Disclaimer: The following discussion provides general information about setting up a 100% foreign-owned business in the Philippines. It is not intended as legal advice. Laws and regulations may change, and specific situations may require tailored strategies. Consult a qualified Philippine attorney or accountant for advice on your unique circumstances.

1. Introduction

The Philippines offers a range of opportunities for foreign investors, thanks to its growing economy and strategic location in Southeast Asia. While there are industries subject to constitutional or statutory ownership restrictions, foreigners can still own up to 100% equity in many business sectors. This article discusses the legal framework, requirements, and procedures for establishing a 100% foreign-owned business in the Philippines.

2. Key Legal Framework

2.1. Philippine Constitution and Foreign Investment Negative List (FINL)

Under the Philippine Constitution and relevant statutes, some industries require at least 60% Filipino ownership. These restrictions are consolidated into the Foreign Investment Negative List (FINL).

List A enumerates activities or industries where foreign ownership is limited by the Constitution or specific laws (e.g., media, education, public utilities, land ownership).
List B contains areas where foreign ownership is limited due to security, defense, health, moral, and other national policy considerations.

Any business activity not listed in the FINL may be fully (100%) owned by foreign investors.

2.2. Foreign Investments Act (FIA)

The Foreign Investments Act of 1991 (Republic Act No. 7042), as amended by subsequent laws, governs foreign ownership and investment in the Philippines. It sets out the guidelines for registration with the Securities and Exchange Commission (SEC) for corporations and the Department of Trade and Industry (DTI) for sole proprietorships, among others.

2.3. Corporate Code of the Philippines (Revised Corporation Code)

The Revised Corporation Code (Republic Act No. 11232) governs the formation and operation of corporations. It modernized Philippine corporate law, introducing concepts such as the One-Person Corporation (OPC) and simplifying requirements for corporate registration and management.

2.4. Other Relevant Regulations

Depending on your industry, other regulations may apply, such as:

Banking Laws (for financial institutions)
Insurance Code (for insurance businesses)
Retail Trade Liberalization Act (for retail operators, including recent amendments to minimum paid-up capital requirements)
Tax Code (National Internal Revenue Code) for taxation
Local Government Code for local permits

3. Business Structures for 100% Foreign Ownership

3.1. Domestic Corporation

A domestic corporation is a separate legal entity incorporated under Philippine laws. As of the Revised Corporation Code, a single shareholder can form a One-Person Corporation (OPC) if qualified, or multiple shareholders can form a regular corporation.

Minimum Number of Incorporators: For a regular corporation, 2 to 15 incorporators. For an OPC, only 1 incorporator.
Capital Requirements: Depending on the industry. Many sectors allow 100% foreign ownership with no minimum capital requirement, but certain sectors or activities have specific paid-up capital thresholds.

3.2. Branch Office

A branch office is an extension of a foreign parent company. It can conduct the business of the head office in the Philippines and generate income locally. A branch must have:

At least USD 200,000 assigned capital (inward remittance) unless qualified for lower capital under specific exemptions (e.g., exporting or advanced technology).

3.3. Representative Office

A representative office may carry out activities such as market research and promotion on behalf of the foreign parent but is prohibited from earning income in the Philippines. It requires an initial inward remittance of USD 30,000.

3.4. Regional Operating Headquarters (ROHQ)

An ROHQ performs qualifying services (such as back-office operations) for related companies in the region. It is subject to specific tax incentives and cannot derive income from the Philippines, except from affiliates or subsidiaries of its parent company.

4. Step-by-Step Process for Setting Up a 100% Foreign-Owned Domestic Corporation

Below is a general overview of how to incorporate a 100% foreign-owned domestic corporation in the Philippines:

Determine Whether the Activity Is Allowed for 100% Foreign Ownership
- Check the Foreign Investment Negative List to confirm that your intended business activity does not fall under any restricted category.
Check Minimum Capital Requirements
- Most 100% foreign-owned corporations outside the FINL must still meet the general rule of USD 200,000 minimum paid-up capital.
- Exceptions: Export enterprises (at least 70% of output is exported) or businesses involving advanced technology may have lower capital requirements of USD 100,000.
Reserve a Company Name with the SEC
- Conduct a Name Reservation through the Securities and Exchange Commission’s website or online portal to ensure your chosen business name is available.
Draft the Articles of Incorporation and Bylaws
- Prepare the Articles of Incorporation (AOI) specifying corporate details such as business purpose, principal office, authorized capital stock, number of shares, par value, and subscriber information.
- Although Bylaws can be adopted separately or within the AOI, corporations typically prepare them at incorporation.
Deposit the Paid-Up Capital
- Open a bank account in the Philippines under the corporation’s name (some banks may allow a pending SEC registration account).
- Remit the subscribed capital to demonstrate compliance with the paid-up capital requirement.
- Obtain a Certificate of Inward Remittance from the bank if you are remitting from abroad.
Submit Incorporation Documents to the SEC
- This includes the:
  - Name Reservation Slip
  - Articles of Incorporation and Bylaws
  - Treasurer’s Affidavit (attesting the capital has been deposited)
  - Bank Certificate of Deposit or Certificate of Inward Remittance
  - Other SEC-required forms (e.g., Cover Sheet, Undertaking to Change Name if necessary)
Pay the Required SEC Fees
- SEC fees are based on authorized capital stock and registration costs.
Obtain SEC Certificate of Incorporation
- Once approved, the SEC issues a Certificate of Incorporation confirming the corporation’s legal existence.
Register with Other Government Agencies
- Bureau of Internal Revenue (BIR): Secure your Tax Identification Number (TIN), register books of account, and obtain official receipts/invoices.
- Local Government Unit (LGU): Obtain a Mayor’s Permit (or Business Permit) and other local clearances where the principal place of business is located.
- Social Security System (SSS), Philippine Health Insurance Corporation (PhilHealth), and Home Development Mutual Fund (Pag-IBIG): Register to comply with mandatory contributions for employees.
Open Corporate Bank Accounts
- After receiving all the necessary documents (SEC Certificate, BIR Certificate, Mayor’s Permit), you can open operational accounts.
Commence Business Operations
- With the above requirements in place, the corporation can legally operate in the Philippines.

5. Special Notes on Land Ownership

Under the Philippine Constitution, foreigners cannot directly own land in the Philippines. A 100%-owned corporation with foreign equity is similarly restricted from owning land. However, foreign corporations may:

Lease private lands for up to 50 years, renewable for another 25 years.
Own condominium units, provided foreign ownership in the condominium project does not exceed 40%.
Enter into long-term lease agreements or consider other legal arrangements (e.g., leasehold improvements, joint ventures) depending on the nature of the project.

6. Taxation and Incentives

6.1. Corporate Taxation

Corporate Income Tax: The Corporate Recovery and Tax Incentives for Enterprises (CREATE) law revised corporate income tax rates. Currently, the standard rate is 25% for most domestic corporations. Small corporations with net taxable income of P5 million or below and total assets of P100 million or below (excluding land) may qualify for a 20% rate.
Value-Added Tax (VAT): The standard VAT rate is 12% on the sale or importation of goods and services, unless zero-rated.
Withholding Taxes: Various withholding tax rates apply for dividends, interest, royalties, and services paid to local or non-resident recipients.

6.2. Incentives Regimes

Depending on the nature, location, and export orientation of your business, you may register with certain government agencies to access incentives:

Board of Investments (BOI)
- Businesses engaged in “Preferred Activities” under the Strategic Investment Priority Plan (SIPP) may enjoy income tax holiday, duty-free importation of capital equipment, and other incentives.
Philippine Economic Zone Authority (PEZA)
- Export-oriented enterprises located in PEZA-registered economic zones may benefit from special tax regimes, zero VAT on local purchases, and other incentives. A minimum export requirement typically applies (e.g., 70% of production for export).
Other Investment Promotion Agencies (IPA)
- Such as the Subic Bay Metropolitan Authority (SBMA), Clark Development Corporation (CDC), or Tourism Infrastructure and Enterprise Zone Authority (TIEZA), if relevant to your location or industry.

7. Ongoing Compliance

SEC Compliance
- File General Information Sheet (GIS) annually or within 30 days from the date of the annual stockholders’ meeting.
- File Audited Financial Statements (AFS) yearly, stamped received by the BIR, before the SEC deadline.
- Notify the SEC of any changes to corporate structure, directors, principal office, or capital stock.
BIR Compliance
- File monthly, quarterly, and annual tax returns (e.g., VAT, withholding taxes, income tax).
- Maintain proper books of accounts and issue official receipts/invoices.
LGU Compliance
- Renew Mayor’s Permit or Business Permit annually and settle local business taxes.
Labor and Employment
- Comply with labor laws, including minimum wage, 13th month pay, and mandatory employee benefits (SSS, PhilHealth, Pag-IBIG).
- For foreign employees, secure appropriate visas (e.g., 9(g) pre-arranged employment visa) and Alien Employment Permits.
Annual Corporate Housekeeping
- Hold annual stockholders’ and board of directors’ meetings.
- Keep minutes of meetings and proper corporate records.
- File necessary notices with government agencies for any significant corporate changes.

8. Common Challenges and Practical Tips

Navigating Industry Restrictions: Always verify if your proposed activity is fully open to foreign ownership. Check updated versions of the FINL and consult legal experts.
Capital Requirements: Prepare the required paid-up capital and proper documentation for the SEC to avoid delays.
Banking Relationships: Work with a Philippine bank early in the process. Requirements for foreign nationals or foreign corporations can be more stringent.
Location-Specific Regulations: Different Local Government Units have varying permit and license requirements.
Compliance Management: Stay on top of ongoing filings and deadlines (SEC, BIR, LGU). Non-compliance can result in penalties or revocation of the corporate franchise.
Professional Assistance: Engaging lawyers, accountants, or corporate service providers is often prudent for smooth setup and compliance.

9. Conclusion

Establishing a 100% foreign-owned business in the Philippines is feasible for many industries outside the negative list. The process involves complying with the Revised Corporation Code, Foreign Investments Act, and a range of other regulations. While it may seem daunting at first, understanding the legal framework, following a clear step-by-step incorporation procedure, and ensuring ongoing compliance will help your enterprise thrive in the Philippine market.

When considering setting up operations, prospective investors should:

Verify that the proposed activity is not restricted by the FINL.
Understand the capital, corporate, and tax requirements.
Register with the SEC (or DTI, if applicable) and obtain all required licenses and permits.
Stay updated with filing and reporting obligations.
Consider available incentives through BOI, PEZA, or other agencies.

Always seek professional guidance where necessary to address specific legal, financial, and operational needs. With careful planning and compliance, you can successfully establish and operate your 100% foreign-owned business in the Philippines.