Setting up a business entity in the Philippines as a foreign investor involves navigating a specific set of statutes, primarily the Revised Corporation Code (Republic Act No. 11232) and the Foreign Investments Act of 1991 (Republic Act No. 7042), as recently amended by RA 11647.
A Foreign-Owned Domestic Corporation is an entity incorporated under Philippine laws where foreign equity exceeds 40%. Unlike a Branch Office, it possesses a juridical personality separate and distinct from its parent company abroad.
I. Ownership and the Negative List
The Philippine government generally encourages foreign investment, but certain sectors remain restricted or limited. Before proceeding, investors must consult the Regular Foreign Investment Negative List (RFINL), which categorizes industries into two lists:
- List A: Areas reserved for Philippine nationals by mandate of the Constitution and specific laws (e.g., Mass Media - 0% foreign equity; Advertising - 30% foreign equity; Land Ownership - 40% foreign equity).
- List B: Areas restricted for reasons of security, defense, risk to health and morals, and protection of small and medium-sized domestic enterprises.
Note: If an activity is not listed in the RFINL, it is generally open to 100% foreign ownership.
II. Minimum Capitalization Requirements
Capital requirements for foreign-owned domestic corporations depend on the nature of the market they serve:
1. Domestic Market Enterprises
These are entities that derive income from the Philippines or export less than 60% of their output.
- Standard Requirement: A minimum paid-in capital of US$200,000.00.
- Reduced Requirement: The capital may be lowered to US$100,000.00 if the enterprise:
- Involves advanced technology (as certified by the Department of Science and Technology); or
- Employs at least 50 direct Filipino employees.
2. Export Market Enterprises
These are entities that export at least 60% of their goods or services.
- Requirement: The US$200,000.00 minimum does not apply. The capital requirement is generally the same as Filipino-owned corporations, which can be as low as PHP 6,250.00 (though practically, higher capital is recommended for operational purposes).
III. Documentary Requirements
To register with the Securities and Exchange Commission (SEC), the following documents are essential:
- Name Verification: Approval of the corporate name via the SEC’s online portal (ESPARC).
- Articles of Incorporation (AOI) and Bylaws (BL): These define the corporation's purpose, structure, and internal regulations.
- Treasurer’s Affidavit: A sworn statement by the elected Treasurer certifying the amount of capital subscribed and paid.
- Bank Certificate: Proof of the inward remittance of the required paid-in capital (especially for the US$200,000 threshold).
- Foreign Investment Form (F-100): Required for corporations with more than 40% foreign equity.
- Tax Identification Number (TIN): For all incorporators, directors, and officers.
- Authority to Examine Bank Account: Signed by the Treasurer to allow the SEC to verify the existence of the capital.
IV. Procedural Steps for Registration
The process of setting up is a multi-agency circuit that must be followed in sequence.
Step 1: SEC Registration
Registration is now primarily done through the Electronic Simplified Processing of Applications for Registration of Company (eSPARC). Once the SEC reviews and approves the digital application, the hard copies are notarized and submitted for the issuance of the Certificate of Incorporation.
Step 2: Local Government Unit (LGU) Permits
Before physical operations begin, the corporation must obtain:
- Barangay Clearance: Issued by the specific local district where the office is located.
- Mayor’s Business Permit: Issued by the city or municipality. This involves inspections by the Bureau of Fire Protection and the Sanitary Office.
Step 3: Bureau of Internal Revenue (BIR) Registration
The corporation must register with the Revenue District Office (RDO) having jurisdiction over its registered address to obtain:
- Certificate of Registration (Form 2303).
- Authority to Print (ATP) Invoices/Receipts.
- Registration of Books of Accounts.
Step 4: Statutory Employer Registration
The corporation must register as an employer with the following social agencies to provide mandatory benefits to employees:
- Social Security System (SSS)
- Philippine Health Insurance Corporation (PhilHealth)
- Home Development Mutual Fund (Pag-IBIG)
V. Key Governance Roles
Under the Revised Corporation Code, the following requirements apply to the board and officers:
| Position | Residency/Citizenship Requirement |
|---|---|
| Board of Directors | Can be 1 to 15 individuals. No longer requires a majority to be Philippine residents. |
| President | Must be a director. No citizenship requirement (unless in a partly-nationalized industry). |
| Corporate Secretary | Must be a Filipino citizen and a resident of the Philippines. |
| Treasurer | Must be a resident of the Philippines. |
| Compliance Officer | Mandatory for corporations vested with public interest. |
VI. Post-Incorporation Compliance
Registration is only the beginning. To maintain good standing, the corporation must perform the following annually:
- General Information Sheet (GIS): Filed with the SEC within 30 days of the annual stockholders' meeting.
- Audited Financial Statements (AFS): Filed with both the SEC and BIR.
- Annual Tax Returns: Filed with the BIR.
- Renewal of Local Permits: Business permits must be renewed every January.
Failure to comply with these requirements can lead to "Revoked" or "Suspended" status, making it impossible to transact legally or maintain corporate bank accounts.