How Foreign Investors Can Register a Company in the Philippines: SEC, FIA, and Minimum Capital Requirements

Introduction

The Philippines offers a welcoming environment for foreign investors, with a legal framework designed to facilitate business operations while protecting national interests. Foreign investors seeking to establish a company must navigate key laws and regulatory bodies, primarily the Securities and Exchange Commission (SEC), the Foreign Investments Act (FIA) of 1991 (Republic Act No. 7042, as amended), and related minimum capital requirements. This article provides a comprehensive overview of the process, restrictions, and considerations for foreign investors in the Philippine context.

The FIA promotes foreign investments by allowing up to 100% foreign equity in most sectors, subject to the Foreign Investment Negative List (FINL). The SEC serves as the primary registrar for corporations and partnerships. Minimum capital requirements vary based on the nature of the business (domestic market-oriented vs. export-oriented) and the level of foreign ownership. Compliance with these elements ensures legal establishment and operational viability.

This guide covers eligibility, step-by-step registration procedures, capital thresholds, sectoral restrictions, post-registration obligations, and potential challenges. Note that while this outlines general principles, investors should consult legal experts for case-specific advice, as laws may evolve through amendments or executive orders.

Legal Framework Governing Foreign Investments

1. The Foreign Investments Act (FIA) of 1991

The FIA is the cornerstone legislation for foreign investments. It liberalized the economy by permitting foreign nationals and entities to invest in Philippine businesses, subject to certain limitations.

Key Principles:
- Foreign investors can own up to 100% equity in enterprises not listed in the FINL.
- Investments must contribute to economic growth, technology transfer, or employment.
- The Act distinguishes between "domestic market enterprises" (those selling at least 60% of products/services locally) and "export enterprises" (those exporting at least 60% of output).
Foreign Investment Negative List (FINL): The FINL, updated periodically via Executive Order (e.g., EO No. 65 for the 11th Regular FINL in 2018, with subsequent updates), categorizes restricted sectors into List A (constitutionally or statutorily reserved for Filipinos) and List B (restricted for reasons of security, defense, health, morals, or protection of small- and medium-sized enterprises).
- List A Examples:
  - Mass media: 0% foreign ownership.
  - Practice of licensed professions (e.g., law, medicine): Generally reserved for Filipinos.
  - Retail trade: 0% foreign if paid-up capital < USD 2.5 million; 100% allowed if >= USD 2.5 million and other conditions met.
  - Small-scale mining: 0% foreign.
  - Private security agencies: 0% foreign.
  - Utilization of marine resources: Limited to 40% foreign.
  - Ownership of private land: 0% foreign (but long-term leases up to 75 years allowed).
  - Public utilities (e.g., electricity distribution, water): Up to 40% foreign.
  - Educational institutions: Up to 40% foreign.
  - Advertising: Up to 30% foreign.
- List B Examples:
  - Defense-related manufacturing: Up to 40% foreign.
  - Businesses posing risks to health/morals (e.g., gambling): Up to 40% foreign.
  - Small- and medium-sized enterprises with paid-up capital < USD 200,000: Up to 40% foreign.
If a business falls under the FINL, foreign ownership is capped, often requiring a Filipino majority partner or joint venture.

2. The Securities and Exchange Commission (SEC)

The SEC, under the Corporation Code of the Philippines (Batas Pambansa Blg. 68, as amended by RA 11232 or the Revised Corporation Code of 2019), registers all corporations and partnerships. It ensures compliance with corporate governance, capitalization, and reporting standards.

Eligible Business Structures for Foreign Investors:
- Stock Corporation: Most common for foreigners; allows 100% foreign ownership if not restricted.
- Non-Stock Corporation: For non-profits; less common for investments.
- Partnership: General or limited; foreigners can participate but face similar FINL restrictions.
- Branch Office or Representative Office: For foreign corporations conducting limited activities (e.g., no income-generating for rep offices).
- Regional Headquarters (RHQ) or Regional Operating Headquarters (ROHQ): For multinational companies; 100% foreign-owned but with specific incentives and limitations under the CREATE Law (RA 11534).
- Sole proprietorships are generally not available to foreigners due to land ownership and other restrictions.

3. Interplay Between SEC and FIA

The SEC enforces FIA provisions during registration. If foreign equity exceeds allowed limits per FINL, registration may be denied. Post-registration, the SEC monitors compliance, while the Board of Investments (BOI) or Philippine Economic Zone Authority (PEZA) may provide incentives for qualified investments.

Minimum Capital Requirements

Capital requirements ensure business viability and align with FIA goals. They vary by entity type, foreign ownership level, and business orientation.

General Minimums Under the Revised Corporation Code:
- Stock corporations: No fixed minimum stated capital, but at least 25% of subscribed capital must be paid up, and the paid-up amount should suffice for operations (practically, SEC often requires PHP 5,000–100,000 depending on business scale).
- One Person Corporations (OPCs): Allowed for foreigners in non-restricted sectors; similar capital rules.
FIA-Specific Requirements for Foreign-Owned Entities:
- Domestic Market Enterprises (≥60% local sales):
  - If foreign ownership >40%, minimum paid-up capital: USD 200,000 (equivalent in PHP at prevailing exchange rate).
  - Reduced to USD 100,000 if the enterprise uses advanced technology (as certified by the Department of Science and Technology) or directly employs at least 50 Filipinos.
  - If capital < USD 200,000 (or < USD 100,000 with reductions), foreign ownership capped at 40%.
- Export Enterprises (≥60% exports):
  - No additional FIA minimum; only the general corporate code requirements apply (e.g., PHP 5,000 paid-up).
  - 100% foreign ownership permitted without capital thresholds.
- Special Sectors:
  - Retail trade: USD 2.5 million minimum for 100% foreign ownership.
  - Pioneer enterprises (BOI-registered with incentives): May have adjusted minimums.
  - RHQ: USD 50,000 annually remitted.
  - ROHQ: USD 200,000 one-time remittance.
- Currency and Payment:
  - Capital can be in cash, property, or services (valued appropriately).
  - At least 25% subscribed, 25% paid-up at incorporation.
  - Foreign currency remittances must go through Philippine banks for FIA compliance certification.
Failure to meet minimums can lead to denial of registration or later penalties.

Step-by-Step Process for Company Registration

Pre-Registration Preparations

Determine Business Structure and Ownership: Assess FINL compliance; decide on corporation, branch, etc.
Secure Necessary Approvals:
- If in restricted sectors, obtain endorsements (e.g., from Department of Education for schools).
- For incentives, apply to BOI or PEZA first.
Visa and Work Permits: Foreign incorporators may need investor visas (e.g., Special Investor Resident Visa for investments ≥ USD 75,000).

SEC Registration Process

Name Verification and Reservation:
- Use SEC's online system (SEC i-Register) to check and reserve a unique company name (valid for 30–90 days).
- Fee: PHP 100–500.
Prepare Incorporation Documents:
- Articles of Incorporation (AOI): Includes company name, purpose, principal office, term (up to 50 years, renewable), capital structure, incorporators (at least 1 for OPCs, 2–15 for standard; foreigners allowed if compliant).
- By-Laws: Governance rules.
- Treasurer's Affidavit: Certifies paid-up capital deposit.
- Bank Certificate: Proof of deposit.
- For foreigners: Passport copies, proof of inward remittance, and FIA compliance affidavit.
- If >40% foreign equity: SEC Form F-100 (Application for Registration under FIA).
Submit Documents to SEC:
- Online via SEC ESPARC (Electronic Simplified Processing of Application for Registration of Companies) or in-person.
- Fees: Based on authorized capital (e.g., 1/5 of 1% for capital up to PHP 100 million).
- Processing time: 3–7 days for standard; expedited options available.
Obtain Certificate of Incorporation:
- Issued upon approval; company gains legal personality.

Post-SEC Registration

Secure Tax Identification Number (TIN): From Bureau of Internal Revenue (BIR).
Register for Books of Accounts and Permits: BIR Form 1903.
Local Government Unit (LGU) Permits: Mayor's permit, barangay clearance.
Social Security and Labor Registrations: SSS, PhilHealth, Pag-IBIG, DOLE.
Special Registrations:
- For exporters: PEZA or BOI for incentives (e.g., tax holidays).
- If applicable: DTI for sole props/partnerships (though less common for foreigners).

Total timeline: 1–3 months; costs: PHP 10,000–50,000 excluding capital.

Additional Considerations and Challenges

Corporate Governance: At least one resident Filipino director if 100% foreign-owned; annual reporting to SEC.
Incentives: Under CREATE Law, qualified investors get reduced corporate income tax (20–25%), duty exemptions.
Land Ownership: Foreigners cannot own land; use corporations with ≥60% Filipino ownership or leases.
Repatriation: Profits/capital can be repatriated freely after taxes, with Bangko Sentral ng Pilipinas registration.
Challenges:
- Bureaucracy: Delays in approvals.
- Corruption risks: Mitigate via legal counsel.
- Economic factors: Currency fluctuations affect capital equivalents.
- Amendments: Monitor updates, e.g., via EO on FINL.
Penalties for Non-Compliance: Fines (PHP 5,000–1,000,000), dissolution, or blacklisting.

Conclusion

Registering a company in the Philippines as a foreign investor involves balancing opportunities under the FIA with SEC regulatory oversight and tailored capital requirements. By adhering to the FINL and minimum thresholds, investors can establish viable operations. Success hinges on thorough preparation and professional guidance to navigate this dynamic legal landscape. For the latest nuances, refer to official SEC and DTI resources or engage Philippine legal experts.