incentives and exemptions are also available to foreign companies that register with either PEZA or BOI, and/or provide employment opportunities for the local workforce, increase export values, as well as develop the country’s natural resources.”
Republic Act 7042, also known as the Foreign Investments Act (FIA) of 1991, is the law that directs all foreign investments in the Philippines. According to this law, foreign investors are permitted to hold as much as 100% in equity investments in almost any kind of enterprise, as long as it does not fall under the Foreign Investments Negative List (FINL) of the government. The Foreign Investments Negative List differentiates the investments that are open to foreign nationals, and those that are reserved for Filipino entrepreneurs. Under the same act, foreign investors must advance a minimum amount of USD 200,000 into any local enterprise before being allowed to do business in the Philippines. However, this only applies to foreign-owned companies engaging in domestic market enterprise, meaning that more than 60% of their clients are based in the Philippines. Foreign companies registered with the Securities and Exchange Commission (SEC) are exempted from paying the USD 200,000 in minimum capital requirement.
The procedure is completely different for foreign branch offices in the Philippines. Outsourcing companies setting up branch offices in the Philippines need not remit the USD 30,000 in capital requirement. These types of companies are also required to register with the SEC and the Bureau of Internal Revenue (BIR). In accordance with Title II Section 13 of the Philippine Corporation Code, foreign branch offices in the Philippines are required to invest an initial capital of Php 5,000. Government-issued tax incentives are also available to foreign companies registered with the Philippine Economic Zone Authority (PEZA), the Board of Investments (BOI) or the Cagayan Economic Zone Authority (CEZA).