Disclaimer: This article provides general information on foreign business ownership options in the Philippines and does not constitute legal advice. Laws and regulations may change over time. For advice specific to your situation, you should consult a qualified attorney in the Philippines.

Foreign Business Ownership Options in the Philippines

The Philippines has long been recognized as one of Southeast Asia’s most dynamic and growing economies, attracting foreign investors interested in sectors such as business process outsourcing (BPO), technology, manufacturing, and services. However, foreign ownership in certain industries remains subject to constitutional and statutory restrictions. This article provides an overview of the legal and regulatory framework, the available business structures, and key considerations for foreign nationals or entities looking to do business in the Philippines.

1. Constitutional and Statutory Framework

1.1 The 1987 Philippine Constitution

The primary source of foreign ownership restrictions is the 1987 Philippine Constitution, which outlines specific industries or activities in which Filipino nationals must hold majority control. Key provisions include:

Land Ownership: Only Filipino citizens and corporations at least 60% Filipino-owned can acquire private lands in the Philippines.
Mass Media: Full foreign ownership is prohibited in mass media (with some exceptions, like recording, internet content not classified as “mass media,” etc.).
Public Utilities: The Constitution historically required that public utilities be at least 60% Filipino-owned. However, legislative amendments (e.g., the amended Public Service Act) have redefined certain “public services” to allow greater foreign participation.

1.2 Foreign Investment Act (FIA)

The Foreign Investment Act of 1991 (Republic Act No. 7042), as amended by R.A. 11647 (2022), governs foreign investments in the Philippines. It provides the basic framework under which foreign investors may do business and lists rules on registering enterprises and remitting profits.

1.3 Foreign Investment Negative List

Also known as the Foreign Investment Negative List (FINL), this is a periodically issued presidential proclamation that enumerates areas of economic activity restricted or limited to foreign investors. The FINL comprises:

List A: Activities where foreign ownership is limited by constitutional or specific statutory requirements (e.g., media, some educational institutions, land ownership).
List B: Activities where foreign ownership is limited for reasons of security, defense, risk to health and morals, or protection of small and medium enterprises (e.g., domestic retail trade with capital below a certain threshold).

By consulting the current FINL, foreign investors can determine if their target business activity is subject to ownership limitations.

1.4 Relevant Amendments

Recent legislative reforms have sought to liberalize foreign ownership rules:

Retail Trade Liberalization Act (R.A. 11595, 2022): Lowered the minimum paid-up capital for foreign-owned retail enterprises to PHP 25 million (and for each retail store, a minimum investment of PHP 10 million).
Public Service Act Amendments (R.A. 11659, 2022): Redefined “public utilities” versus “public services,” allowing 100% foreign ownership in certain public services (e.g., telecommunications, airports, railways) that are no longer classified as public utilities, subject to national security reviews.

2. Common Legal Entities and Business Structures

Foreign investors typically choose among several legal entities when setting up business operations in the Philippines. The choice depends on the nature of the proposed business, ownership preferences, cost considerations, and compliance requirements.

2.1 Wholly Foreign-Owned Domestic Corporation

A domestic corporation incorporated under Philippine law, with 100% foreign equity, is permissible in sectors or industries not included in the FINL or industries that permit 100% foreign ownership.

Minimum Capital Requirement: For most sectors without special restrictions, the usual minimum paid-up capital requirement for a 100% foreign-owned company engaging in domestic or export business is US$200,000 (or its peso equivalent). This can be reduced to US$100,000 if the enterprise involves advanced technology or directly employs at least 50 Filipino employees.
Registration: Must register with the Securities and Exchange Commission (SEC).
Limitations: Must ensure that the chosen business activity is not subject to specific foreign equity restrictions in the FINL or other special laws.

2.2 Foreign-Owned Corporation with Filipino Partners

In industries where only partial foreign ownership is allowed (e.g., 40% foreign equity maximum), foreign investors typically form a corporation with Filipino partners who hold at least 60% of the shares.

Advantages: Aligns with constitutional or statutory requirements for certain sectors (e.g., operation of public utilities prior to amendments, landholding entities, educational institutions).
Anti-Dummy Law: The Anti-Dummy Law (Commonwealth Act No. 108) penalizes arrangements that merely place nominal Filipino owners as “dummy” shareholders to circumvent foreign equity caps.

2.3 Branch Office

A branch office is an extension of a foreign corporation. It is not a separate legal entity but rather the same legal entity operating in the Philippines.

Scope: May perform income-generating activities.
Registration: Must secure a License to Do Business from the SEC.
Capital Requirements:
- For a branch office engaged in domestic activities, the usual minimum inward remittance is US$200,000.
- This can be lowered to US$100,000 in certain cases involving advanced technology or employing at least 50 employees.

2.4 Representative Office

A representative office is a foreign corporation’s liaison office. It cannot derive income from the Philippines and is limited to representing the head office for information dissemination, product promotion, or quality control.

Capital Requirements: Required minimum inward remittance of US$30,000 annually to cover operations.
Scope: Strictly prohibited from conducting revenue-generating activities in the Philippines.

2.5 Regional or Area Headquarters (RHQ) / Regional Operating Headquarters (ROHQ)

Regional Headquarters (RHQ): Serves as an administrative branch for supervising, coordinating, and communicating with subsidiaries, affiliates, or branches in the Asia-Pacific region (or other regions), without engaging in business or revenue-generating activities in the Philippines.
Regional Operating Headquarters (ROHQ): May derive income in the Philippines by offering qualifying services (e.g., technical support, financial advisory) to related affiliates or subsidiaries.
Capital Requirements:
- RHQ has an initial capital requirement of US$50,000.
- ROHQ has an initial capital requirement of US$200,000.

2.6 Partnerships and Sole Proprietorships

Partnerships: Governed by the Civil Code of the Philippines, can be formed with Filipino and foreign partners. However, foreign equity restrictions apply based on the nature of the business.
Sole Proprietorships: Generally, a foreign individual is restricted from registering a sole proprietorship unless specific visas or permits are granted. Additionally, the business activity must be permitted for full foreign ownership under the FINL and relevant laws.

3. Land Ownership and Real Property Considerations

Under Philippine law, land ownership is generally reserved for Filipino citizens or corporations that are at least 60% Filipino-owned. Nonetheless, foreigners can:

Lease Land: Long-term leases (up to 50 years, renewable for another 25 years) are common.
Condominium Units: Foreign nationals can own condominium units provided that foreign ownership in the condominium corporation does not exceed 40%.
Industrial Leases: For manufacturing or industrial projects, foreign companies often enter long-term lease arrangements in economic zones (PEZA-registered zones).

4. Regulatory and Compliance Requirements

4.1 Business Registration

Any legal entity seeking to do business must register with various Philippine government agencies:

Securities and Exchange Commission (SEC): For incorporation of domestic corporations, branch offices, representative offices, partnerships.
Bureau of Internal Revenue (BIR): For tax registration and securing a Tax Identification Number (TIN).
Local Government Units (LGUs): For local permits (e.g., Mayor’s Permit, Barangay Clearance).

4.2 Taxation

Corporate Income Tax: The standard corporate income tax rate is 25% under the CREATE Act (Corporate Recovery and Tax Incentives for Enterprises Act), potentially reducible to 20% for small and medium corporations meeting certain thresholds.
Branch Profit Remittance Tax: Branch offices remitting profits abroad are subject to a 15% branch profit remittance tax on repatriated earnings.
Value-Added Tax (VAT): Generally 12% on sales of goods and services, with some exceptions for export-oriented activities or zero-rated services.
Tax Incentives: Companies registered with investment promotion agencies such as PEZA (Philippine Economic Zone Authority) or the Board of Investments (BOI) may qualify for tax incentives (income tax holidays, reduced corporate income tax, VAT exemptions, etc.).

4.3 Employment of Foreign Nationals

Foreign-owned entities may employ foreign nationals, subject to labor and immigration regulations:

Alien Employment Permit (AEP) from the Department of Labor and Employment (DOLE).
Appropriate Visa (e.g., 9(g) pre-arranged employment visa, 47(a)(2) visa for PEZA-/BOI-registered enterprises).

5. Key Considerations and Practical Tips

Check the Negative List: Always review the latest Foreign Investment Negative List to determine allowable levels of foreign equity for your target industry.
Minimum Capital Requirements: Be aware of the paid-up capital requirements, which vary according to the structure and nature of the business.
Anti-Dummy Law Compliance: Ensure genuine Filipino participation if the industry requires local equity. Avoid nominal local shareholders just to meet statutory requirements.
Consider PEZA or Other Economic Zones: Registration with PEZA or other special economic zones can provide tax and operational benefits, especially for export-oriented or IT-BPO companies.
Engage Local Counsel: Philippine business laws and practices can be complex. A local law firm or professional services provider can assist with compliance and registration processes.
Recent Legislative Reforms: Monitor the implementation of the amended Public Service Act, the Retail Trade Liberalization Act, and other reforms that may open previously restricted sectors or lower capital thresholds.

6. Steps to Set Up a Foreign-Owned Company

While the specifics can vary, the general process to establish a foreign-owned entity in the Philippines typically involves:

Verify Business Activity: Confirm that the intended business activity is permitted for the desired level of foreign ownership.
Choose Legal Structure: Decide among a wholly owned domestic corporation, branch office, representative office, or a partnership with Filipino partners.
Draft Incorporation Documents (for a corporation) or secure License to Do Business (for a branch/rep office).
Deposit Required Capital: Remit the required paid-up capital to a local bank.
Register with SEC: Submit the required documentation, including Articles of Incorporation, Treasurer’s Affidavit, and bank certificate of deposit.
Obtain BIR Registration: Once SEC registration is complete, secure tax registration and official receipts.
Register with LGUs: Acquire local permits (Mayor’s Permit, Barangay Clearance).
Comply with Post-Registration Requirements: Books of account, social security registration for employees, and other ongoing corporate governance obligations.

Conclusion

Foreign business ownership in the Philippines involves navigating constitutional and statutory restrictions, adhering to the Foreign Investment Negative List, and choosing the most appropriate legal entity. Recent legislative amendments have relaxed rules in key sectors, creating more opportunities for foreigners to own and operate businesses. Nonetheless, requirements remain for certain industries, and compliance with local laws—especially on capitalization, employment of foreign nationals, and regulatory registration—is crucial.

By understanding the relevant laws (including the 1987 Philippine Constitution, the Foreign Investment Act, the Retail Trade Liberalization Act, and the Public Service Act amendments), foreign investors can make informed decisions about market entry. Engaging experienced local counsel or consultants ensures that all legal, tax, and operational requirements are met—ultimately providing a smoother path to successful, compliant operations in the Philippines.

Disclaimer: This article is provided for informational purposes only. Laws and regulations change over time, and their application can vary based on individual circumstances. For detailed guidance specific to your situation, consult a qualified attorney or professional advisor in the Philippines.