Below is a broad, in-depth overview of foreign ownership and business formation rules in the Philippines. Please note that this summary is for general informational purposes only and does not constitute legal advice. For specific guidance or transactions, consulting a qualified Philippine attorney or relevant government agencies is strongly recommended.

1. Constitutional and Statutory Framework

1.1 1987 Philippine Constitution

The fundamental basis for foreign ownership restrictions is the 1987 Constitution. Several articles, particularly Article XII (National Economy and Patrimony), impose restrictions on foreign ownership in specific sectors:

Public Utilities: Historically limited to 40% foreign equity (though the definition of “public utility” has evolved due to recent amendments to the Public Service Act).
Exploitation of Natural Resources: Restricted to 40% foreign equity (with certain exceptions).
Mass Media: Constitutionally limited to 100% Filipino ownership.
Education: Generally required to be 100% Filipino-owned (with limited exceptions for certain educational programs).
Advertising: Limited to 30% foreign equity.

The rationale behind these restrictions is the constitutional mandate to protect Filipino control over certain strategic industries and resources.

1.2 Foreign Investments Act of 1991 (FIA), as Amended

Republic Act (RA) No. 7042, known as the Foreign Investments Act of 1991, was a landmark law liberalizing the entry of foreign investments into the Philippines, subject to certain equity restrictions.
The law was later amended by RA No. 8179 and other subsequent legislation, clarifying and expanding the list of industries open to full or partial foreign ownership.

1.3 The Foreign Investment Negative List

Under the Foreign Investments Act, the Philippine government periodically issues a Foreign Investment Negative List (FINL)—sometimes referred to simply as the “Negative List.” This list outlines the activities or sectors where foreign equity is restricted or prohibited. It is divided into two main parts:

List A: Industries/activities where foreign equity is limited by the Philippine Constitution or specific laws.
List B: Industries/activities where foreign ownership is restricted for reasons of security, defense, risk to health and morals, or to protect small- and medium-sized enterprises.

If a particular business activity is not on the Negative List, it is generally open to up to 100% foreign ownership.

1.4 The Revised Corporation Code of the Philippines

RA No. 11232, or the Revised Corporation Code (RCC), governs the formation, management, and dissolution of corporations. It introduced reforms that streamlined corporate registration and allowed new forms of business structure, including the One Person Corporation (OPC)—which can, in theory, be 100% foreign-owned if not subject to any constitutional or statutory restrictions.

2. Common Foreign Equity Limits and Liberalized Sectors

2.1 100% Foreign Ownership Allowed in Many Sectors

Outside of the industries listed in the Constitution or included in the Negative List, foreign investors can generally own up to 100% of a Philippine domestic enterprise. Common sectors fully open to foreign equity include:

Business process outsourcing (BPO) and call centers
Most manufacturing
Retail trade (subject to minimum paid-up capital requirements, as amended by the Retail Trade Liberalization Act)
Export enterprises that ship at least 60% of their output abroad
Some public services newly liberalized by the amendments to the Public Service Act (see below)

2.2 Retail Trade Liberalization Act

The original Retail Trade Liberalization Act (RA No. 8762) placed high paid-up capital requirements on foreign retailers.
In 2022, RA No. 11595 amended the Retail Trade Liberalization Act, significantly lowering the minimum paid-up capital for foreign retailers to approximately PHP 25 million from the previous USD 2.5 million and imposing simpler requirements. This aimed to encourage foreign retailers to invest in the Philippines.

2.3 Amended Public Service Act (PSA)

RA No. 11659 was enacted in 2022 to amend the Public Service Act, clarifying the scope of “public utilities.” Under the amendments, certain industries historically treated as public utilities (e.g., telecommunications, railways, toll roads, shipping, airlines) are now classified as “public services” that can potentially allow up to 100% foreign ownership.
“Public utilities” that remain restricted to 40% foreign equity include the transmission or distribution of electricity, water (including water pipelines and sewerage), petroleum pipelines, seaports, and public utility vehicles (as defined in the law).
The law’s implementing rules and regulations (IRR) further clarify which industries are liberalized.

2.4 Real Estate Ownership

Foreign individuals cannot directly own land in the Philippines under constitutional restrictions (with few exceptions for hereditary succession).
However, foreign nationals or companies can lease private land for up to 50 years, renewable once for another 25 years, or invest in condominium units (where 60% of the building/project is owned by Filipinos).

2.5 Other Restricted Sectors

Mass Media: 100% Filipino-owned.
Educational Institutions: 100% Filipino-owned (with some exceptions for foreign schools under special arrangements).
Professional Services: Many professions (e.g., lawyers, doctors, engineers) require Philippine citizenship or reciprocity agreements.
Small-scale Mining: Restricted to Filipino citizens.
Cooperatives: Must be formed by Filipino citizens.

3. Business Formation Options for Foreign Investors

When setting up in the Philippines, foreign investors typically choose from one of the following legal entities. The choice depends on the degree of local presence, ownership structure, and intended business activities.

3.1 Domestic Corporation

Formed under the Revised Corporation Code.
Requires at least two incorporators unless it is established as a One Person Corporation (OPC).
Can be up to 100% foreign-owned if not subject to any Negative List or constitutional restriction.
Requires registration with the Securities and Exchange Commission (SEC).

3.2 Branch Office

An extension of a foreign corporation in the Philippines.
Engages in income-generating activities.
Must secure a License to Do Business from the SEC.
Subject to minimum inward remittance requirements (typically USD 200,000) and other capital requirements.

3.3 Representative Office

Not allowed to engage in income-generating activities within the Philippines.
Acts primarily for information dissemination, promotion, or quality control on behalf of the parent company.
Must be fully subsidized by the parent company, with a required initial inward remittance of at least USD 30,000.
Also requires a License to Do Business from the SEC.

3.4 Regional or Area Headquarters (RHQ) / Regional Operating Headquarters (ROHQ)

Special structures for multinational companies looking to set up coordination centers (RHQ) or perform services for subsidiaries, affiliates, or branches in the region (ROHQ).
RHQ cannot earn income locally, while ROHQ can provide qualifying services to its affiliates or subsidiaries and charge fees.

3.5 One Person Corporation (OPC)

Introduced by the Revised Corporation Code.
Allows a single shareholder to form a corporation.
Can be 100% foreign-owned if not restricted by law.
Simplifies many requirements applicable to traditional corporations.

4. Key Compliance Requirements

4.1 Registration and Licensing

Securities and Exchange Commission (SEC): Primary body that oversees the registration of corporations, branch offices, representative offices, and partnerships.
Bureau of Internal Revenue (BIR): Business entities must register for tax purposes, obtain a Tax Identification Number (TIN), and comply with national tax laws.
Local Government Units (LGUs): Businesses must secure local permits (e.g., Mayor’s Permit, Barangay Clearance) in the city or municipality where the principal office is located.
Other Government Agencies: Depending on the business activity (e.g., Department of Trade and Industry [DTI], Food and Drug Administration [FDA], Board of Investments [BOI], Philippine Economic Zone Authority [PEZA]), additional registrations or incentives might apply.

4.2 Capital Requirements

For most domestic corporations, there is no minimum capital requirement under the Revised Corporation Code, unless the business is partly or wholly foreign-owned and falls under specific laws requiring a minimum paid-up capital (e.g., retail, public utilities, branch office, representative office).
Retail enterprises with foreign equity are subject to minimum paid-up capital thresholds under the Retail Trade Liberalization Act, as amended.

4.3 The Anti-Dummy Law

Commonwealth Act No. 108, as amended (the Anti-Dummy Law), penalizes any arrangement intended to circumvent nationality restrictions by placing nominal Filipino owners to satisfy legal requirements.
Foreign investors must ensure that ownership structures and management roles comply with constitutional and statutory requirements to avoid severe penalties, including fines, imprisonment, and cancellation of business registration.

5. Taxation Regime

Foreign-owned entities generally fall under the same tax regime as local companies, subject to specific rules depending on the type of entity:

Corporate Income Tax: The Corporate Recovery and Tax Incentives for Enterprises (CREATE) law introduced lower corporate income tax rates (currently 25% for most corporations, with possible 20% for smaller businesses).
Value-Added Tax (VAT): 12% standard rate on the sale of goods and services, with certain zero-rated or exempt transactions.
Withholding Taxes: Dividends, interest, and royalties paid to foreign corporations or non-resident aliens may be subject to withholding tax at varying rates, possibly reduced by applicable tax treaties.

Special regimes apply to export-oriented enterprises or entities registered with investment promotion agencies (such as PEZA, BOI), offering possible income tax holidays, 5% gross income taxation, or other incentives.

6. Recent Liberalization Trends

Retail Trade Liberalization: Lowering of paid-up capital requirements under RA No. 11595.
Public Service Act Amendments: Opening up certain transportation, telecommunications, and other previously restricted “public utilities” to majority foreign ownership, subject to specific conditions.
Renewed Emphasis on Ease of Doing Business: The government enacted RA No. 11032 (Ease of Doing Business and Efficient Government Service Delivery Act), which mandates streamlined government processes and shorter processing times for permits and licenses.

7. Practical Considerations for Foreign Investors

Due Diligence: Before finalizing the structure, foreign investors should confirm whether the targeted industry is subject to foreign equity restrictions by reviewing the latest Negative List and relevant laws.
Choosing the Right Vehicle: Depending on whether the investor plans on generating income locally or just conducting marketing/liaison activities, the best choice might be a domestic corporation, branch, or representative office.
Compliance with the Anti-Dummy Law: Proper structuring is critical in partially restricted sectors to avoid nominal ownership schemes and associated penalties.
Capital and Incentives: Evaluate whether to register under PEZA, BOI, or other investment promotion agencies to take advantage of tax holidays and other incentives.
Real Estate Considerations: When acquiring space or land, foreign investors should keep in mind the constitutional prohibition on direct land ownership and focus on lease arrangements or condominium options.

8. Conclusion

The Philippine legal landscape for foreign ownership and business formation has become increasingly liberalized in recent years, offering more opportunities for 100% foreign ownership in a variety of sectors. At the same time, constitutional and statutory restrictions remain in place for certain industries deemed strategic to national interests (e.g., public utilities, mass media, land ownership, etc.).

Foreign entrepreneurs and enterprises should:

Identify the applicable foreign ownership restrictions.
Select the appropriate business structure (domestic corporation, branch, representative office, etc.).
Comply with capitalization, licensing, and registration procedures with the SEC, BIR, LGUs, and possibly investment promotion agencies.
Monitor new laws, executive orders, and IRRs—particularly updates to the Negative List and amendments to laws like the Public Service Act and Retail Trade Liberalization Act.

Given the evolving legal framework, it is highly advisable to seek professional counsel (legal, tax, and corporate advisory) for up-to-date requirements and tailored guidance. By doing so, foreign investors can ensure that their business formation and ownership structures align with Philippine laws and regulations while capitalizing on the benefits offered by one of Southeast Asia’s most dynamic and resilient economies.