Foreign Company Setup Philippines

Below is an extensive overview of the legal and regulatory landscape for setting up a foreign company in the Philippines. It covers the various types of foreign-owned entities, registration procedures, capital requirements, regulatory agencies, taxes, labor considerations, and common compliance obligations. This guide focuses on the overarching legal framework and practical considerations involved in establishing a business presence in the Philippines as a foreign enterprise.

1. Key Governing Laws and Regulations

  1. Revised Corporation Code of the Philippines (Republic Act No. 11232)

    • Governs the formation, operation, and regulation of both domestic and foreign-owned corporations.
    • Replaced the old Corporation Code (B.P. Blg. 68) in 2019.
    • Introduces modern rules on incorporation, corporate structure, and shareholder rights.

  2. Foreign Investments Act (FIA) of 1991 (Republic Act No. 7042, as amended)

    • Governs foreign investments entering the Philippines.
    • Establishes the Foreign Investment Negative List, which outlines which industries are restricted or closed to foreign equity and the maximum percentage of foreign ownership allowed in partially restricted industries.

  3. Other Relevant Laws and Issuances

    • Omnibus Investments Code (Executive Order No. 226) – Provides incentives and guidelines for enterprises registering with the Board of Investments (BOI).
    • Special Economic Zone Acts (e.g., the PEZA Law) – Governs the establishment of businesses in special economic zones under the Philippine Economic Zone Authority (PEZA), offering tax and non-tax incentives for export-oriented firms.
    • Local Government Code – Covers local permits and regulations at the city or municipal level.
    • Labor Code of the Philippines – Governs employment standards, minimum wage, and the rules for hiring foreign and local employees.

2. Types of Business Presence for Foreign Companies

Foreign investors may choose from several structures, depending on their desired level of presence, nature of the business, and tax considerations:

  1. Domestic Corporation (Subsidiary)

    • A Philippine corporation incorporated under the Revised Corporation Code.
    • May be up to 100% foreign-owned, provided the activity is not in the Foreign Investment Negative List.
    • Treated as a separate legal entity from the foreign parent.

  2. Branch Office

    • A foreign corporation’s extension in the Philippines.
    • Not a separate legal entity; the foreign head office is liable for the branch’s operations.
    • May only undertake the activities aligned with the parent’s main business.
    • Must have an Assigned Capital for its Philippine operations.

  3. Representative Office

    • Strictly for non-income-generating activities (e.g., promotional, quality control, liaison).
    • Prohibited from engaging in commercial activities or deriving income in the Philippines.
    • Must be fully subsidized by the foreign parent.
    • Typically requires a smaller assigned capital than a branch.

  4. Regional Headquarters (RHQ)

    • A branch established by a multinational for supervision, communication, or coordination of its subsidiaries, branches, or affiliates in the Asia-Pacific region.
    • Prohibited from earning or deriving income within the Philippines.

  5. Regional Operating Headquarters (ROHQ)

    • A multinational’s branch that can derive income by performing qualifying services (e.g., business development, technical support) to its affiliates or subsidiaries.
    • Subject to specific tax rules and incentives.

3. Foreign Investment Negative List

The Foreign Investment Negative List (FINL) is issued periodically by the Philippine government to identify which sectors or industries have restrictions on foreign ownership. Common restrictions include:

  • Full foreign ownership prohibited in certain industries (e.g., mass media, retail trade below a specific capitalization).
  • Limited foreign ownership in certain industries (e.g., public utilities, educational institutions, land ownership).

Before deciding on the type of business to set up, foreign investors should consult the most recent FINL to check if the proposed business activity has restrictions on foreign equity or if there are specific capitalization requirements.

4. Minimum Capital and Funding Requirements

Minimum capitalization requirements vary depending on the entity type and the level of foreign ownership:

  1. Domestic Corporation

    • General Rule: For a fully foreign-owned corporation engaged in business-to-business (B2B) or export-oriented activities, the usual minimum paid-up capital is US$200,000.
    • Reduced Capital Exceptions:
      • US$100,000 if the enterprise involves advanced technology or directly employs at least fifty (50) employees.
      • Certain industries (e.g., retail trade above a specified capitalization) may require higher amounts.
      • If the foreign ownership is less than 40%, the rules for Filipino-owned companies may apply (lower capital).

  2. Branch Office

    • Typically requires an Assigned Capital of US$200,000, though the same exceptions (advanced technology or 50+ employees) might reduce it to US$100,000.

  3. Representative Office

    • Must have an Assigned Capital of at least US$30,000, fully remitted by the parent.

  4. RHQ and ROHQ

    • RHQ: Assigned capital of at least US$50,000 per year for local operating expenses.
    • ROHQ: Assigned capital of at least US$200,000.

5. Registration Process and Key Agencies

  1. Securities and Exchange Commission (SEC)

    • The primary agency for company registration in the Philippines.
    • Oversees the incorporation of domestic corporations and licensing for foreign branches, representative offices, RHQs, and ROHQs.
    • Requires submission of documentary requirements such as Articles of Incorporation and By-Laws (for domestic corporations) or Application to Do Business (for branches), along with proof of remittance of capital or assigned capital.

  2. Bureau of Internal Revenue (BIR)

    • After SEC registration, businesses must obtain a Tax Identification Number (TIN) and register for Value-Added Tax (VAT) or other applicable tax types.
    • Issuance of authority to print official receipts and invoices.

  3. Local Government Units (LGUs)

    • Businesses must secure local permits such as a Mayor’s Permit (or Business Permit), Barangay Clearance, and other local licenses from the city or municipality where they plan to operate.

  4. Department of Trade and Industry (DTI)

    • For sole proprietorships or partnership registration of business names, although this is not typically the structure used by foreign entities.

  5. Other Agencies (Depending on the Business)

    • Board of Investments (BOI): For companies seeking investment incentives under the Omnibus Investments Code.
    • Philippine Economic Zone Authority (PEZA): For businesses operating in special economic zones and benefiting from fiscal/non-fiscal incentives.
    • Bureau of Immigration (BI): For the employment of foreign nationals and working visas.

6. General Documentary Requirements

While specific paperwork varies by entity type, the following are common documents:

  1. For Domestic Corporations:

    • Articles of Incorporation and By-Laws (executed by the incorporators).
    • Proof of inward remittance of paid-up capital.
    • Treasurer’s Affidavit attesting to the payment of capital.
    • SEC standard form (if using the SEC templates).

  2. For Branch/Representative Offices:

    • Application Form for License to Do Business in the Philippines.
    • Certified copy of the Board Resolution authorizing the establishment of a branch or representative office in the Philippines.
    • Financial statements of the parent company (duly authenticated).
    • Proof of inward remittance of assigned capital.

  3. For RHQ/ROHQ:

    • Similar to a branch office, but with additional documents showing multinational status, area of operations, and intended scope of services.

7. Taxation and Fiscal Incentives

  1. Corporate Income Tax

    • Standard corporate income tax rate is 25% of net taxable income for domestic corporations and resident foreign corporations (branches).
    • Non-resident foreign corporations may be subject to a higher rate (generally 25% on Philippine-sourced income).

  2. Value-Added Tax (VAT)

    • Standard rate of 12% on goods and services sold or rendered in the Philippines.
    • Export-oriented businesses in economic zones may enjoy zero-rated VAT on qualified transactions.

  3. Withholding Taxes

    • Businesses are required to withhold tax on certain payments (e.g., salaries, professional fees, dividends, royalties).

  4. Local Taxes

    • Provincial, city, or municipal business tax (often a percentage of gross receipts).
    • Real property tax on land or buildings owned.

  5. Incentives

    • BOI-registered companies may enjoy income tax holidays and other incentives if they fall under the government’s Investment Priorities Plan.
    • PEZA-registered companies may enjoy an income tax holiday, special tax rate on gross income, or other benefits, depending on compliance with export requirements and economic zone regulations.

8. Labor and Employment Considerations

  1. Hiring and Work Visas

    • Foreign employees typically require a valid work visa (e.g., 9(g) or 47(a)(2)), along with an Alien Employment Permit (AEP) from the Department of Labor and Employment (DOLE).
    • The Labor Code sets rules on employment contracts, minimum wage, overtime, holiday pay, and termination.

  2. Mandatory Benefits

    • Employers must register employees with the Social Security System (SSS), Philippine Health Insurance Corporation (PhilHealth), and Home Development Mutual Fund (HDMF or Pag-IBIG).
    • Employers must contribute to these agencies and withhold the appropriate employee shares.

  3. Labor Contracts

    • Written employment contracts are strongly recommended.
    • Policies on probationary employment, regularization, and separation benefits must comply with Philippine labor laws.

9. Common Compliance and Reporting Obligations

  1. SEC Filings

    • Annual Financial Statements (AFS) audited by an independent CPA accredited by the SEC (for certain thresholds).
    • General Information Sheet (GIS) to be filed annually or whenever there are changes in the corporate structure.

  2. BIR Filings

    • Monthly/Quarterly VAT or Percentage Tax returns.
    • Monthly Withholding Tax returns on compensation and expanded withholding tax.
    • Quarterly and Annual Income Tax returns.
    • Books of accounts and official receipts/invoices must be registered and properly maintained.

  3. LGU Requirements

    • Renewal of Mayor’s Permit and other local licenses annually.
    • Payment of local business taxes within the designated schedules.

  4. DOLE and Other Labor-Related Reports

    • Submission of employment reports, if required.
    • Compliance with occupational safety and health standards.

10. Special Considerations and Practical Tips

  1. Foreign Equity Restrictions

    • Verify if your chosen business activity is subject to any foreign ownership ceilings (e.g., public utilities, educational institutions, media).
    • Ensure compliance with the negative list restrictions before deciding on 100% ownership or a joint venture with Filipino partners.

  2. Choosing the Right Vehicle

    • Domestic Corporation if you plan to operate a local business with the possibility of scaling.
    • Branch Office if you want a direct extension of your foreign entity that can generate local income.
    • Representative Office if your activities are purely promotional or liaison (no revenue from within the Philippines).

  3. Inward Remittance of Capital

    • Funds must be remitted through banking channels that can provide a bank certificate of inward remittance (required for SEC proof of capital).

  4. Professional Assistance

    • Engaging a local law firm, corporate service provider, or accountant can streamline the registration process and ensure regulatory compliance.

  5. Timelines

    • The registration process can take weeks to months, depending on completeness of documents, complexity of the business activity, and compliance with regulations.

  6. Continuing Governance Under the Revised Corporation Code

    • The Code provides more flexible rules on corporate structure (e.g., one-person corporations), but foreign investors should be mindful of possible capital requirements that apply specifically to foreign entities.

Conclusion

Setting up a foreign company in the Philippines involves navigating multiple layers of regulations—from choosing the appropriate legal structure and adhering to foreign ownership limits, to securing government registration and complying with tax, labor, and reporting obligations. The primary agencies involved include the Securities and Exchange Commission for company registration, the Bureau of Internal Revenue for tax matters, and the local government unit for business permits, alongside specialized bodies like the Board of Investments or PEZA if incentives are sought.

Foreign investors considering entry into the Philippine market should begin with a clear understanding of the Foreign Investments Act, the Negative List restrictions, and relevant minimum capitalization rules. From there, assembling the correct documentation, channeling funds through authorized remittance routes, and meeting post-registration compliance deadlines are key to a successful and fully compliant business operation. Consulting with experienced local counsel or corporate service providers can help navigate these processes efficiently, ensuring that your enterprise meets all legal requirements and can take advantage of incentives available in this dynamic Southeast Asian marketplace.

Disclaimer: This content is not legal advice and may involve AI assistance. Information may be inaccurate.

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