Foreign-Owned Domestic Company Incorporation Process in Philippines

Below is an extensive legal overview of the process and considerations for establishing a foreign-owned domestic corporation in the Philippines. This article covers the relevant legal framework, requirements, procedures, and compliance steps. Please note that while this overview aims to be comprehensive, it is not a substitute for professional legal advice. Changes in law and regulations may also occur, so consulting with an attorney or a professional incorporation service is strongly recommended.

1. Introduction

Foreign investors seeking to expand into Southeast Asia often view the Philippines as an attractive option. The country’s strategic location, English-speaking workforce, and growing consumer market make it ideal for establishing a presence. A foreign-owned domestic corporation in the Philippines is essentially a Philippine-registered corporation in which foreign investors hold all or part of the equity.

The incorporation process is governed by Philippine laws, primarily:

  • The Revised Corporation Code of the Philippines (Republic Act No. 11232)
  • The Foreign Investments Act of 1991 (FIA), as amended by RA 11647 (and its implementing rules and regulations)
  • Other sector-specific statutes and regulations

This article outlines the legal process for incorporating a foreign-owned company and highlights important compliance considerations.

2. Legal Framework

2.1 Revised Corporation Code (RA 11232)

Enacted in 2019, the Revised Corporation Code replaced the old Corporation Code (B.P. Blg. 68). Key changes include:

  • One Person Corporations (OPC) are now allowed, although certain restrictions apply.
  • Greater flexibility in corporate governance and procedures.
  • Removal of the minimum number of incorporators (now just two to fifteen, or even one in the case of OPC).
  • Enhancement of protections for minority shareholders.

2.2 Foreign Investments Act (FIA)

The FIA governs the conditions under which foreign investors may participate in various sectors. It introduced the concept of the Foreign Investment Negative List (FINL), which enumerates specific industries or business activities where foreign ownership is either restricted or prohibited.

2.3 Other Relevant Regulations

  • Securities Regulation Code for activities that involve securities-related transactions.
  • Anti-Dummy Law for prohibited circumventing of foreign ownership restrictions.
  • Labor and immigration laws regarding hiring foreign employees, securing work visas, and other requirements.

3. Business Structures Available to Foreign Investors

Foreign companies have several choices when setting up in the Philippines. The most common structures include:

  1. Domestic Corporation (with foreign equity):

    • A separate legal entity incorporated under Philippine law.
    • Can be 100% foreign-owned or partially foreign-owned, subject to industry restrictions.

  2. Branch Office:

    • An extension of the foreign parent company.
    • Regulated under the Foreign Investments Act and requires a minimum inward remittance (generally USD 200,000).

  3. Representative Office:

    • Strictly for liaison or promotion activities on behalf of the foreign parent; cannot generate revenue in the Philippines.
    • Requires a minimum inward remittance of USD 30,000.

  4. Regional Headquarters/Regional Operating Headquarters:

    • Set up by multinational companies to manage regional operations.
    • Subject to specific requirements under the law.

For this article, we focus on the domestic corporation structure, which is generally the preferred route for those who want full operational presence and flexibility to conduct commercial activities in the Philippines.

4. Preliminary Considerations

4.1 Foreign Equity Restrictions

Foreign ownership restrictions in certain industries are dictated by the Foreign Investment Negative List (FINL), which is updated periodically. Some notable restrictions:

  • Mass media: 100% Filipino ownership required (with limited exceptions).
  • Retail trade enterprises: Varying minimum paid-in capital requirements depending on the level of foreign participation.
  • Other partially nationalized activities: Agriculture, public utilities, education, and others, each with caps on foreign equity (e.g., 40% for public utilities).

Before proceeding with incorporation, verify that your intended business activity is permissible for 100% foreign ownership or if it falls under a partially restricted category.

4.2 Minimum Capital Requirements

For domestic corporations that are 100% foreign-owned, the general rule under the Foreign Investments Act is a minimum paid-in capital of USD 200,000. However, this requirement may be reduced to USD 100,000 if:

  • The enterprise involves advanced technology; or
  • It employs at least 50 direct employees.

For export enterprises (entities that export at least 60% of their output), the minimum capital requirement can be lower, subject to certain conditions. Special laws or sector-specific regulations may impose different capital requirements.

4.3 Choosing a Corporate Name

The corporate name must be distinct, not misleading, and comply with naming rules. The proposed name must be verified and reserved with the Securities and Exchange Commission (SEC) before filing incorporation documents.

5. Step-by-Step Incorporation Process

5.1 Name Verification and Reservation

  1. Online Name Search: Through the SEC’s electronic registration system (SEC e-FAST or any future updated system), check if your desired corporation name is still available.
  2. Name Reservation: Reserve the name (typically valid for 30-90 days). Pay the reservation fee, and obtain the reservation notice.

5.2 Draft and Notarize Incorporation Documents

  1. Articles of Incorporation (AOI):

    • Must include corporate name, purpose, principal office address, term of existence (can be perpetual under the Revised Corporation Code), names of incorporators, directors, authorized capital stock, subscribed capital, and paid-in capital.
    • Stating the primary purpose (main business activity) and secondary purposes is crucial, as it defines the scope of corporate authority.

  2. Bylaws:

    • Details the corporate governance structure, director qualifications, officer responsibilities, meeting procedures, etc.
    • Certain corporations can adopt the SEC’s model bylaws or prepare their own.

  3. Treasurer’s Affidavit:

    • The Treasurer-in-Trust states that the subscription amount has been received for the benefit and credit of the corporation.

  4. Subscriber’s Information:

    • Provide the names, nationalities, and share subscriptions of each incorporator or shareholder.

  5. Notarization:

    • The AOI, Treasurer’s Affidavit, and relevant incorporation documents must be notarized according to Philippine notarial law.

5.3 Securing Pre-Registration Clearances (If Required)

Depending on the nature of the business or applicable laws, you might need endorsements or clearances from other government agencies (e.g., Department of Trade and Industry for certain names or brands, Bangko Sentral ng Pilipinas for financial institutions, etc.).

5.4 Submission to the SEC

  1. Online or Manual Filing:

    • Submit the notarized documents via the SEC’s online system (if applicable) or by visiting the SEC office.
    • Pay the filing fees, which are based on authorized capital stock, plus legal research fees and other charges.

  2. SEC Evaluation:

    • The SEC will evaluate the documents, ensuring compliance with the Revised Corporation Code and other regulations.
    • Processing times vary but typically range from a few days to a couple of weeks.

  3. Issuance of Certificate of Incorporation:

    • Once approved, the SEC releases the Certificate of Incorporation (and Certificate of Filing of Bylaws if submitted).
    • This certificate legally establishes your domestic corporation in the Philippines.

5.5 Post-Incorporation Registrations

  1. Obtain the SEC Electronic Certificate of Registration (if applicable):

    • Some processes now involve receiving an electronic certificate. Keep this for your company records.

  2. Register with the Bureau of Internal Revenue (BIR):

    • Secure a Tax Identification Number (TIN).
    • Register books of accounts and official receipts/invoices.
    • Apply for an Authority to Print (ATP) receipts or invoices.
    • Pay the applicable registration fee (annual registration fee of PHP 500, plus documentary stamp taxes on subscribed capital).

  3. Register with the Local Government Unit (LGU):

    • Obtain a Mayor’s Permit (Business Permit) from the city or municipality where the principal place of business is located.
    • Comply with local fees, zoning, fire safety, and sanitation requirements.

  4. Social Security System (SSS), Philippine Health Insurance Corporation (PhilHealth), and Home Development Mutual Fund (HDMF/Pag-IBIG):

    • Mandatory registration if you will hire employees in the Philippines.
    • Obtain employer numbers and remit contributions accordingly.

  5. Immigration and Work Permit Requirements (if hiring foreign nationals):

    • Foreign nationals who will work for the corporation must secure the necessary work permit (e.g., Alien Employment Permit from DOLE) and visa (e.g., 9(g) pre-arranged employment visa).

6. Corporate Governance and Ongoing Compliance

6.1 Corporate Officers

Under the Revised Corporation Code:

  • Every corporation must have a President, Corporate Secretary, and Treasurer.
  • The President must be a member of the Board of Directors.
  • The Corporate Secretary must be a resident and citizen of the Philippines.
  • The Treasurer can be of any nationality but must be a resident of the Philippines.

6.2 Annual Requirements

  1. Annual General Meeting (AGM):

    • Shareholders typically meet once a year to approve financial statements, elect directors, etc.

  2. Submission of General Information Sheet (GIS):

    • Must be submitted to the SEC within 30 days after the AGM or any change in corporate structure or officers.

  3. Submission of Annual Financial Statements (AFS):

    • Must be audited by an independent Certified Public Accountant (CPA).
    • Filing deadlines vary depending on the last digit of the SEC registration or TIN, but generally within 120 days from the fiscal year-end.

  4. Payment of Annual BIR Registration Fee:

    • Payable each January (currently PHP 500, plus penalties if late).

6.3 Bookkeeping and Taxes

  • Maintain accurate books of accounts, duly registered with the BIR.
  • File monthly/quarterly/annual tax returns (VAT, Income Tax, Withholding Tax, etc.) as applicable.
  • Keep track of documentary stamp taxes, especially on share issuances and other corporate transactions.

6.4 Changes in Corporate Structure

  • Any amendment to the Articles of Incorporation (e.g., change in corporate name, principal office address, increase or decrease in authorized capital stock) requires SEC approval.
  • Additional filings or fees may be required for significant structural changes.

7. Sector-Specific Considerations

Certain industries (e.g., banking, insurance, securities brokerage, public utilities, and telecommunications) are subject to additional licensing and regulatory requirements from agencies like:

  • Bangko Sentral ng Pilipinas (BSP) for finance-related operations.
  • Insurance Commission (IC) for insurance entities.
  • National Telecommunications Commission (NTC) for telecom operations.
  • Energy Regulatory Commission (ERC) for energy-related businesses.

For such industries, you will need to secure secondary licenses and comply with additional capitalization or operational standards.

8. Common Challenges and Practical Tips

  1. Negative List Scrutiny: Double-check if your business activity appears on the FINL. If it does, ensure compliance with foreign equity limitations or consider structuring solutions (e.g., joint ventures with Filipino partners).

  2. Capital Infusion Timing: Ensure the paid-in capital is reflected in a Philippine bank account as required by the SEC. Proper documentary evidence (bank certificate of deposit or certificate of inward remittance) may be requested.

  3. Choosing the Right Location: Local business permit requirements differ among cities and municipalities. Investigate local ordinances, tax incentives, or possible economic zone benefits (PEZA, BOI incentives).

  4. Hiring Practices: Familiarize yourself with local labor laws for both Filipino and foreign employees. The Department of Labor and Employment (DOLE) enforces strict compliance with employment standards.

  5. Consult Professionals: Engaging experienced legal counsel or corporate service providers can streamline the process. This is especially valuable for foreign companies new to Philippine regulations.

9. Conclusion

Incorporating a foreign-owned domestic company in the Philippines can be a straightforward process if you understand the legal framework, foreign ownership restrictions, and registration procedures. From verifying the business name with the SEC to obtaining local permits, each step must be conducted in compliance with Philippine law.

Key takeaways:

  • Know Your Industry: Determine whether full foreign ownership is allowed or if partial ownership caps apply.
  • Fulfill Capital Requirements: Plan your capitalization in line with the Foreign Investments Act (FIA) and other applicable rules.
  • Complete Mandatory Registrations: SEC, BIR, LGU permits, and other agency approvals are all critical.
  • Maintain Compliance: Annual filings, financial audits, tax obligations, and labor regulations must be diligently followed.

By navigating these requirements carefully and seeking professional guidance, foreign investors can successfully establish and operate a domestic corporation in the Philippines, tapping into one of Southeast Asia’s most dynamic emerging markets.

Disclaimer

This document is provided for informational purposes only and does not constitute legal advice. Laws and regulations are subject to change, and specific circumstances may alter the applicability of these general guidelines. Always consult a licensed Philippine attorney or an accredited consultant for advice tailored to your particular situation.

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

Privacy Policy

Terms of Use

Lawyer Login

 
 
Privacy Policy         Terms of Use         Lawyer Login