For decades, the Philippines maintained a restrictive economic landscape, guided by the "60-40" rule enshrined in the 1987 Constitution. However, recent landmark legislative amendments—specifically to the Public Service Act (PSA), the Retail Trade Liberalization Act (RTLA), and the Foreign Investments Act (FIA)—have significantly opened the doors for 100% foreign equity in sectors previously reserved for Filipinos.
Establishing a 100% foreign-owned domestic corporation requires a deep dive into the intersection of the Revised Corporation Code and the Foreign Investment Negative List (FINL).
1. The Gateway: The Foreign Investment Negative List (FINL)
Before incorporating, an investor must consult the FINL. This executive order outlines sectors where foreign ownership is prohibited or limited.
- List A: Reserved for Filipinos by the Constitution (e.g., Mass Media, Land Ownership).
- List B: Restricted for reasons of security, defense, risk to health and morals, and protection of local small-and-medium enterprises.
The "Liberalized" Landscape: Under the amended PSA, "public utilities" are strictly defined (e.g., electricity distribution/transmission, water pipeline systems). Other services like telecommunications, airlines, and railways are now classified as "public services," allowing 100% foreign ownership.
2. Capitalization Requirements
The primary hurdle for a 100% foreign-owned entity is the Paid-in Capital requirement, which varies based on the market orientation:
| Type of Enterprise | Market Orientation | Minimum Paid-in Capital |
|---|---|---|
| Domestic Market Enterprise | Selling to the Philippine market | USD 200,000 |
| Advanced Tech/50+ Employees | Involves tech or employs 50+ locals | USD 100,000 |
| Export Enterprise | Exports at least 60% of output | PHP 5,000 (Standard) |
| Retail Trade | Direct selling to consumers | PHP 25,000,000 |
Note: For Domestic Market Enterprises, the USD 200,000 must be inwardly remitted to a Philippine bank account and converted to Pesos to satisfy the Securities and Exchange Commission (SEC) requirements.
3. Structural Requirements
Under the Revised Corporation Code (RCC), the corporate structure has become more flexible:
- Incorporators: Can be a single person (One Person Corporation or OPC) or a group (2 to 15 individuals). Incorporators can be non-resident foreigners.
- Directors: A majority do not need to be residents of the Philippines.
- Corporate Officers: * President: Must be a director; no residency requirement.
- Treasurer: Must be a resident of the Philippines.
- Corporate Secretary: Must be a Filipino citizen and resident.
- Compliance Officer: Required for corporations vested with public interest.
4. The Registration Process
The registration is a multi-agency workflow that must be followed sequentially:
Step I: SEC Registration
The corporation must be registered with the Securities and Exchange Commission.
- Name Reservation: Ensure the name is unique via the SEC’s online portal.
- Submission of Bylaws and Articles of Incorporation: These documents define the corporate purpose and internal regulations.
- Treasurer’s Affidavit: Proof of the inward remittance and deposit of the required capital.
Step II: Local Government Units (LGU)
After receiving the SEC Certificate of Registration, the entity must secure:
- Barangay Clearance: From the specific district where the office is located.
- Mayor’s/Business Permit: Issued by the City or Municipal Hall. This involves inspections for fire safety, sanitary standards, and zoning.
Step III: Bureau of Internal Revenue (BIR)
The corporation must register for a Tax Identification Number (TIN), register its Books of Accounts, and apply for an Authority to Print (ATP) invoices/receipts.
Step IV: Statutory Employer Agencies
The corporation is legally mandated to register as an employer with:
- Social Security System (SSS)
- Philippine Health Insurance Corporation (PhilHealth)
- Home Development Mutual Fund (Pag-IBIG)
5. Land Ownership vs. Lease
While a 100% foreign-owned corporation cannot own land in the Philippines, it is permitted to:
- Lease Land: Under the Investors' Lease Act, foreigners may lease private land for up to 50 years, renewable for another 25 years.
- Own Improvements: The corporation can legally own the buildings and factories constructed on the leased land.
- Condominium Units: Foreigners may own 100% of a condominium unit, provided the total foreign ownership of the building does not exceed 40%.
6. Special Economic Zones (PEZA and BOI)
Foreign investors should consider registering with the Philippine Economic Zone Authority (PEZA) or the Board of Investments (BOI).
- Incentives: These include Income Tax Holidays (ITH), a preferential 5% tax on gross income in lieu of all national and local taxes, and duty-free importation of capital equipment.
- Qualification: Typically requires the business to be an "Export Enterprise" or part of the "Strategic Investment Priority Plan (SIPP)."
7. Compliance and Maintenance
Post-incorporation, the company must fulfill annual filing requirements to remain in good standing:
- General Information Sheet (GIS): Filed annually with the SEC to update ownership and officer data.
- Audited Financial Statements (AFS): Filed with both the SEC and BIR.
- Annual Tax Returns: Compliance with Corporate Income Tax (currently 25%, or 20% for certain small enterprises) and Value Added Tax (VAT) where applicable.