Doing Business in the Philippines
If you are a non-Filipino citizen intending to invest and set up a business in the Philippines, there are different ways to do it and certain restrictions to observe. The primary law governing foreign investments in the Philippines is the Foreign Investments Act of 1991 or Republic Act No. 7042 (RA 7042), as amended by Republic Act No. 8179.
Businesses in the Philippines are carried out by three types of entities: sole proprietorship, partnership, and corporation. A sole proprietorship is the simplest business to set up as it has no legal personality separate from the owner and is carried on by one person only. Since it will be fully owned by the single owner, a sole proprietorship will not be available to a foreign investor in business activities which limit foreign ownership. A partnership is formed by two or more persons who contribute their money, property or industry to a common fund and share in the income and expenses. A corporation is a group of people called stockholders, who are organized as a single unit and recognized as such in law.
Foreign ownership in some business activities are either limited to certain percentages or is altogether prohibited. These restrictions are found in what is known as the Foreign Investment Negative List (FINL). For example, the FINL prohibits non-Filipinos from investing in retail business unless the minimum capitalization is $2,500,000 or the retail business specializes in high end or luxury goods; foreign equity in advertising is limited to 30%, 40% in operation of public utilities, 25% in private recruitment agencies, etc.
In business activities that are not covered by the FINL, 100% foreign ownership is allowed as long as the applicant’s country allows Filipinos and Philippine corporations to do business therein. Additionally, there are special minimum capitalization requirements. If the business will cater to the domestic (Philippine) market only, it must have a minimum paid-up capital of $200,000 unless the business involves the use of advance technology or employs at least 50 direct employees, in which case the minimum paid-up capital is $100,000 only. But if the business is an export market enterprise, only the standard minimum paid-up capital requirement has to be met which is P5,000.
Also, in order for the non-Filipino investor to repatriate (bring back) investments and remit earnings to his home country, the investments must be registered with the Philippine government.
There are a host of tax and tariff incentives to foreign investors, such as duty-free importation of equipment or materials, income and other tax exemptions, etc., especially if the business operations will be conducted in designated freeport or economic zones, which are spread throughout the country. Also, special investor visas can be availed of by the investor and his family.