foreign ownership of business in the philippines

12th Regular Foreign Investment Negative List A & B

WHEREAS, R.A. No. 7042, also known as the “Foreign Investments Act of 1991.” as amended, mandates the formulation of a Regular Foreign Investment Negative List, covering investment areas or activities which are open to foreign investors and/or reserved to Filipino nationals, and

WHEREAS, there is a need to formulate the Twelfth Regular Foreign Investment Negative List, replacing the Eleventh Regular Foreign Investment Negative List, to reflect changes to List A and List B, pursuant to existing laws, consistent with the policy to ease restrictions on foreign participation in certain investment areas or activities;

NOW, THEREFORE I, RODRIGO ROA DUTERTE, President of the Philippines, by virtue of the powers vested in me by the Constitution and existing laws do hereby order;

Section 1. Twelfth Regular Foreign Investment Negative List. Only the investment areas and/or activities listed in the attached Twelfth Regular Foreign Investment Negative List shall be reserved for Philippine Nationals, subject to the exceptions and conditions indicated therein.

Section 2. Amendments. Amendments to List A may be made at any time to reflect changes instituted in specific laws while amendments to List B shall not be made more than once every two (2) years, pursuant to Section 8 of R.A. No. 7042, as amended, and its revised Implementing Rules and Regulations.

Section 3. Repeal. All orders, rules and regulations, and issuances or parts thereof inconsistent with this Order are hereby repealed, amended or modified accordingly.

Section 4. Separability. If any provision of this Order is declared invalid or unconstitutional, the other provisions not affected thereby shall remain valid and subsisting.

Section 5. Effectivity. This Order shall take effect fifteen (15) days after its publication in a newspaper of general circulation.

DONE, in the City of Manila, this 27th day of June in the year of Our Lord, Two Thousand and Twenty-Two.

TWELFTH REGULAR FOREIGN INVESTMENT NEGATIVE LIST

LIST A: FOREIGN OWNERSHIP IS LIMITED BY MANDATE OF THE
CONSITITUTION AND SPECIFIC LAWS

NO FOREIGN EQUITY

1. Mass Media, except recording (Section 11 Art. XVI of the 1987 Constitution; Presidential Memorandum dated 05 May 1994) and internet business (DOJ Opinion No. 40, s. 1998)1
2. Practice of professions (section 14, Article XII of the Constitution), except in cases specifically allowed by law following the prescribed conditions stated therein (Section 1 of Republic Act No. 5181, 2 Section 7 [j] of R.A. No. 8981,3 Title II of Presidential Decree No. 442).4 The Annex on Professions attached herewith and forming an integral part of this document, indicates:
a. professions where foreigners are not allowed to practice in the Philippines, except if subject to reciprocity as provided in pertinent laws; and
b. corporate practice of professions with foreign equity restrictions under pertinent laws5
3. Retail trade enterprises with paid-up capital of less than PhP25,000,000.00 (Section 2 of R.A. No. 11595, amending R. A. No. 8762)6
4. Cooperatives (Chapter III, Articles 26 of R.A. 6938, as amended by Chapter II, Article 10 of R.A. No. 9520), except investments of former natural born citizens of the Philippines (Section 4 of R.A. No. 8179, amending R.A. No. 7042)7
5. Organization and operation of private detective, watchmen or security guards agencies (Section 4 of R.A. No. 5487, as amended by Section 4 of P.D. No. 11 and P.D. No. 100, s. 1973)
6. Small-scale mining (Section 3 of R.A. No. 7076)
7. Utilization of marine resources in archipelagic waters, territorial sea and exclusive economic zone, as well as small-scale utilization of natural resources in rivers, lakes, bays and lagoons (Section 2, Article XII for the Constitution)
8. Ownership, operation and management of cockpits (Section 5 of P.D. No. 449)
9. Manufacture, repair, stockpiling and/or distribution of nuclear weapons (Section 8, Article II of the Constitution)8
10. Manufacture, repair, stockpiling and/or distribution of biological, chemical and radiological weapons and anti-personnel mines (various treaties to which the Philippines is a signatory and conventions supported by the Philippines)9
11. Manufacture of firecrackers and other pyrotechnic devices (Section 5 of R.A. No. 7183)

Up to twenty-five percent (25%) foreign equity

12. Private recruitment, whether for local or overseas employment (Article 27 of P.D. No. 442)
13. Contracts for the construction of defense-related structures (Section 1 of Commonwealth Act No. 541)

Up to thirty percent (30%) foreign equity

14. Advertising (Section 11, Article XVI of the Constitution)

Up to forty percent (40%) foreign equity

15. Procurement of infrastructure projects pursuant to Section 23.4.2.1(b), (c) and (e) of the implementing Rules and Regulations (IRR) of R. A. No. 9184
16. Exploration, development and utilization of natural resources (Section 2, Article XII of the Constitution)10
17. Ownership of private lands (Section 7, Article XII of the Constitution; Section 22 of C.A. No, 141; Section 4 of R.A. No. 9182), except a natural born citizen who has lost his Philippine citizenship and who has the legal capacity to enter into a contract under Philippines laws (Section 10 of R. A. No. 7042, as amended by Section 5 of R.A. No. 8179)11
18. Operation of public utilities (Section 11, Article XII of the Constitution;12 Section 13 of C.A. No. 146, as amended by Section 4 of R.A. No. 11659;13 Sections 2[a]. 2[b] and 2[m] of R.A. No. 7718)14
19. Educational institutions other than those established by religious groups and mission boards, for foreign diplomatic personnel and their dependents, and other foreign temporary residents (Section4, Article XIV of the Constitution),15 or for short-term high level skills development that do not form part of the formal education system as defined in Section 20 of Batas Pambansa No. 232
20. Culture, production, milling, processing, trading except retailing, of rice and corn and acquiring, by barter, purchase or otherwise, rice and corn and the by-products thereof (Section 5. of P.D. No.194,) subject to period of divestment (National Food Authority [NFA] Council Resolution No. 193, s 1998)16
21. Contracts for the supply of materials, goods and commodities to government-owned or -controlled corporations (GOCC), company, agency or municipal corporation (Section 1 of R.A. No. 5183,17 and Section 4 of R.A. No. 9184)
22. Operation of deep sea commercial fishing vessels (Section 27 of R.A. No. 8550, as amended by R.A. No. 10654)
23. Ownership of condominium units (Section 5 of R.A. No. 4726)
24. Private radio communications network (Section 11, Article XII of the Constitution, National Telecommunications Commission Memorandum Circular No. 10-8-91)

LIST B: FOREIGN OWNERSHIP IS LIMITED FOR REASONS OF SECURITY, DEFENSE, RISK TO HEALTH AND MORALS AND PROTECTION OF SMALL AND MEDIUM-SCALE ENTERPRISES

Up to Forty Percent (40%) Foreign Equity

1.       Manufacture, repair, storage, and/or distribution of products and/or ingredients requiring Philippine National Police (PNP) clearance:

a. Firearms (handguns to shotguns), parts of firearms and ammunition therefore, instruments or implements used or intended to be used in the manufacture of firearms
b. Gunpowder
c.  Dynamite
d. Blasting Supplies
e. Ingredients used in making explosives
i. Chlorates of potassium and sodium
ii. Nitrates of ammonium, potassium, sodium barium, copper (11), lead (11), calcium and cuprite
iii. Nitric acid
iv. Nitrocellulose
v. Perchlorates of ammonium, potassium and sodium
vi. Nitrocellulose
vii. Glycerol
viii.  Amorphous phosphorus
ix. Hydrogen peroxide
x. Strontium nitrate powder
xi. Toluene; and
f.   Telescopic sights, sniper scope and other similar devices

However, the manufacture or repair of these items may be authorized by the Chief of the PNP to non-Philippine nationals; Provided that a substantial percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership allowed shall be specified in the said authority/clearance (IRR of R.A. 7042 as amended by IRR R.A. 8179).

2.      Manufacture and distribution of dangerous drugs (R.A. 7042 as amended by R.A. 8179)

3.      Sauna and steam bathhouses, massage clinics and other like activities regulated by law because of risks posed to public health and morals (R.A. 7042 as amended by R. A. 8179)

4.      All forms of gambling (R.A. 7042 as amended by R.A. 8179) except those covered by investment agreements with PAGCOR (P.D. 1869 as amended by R.A. 9487)

5.      Micro and small domestic market enterprises with paid-in equity capital of less than the equivalent of US$200,000 (R.A. 7042 as amended by R.A. 11647)

6.      Micro and small domestic market enterprises: (i) that involve advanced technology as determined by the Department of Science and Technology (DOST); (ii) are endorsed as startup or startup enablers by the lead host agencies, namely the Department of Trade and industry, Department of Information and Communications Technology or DOST, pursuant to R.A. 11337, otherwise know as the “Innovative Startup Act;” or (iii) with a majority of their direct employees as Filipinos, but in no case shall the number of Filipino employees be less than fifteen (15), with paid-in equity capital of less than the equivalent of US$100,000 (R.A. No. 11647)

ANNEX ON PROFESSIONS

A. Professions where foreigners are not allowed to practice 18 in the Philippines except if subject to reciprocity as provided in the pertinent laws:

  1. Accountancy (Section 34 of R.A. No. 9298)
  2. Aeronautical engineering (Section 14 of PD No. 1570)
  3. Agricultural and biosystems engineering (Sections 15 and 31 of R.A. No. 10915, repealing R.A. No. 8559)
  4. Agriculture (Section 27 of Professional Regulation Commission (PRC) Resolution No. 2000-663)
  5. Architecture (Sections 13 and 27 of R.A. No. 9266)
  6. Chemical engineering (Section 30 of R.A. No. 9297)
  7. Chemistry (Sections 16, 18 and 34 of R.A. No. 10657)
  8. Civil engineering (Section 25 of R.A. No. 544, as amended by R.A. No. 1582)
  9. Criminology (Sections 14(a) and 27(b) of R.A. No. 11131)
  10. Customs brokers (Section 25 of R.A. No. 9280)
  11. Dentistry (Section 14 and 31 of R.A. No. 9484)
  12. Electrical engineering (Section 38 of R.A. No. 7920)
  13. Electronics engineering (Sections 13 and 33 of R.A. No. 9292)
  14. Electronics technician (Sections 13 and 33 of R.A. No. 9292)
  15. Environmental planning (Sections 18 and 28 of R.A. No. 10587)
  16. Fisheries profession (Section 28 of R.A. No. 11398)
  17. Food technology (Section 14(a) of R.A. No. 11052)
  18. Forestry (Sections 14 and 27 of R.A. No. 10690)
  19. Geodetic engineering (Section 26 of R.A. No. 8560)
  20. Geology (Sections 17 and 33 of R.A. No. 10166)
  21. Guidance and counseling (Sections 13 and 29 of R.A. No. 9258)
  22. Interior design (Sections 15 and 29 of R.A. No. 10350)
  23. Landscape architecture (Sections 13 and 29 of R.A. No. 9053)
  24. Librarianship (Sections 15 and 28 of R.A. No. 9246)
  25. Marine deck and engineering (Section 28 of R.A. No. 8544, as amended by R.A. No. 10635)19
  26. Master plumbing (Section 21 of R.A. No. 1378)
  27. Mechanical engineering (Section 39 of R.A. No. 8495)
  28. Medical technology (Section 27 of R.A. No. 5527, as amended by R.A. No. 6138, PD No. 498 and P.D. No. 1534)
  29. Medicine (Section 9 of R.A. No. 2382, as amended by R.A. No. 4224 and R.A. No. 5946)
  30. Metallurgical engineering (Sections 17 and 34 of R.A. No. 10688)
  31. Midwifery (Section 22 of R.A. No. 7392)
  32. Mining engineering (Sections 15, 16 and 28 of R.A. No. 4274)
  33. Naval architecture (Sections 13 and 31 of R.A. No. 10698)
  34. Nursing (Sections 13 and 20 of R.A. No. 9173)
  35. Nutrition and dietetics (Sections 15 and 31 of R.A. No. 10862)
  36. Optometry (Section 34 of R.A. No. 8050)
  37. Pharmacy (Sections 14 and 21 of R.A. No. 10918)
  38. Physical therapy (Sections 14 and 21 of R.A. No. 5680) and occupational therapy (Sections 13(a) and 25 of R. A. No. 11241)
  39. Professional teaching (Sections 15(a) and 24 of R.A. No. 7836, as amended by R.A. No. 9293; Section 7(j) of R.A. No. 6081, PRC Resolution No. 2012-668 and R.A. No. 11448)20
  40. Psychology (Sections 12, 13 and 24 of FIA No. 10029)
  41. Radiologic and x-ray technology (Section 17(b) of R.A. No. 7431)21
  42. Real estate service (real estate consultant, real estate appraiser, real estate assessor, real estate broker and real estate salesperson) (Section 24 of R.A. No. 9646)
  43. Respiratory therapy (Sections 13 and 34 of R.A. No. 10024)
  44. Sanitary engineering (Section 32 of R.A. No. 1364)
  45. Social work (Section 18 of R.A. No. 4373, as amended)
  46. Speech Language Pathology (Sections 13(a) and 25 of R.A. No. 11249)
  47. Veterinary medicine (Sections 15 and 31 of R.A. No. 9268)
  48. Other professions as may be provided by law or by treaty Where the Philippines is a party

B. Corporate practice of professions with foreign equity restrictions under pertinent laws 22
1. Architecture (Section 37 of RA No. 9266)23

Footnotes:

1 DOJ Opinion No. 40 (s. 1998) uses the term “Internet Business” to refer to internet access providers that merely serve as carriers for transmitting messages and not creators of messages/information.
2 R.A. No. 5181 prescribes permanent residence and reciprocity as qualifications for any examination or registration for the practice of any profession in the Philippines (Section 1 of R.A. No. 5181).
3 R.A. No. 8981 provides rules for foreign professionals who intend and are authorized by existing laws to practice a profession in the Philippines (Section7[j] and 7[l] of R.A. No. 8981).
4 Title II of P.D. No. 442 governs the employment of non-resident aliens in the country.
5 DOJ letter to the NEDA dated 12 October 2021 states “that licensed/registered foreign professionals who are allowed, on the basis of reciprocity, to practice profession in the Philippines, can have an equity in a corporation authorized to practice the same profession, subject to the limitations provided, if any, in the relevant regulatory of Board law and other relevant laws.”
6 Foreign -owned partnerships, associations and corporations are allowed to engage in retail trade provided that: a) the retailer shall have a minimum paid-up capital of PHP25 million; b) the foreign retailer’s country of origin does not prohibit entry of Filipino retailers; and c) foreign retailer with more than one physical store ust have at least PHP10 million minimum investment per store (Section 2 of R.A. No. 11595 amending R.A. No. 8762).
7 Former natural born citizens of the Philippines have the same investment rights to cooperatives as a Philippine citizen
(Section 9 of R.A. No. 7042).
8 Domestic investments are also prohibited (Section8, Article II of the Constitution; Conventions/Treaties to which the Philippines is a signatory).
9 Domestic investments are also prohibited (Section8, Article II of the Constitution; Conventions/Treaties to which the Philippines is a signatory.
10 Full foreign participation is allowed through financial or technical assistance agreements entered into with the President (Section 2, Article XII of the Constitution).
11 Any natural born citizen who has lost his Philippine citizenship and who has the legal capacity to enter into a contract under Philippine laws may be a transferee of a private land up to a maximum area of five thousand (5,000) square meters in the case of urban land or three (3) hectares in the case if rural land to be used by him for business or other purposes.
12 The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines (Section 11, Article XII of the Constitution).
13 Section 13 of C.A. No. 146, as amended by Section 4 of R.A. No. 11659, defines Public Utility as public service that operates, manages or controls for public use any of the following: (1) distribution of electricity; (2) transmission of electricity; (2) petroleum and petroleum products pipeline transmission system; (5) seaports; and (6) public utility vehicles. All concessionaires, joint ventures and other similar entities that wholly operate, manage or control for public use the sectors above are public utilities. Nothing in this Act shall be deemed a public utility unless otherwise subsequently provided by law.
14 Except power generation and the supply of electricity to the contestable market (Section 6 and Section 29 of R.A. No. 9136, respectively) and such other like businesses or services not covered by the definition of public utilities.
15 Control and administration of educational institutions shall be vested in citizens of the Philippines (Section4[2]. Article XIV of the Constitution).
16 Full foreign participation is allowed provided that within the 30-year period from start of operation, the foreign investor shall invest a minimum of sixty percent (60%) of their equity to Filipino citizens (Section 5 of P.D. No. 194; NFA Council Resolution No. 193, s. 1998).
17 A contract may be awarded to any contractor or bidder who is a citizen, corporation or association of a foreign country the laws or regulations of which grant similar rights or privileges to citizens of the Philippines (Section 1 of R.A. No. 5183).
18 Section 1(b) of PRC Resolution No. 2012-668 defines “practice of a profession” as an “activity/undertaking rendered by a registered and licensed professional or a holder of a special Temporary Permit as defined in the scope of practice of a professional regulatory law.”
19 On Marine deck and engineer officer, practice is allowed for foreigners subject to special dispensation under Section28 of R.A. No. 8544, as amended by R.A. No. 10635.
20 On professional teaching, practice of qualified foreign teachers at elementary and secondary level is subject to mutual reciprocity agreement under Sections 4, 15(a) and 24 of R.A. No. 7836; practice of qualified foreign teachers at higher education level is subject to mutual reciprocity and other conditions as prescribed under R.A. No, 8981, PRC Resolution No. 2012-668 (s. 2012) and other international agreements as stipulated under R.A. No. 11448.
21 On radiologic and x-ray technology, practice is allowed for foreigners (limited, however, to lectures of consultation and teaching) subject to mutual reciprocity and other conditions provided under Section 17(b) of R.A. No. 7431.
22 DOJ letter to NEDA dated 12 October 2021 defines corporate practice as such: “A corporation may engage in the practice of professions, subject to the requirements that the corporation be registered with SEC and/or the Professional Regulatory Board concerned; that a certain percentage of the Board of Directors or members (stockholders) of the corporation be registered and licensed professionals; and that the practice of the corporation be carried out by the duly registered and licensed professionals.”
23 Qualified/registered/licensed foreign architects cannot invest or own equity in a domestic architectural firm since Section 37(a) of R.A. No. 9266 states that only Filipino architects may form and register an architectural firm.

Pros and Cons of Starting Foreign Companies in the Philippines

Infographic summarizing the Pros and Cons for foreign companies in the Philippines

Like it or not, today’s business landscape is incredibly competitive and will continue to be so. It’s no wonder that companies scramble to build, maintain, and expand their edge over competitors. To get that proverbial edge, the savviest of entrepreneurs are exploring strategies that they have never pursued before.

Among these strategies is establishing businesses overseas. After all, one can make money anywhere in the world. In recent years, the Philippines has become a favored destination for aspiring moguls and tycoons. Opening foreign companies in the Philippines allows them to be successful even outside of their home countries.

Any businessman worth his salt would do his research before investing his hard-earned money in another country. After all, doing business in the Philippines is not for the faint-hearted. If you have ever thought of branching out abroad, you must be aware of the benefits and risks of doing so. To guide you, here is a short list of the pros and cons of starting your own business in the Philippines as a foreigner:

Pros:

Cons:

Pros of Starting Foreign Companies in the Philippines

A Large Market

With a population of over 100 million, the Philippines offers numerous opportunities for any enterprising businessman to sell his products and services. Filipinos have an affinity for Western culture and are famously consumer-driven. Foreigners would have an easier time adjusting here compared to other Southeast Asian countries like Thailand and Indonesia.

Despite the great income disparity between population sectors, a smart entrepreneur can profit by honing in on and marketing to specific segments. In addition, locating your business in the Philippines allows you to take advantage of the greater ASEAN and Asia-Pacific markets.

Low-Cost, Talented Labor

Naturally hardworking, Filipinos are the dream employees of every company. Each year, the country’s universities and colleges add thousands of graduates to an already large labor pool. This has been – and still is – a boon to the business process outsourcing (BPO) sector, with the average Filipino’s good command of the English language and excellent communication skills.

Salaries in the country are also much lower compared to North America and European countries. With the exchange rate hovering at around PhP 50 to USD 1, foreign companies in the Philippines definitely get more bang for their (payroll) buck.

Good-Enough Infrastructure

Despite being an archipelagic country, the main islands of the Philippines are surprisingly well-connected to each other and the outside world. Large cargo shipments mostly utilize the seaports, while smaller ones go through the various airports dotting the major cities.

Within the greater metropolitan Manila area, the key business hubs are Makati City, Bonifacio Global City (BGC), and Ortigas Center. Rivaling the likes of Hong Kong and Singapore, these places boast of state-of-the-art, eco-friendly communities that bring residents and businesses together.

While there remains a lot to be done to improve the country’s infrastructure, President Rodrigo Duterte has recently initiated the “Build, Build, Build” program to fast track major infrastructure projects that would benefit both local and foreign companies in the Philippines.

Incentives from the Government

The Philippine government, through the Board of Investments (BOI) and Philippine Economic Zone Authority (PEZA), provides several incentives to attract foreign investments, especially into priority areas and industries marked for development.

Fiscal incentives include income tax holidays, tax exemptions and deductions, and preferential rates on the final tax of gross income (for PEZA-registered companies). Among the non-tax incentives are simplification of customs procedures for imported products, issuance of resident visas to foreign investors and their families, and the privilege to operate a bonded trading or manufacturing warehouse.

If it’s your first time to open an foreign-owned company in the Philippines, don’t forget to avail of these goodies!

Cons of Starting Foreign Companies in the Philippines

More Holidays in the Philippines

The Philippines has 18 official non-working holidays. Many of these are of great cultural significance, such as Christmas, New Year, the Christian Holy Week, and All Souls’ Day.

On the other hand, these holidays provide a ready-made, annually-occurring boon to consumer-oriented businesses. Marketing your products and services could not become any easier, with the extended Christmas season in the Philippines that unofficially starts in September and ends in February.

The Law Favors the Laborer

Most of the labor laws in the Philippines are geared to favor employees over management. For example, companies cannot simply fire underperforming employees at will. Before fully terminating someone, the employer has to prove first that the staff member concerned was at fault or failed to pass the standards of his/her probationary period. Companies are also mandated by Philippine law to provide severance pay and 13th-month pay.

These conditions may seem unfair to some, but overall such laws have contributed to higher morale and a lower turnover rate among Filipino employees compared to their foreign counterparts. That is something any smart businessman would appreciate.

Heavy Traffic

Sad to say, the Philippines lacks any kind of efficient mass transportation system. According to the Asian Development Bank, Metro Manila tops the list of 278 most congested cities in developing Asia. The sheer volume of public utility buses, jeepneys, and private vehicles on its roads during work hours leads to slow-moving traffic at best and outright gridlock at worst.

The good news is that various skyways and expressways, as well as a new train line in the northern part of Metro Manila, are being built to ease the traffic situation. It may take some time, but things are bound to get better.

Despite the government-provided incentives mentioned above, some foreign businessmen still hesitate to shortlist the Philippines as an investment destination because of the restriction on foreign ownership of land. They may, however, own 40 percent of a corporation that owns land. Most businesses are allowed to be 100% foreign-owned. The Foreign Investment Negative List contains the limitations of foreign ownership mandated by the constitution and specific laws.

It must be noted that 100% foreign ownership of a company catering to the Philippine local market is allowed, subject to having a minimum paid-in capital of USD 200,000.00. An exemption may be obtained for foreign companies in the Philippines that employ a minimum of 50 direct employees or use advanced technology, for a minimum paid-in capital of USD 100,000.00.

Need Help with Starting Your New Business?

You may be discouraged by some of the cons we enumerated, but don’t be. The Philippines has been one of the fastest-growing economies in Asia, and it will continue to expand in the coming years. With its friendly people and climate, you have even more incentives to build your dream business here.

If you don’t know where (and how) to start, we at DAYANAN Business Consultancy are here to help. Contact us today.

Starting a Philippine Business as a Foreigner

Philippines Business Registration
Philippines Business Registration

It doesn’t not matter whether you’re a foreigner or a Filipino, it really is difficult to start a business in the Philippines.

Tips for foreigners who want to register a company in the Philippines

Do your homework! There are many restrictions on foreign equity ownership of businesses in the Philippines. The percentage of foreign ownership will also dictate the allowed number of foreign directors and officers of the company.

There are exceptions; up to forty percent Foreign ownership of educational institutions is allowed as stated in the 1987 Constitution and in the Foreign Invest Negative List; but Presidential Decree No. 176 issued in 1973 disallows any foreigner from being a director or officer of an educational institution.

The Philippines Foreign Investment List (which is revised every few years) states the restrictions on foreign ownership but does not provide any information on other restrictions which may apply to your business, such as the number of allowed foreign directors, officers, residency obligations, secondary licenses or the minimum paid-in capital requirements for certain industries.

Obtaining the necessary and correct information to register and run a business in the Philippines is a difficult task and entails inquiring with multiple government agencies with some giving outdated facts.

Anti Dummy Law

To avoid foreign ownership regulations many people try to find schemes to circumvent the Philippines Foreign Investment Act. All these schemes using nominee shareholders (anti-dummy law) or misstating the primary purpose of the business in the articles of incorporation are illegal.

Registering a Business on Your Own – Unless you’re a frequent visitor to Philippine government agencies, there is no way to be sure that the forms you downloaded from their website are current and that application processes and fees haven’t changed. The multiple visits to the SEC and frustrations will make you regret not having hired a Philippine business consultant to guide you and process your documents.

Local Business Permits

Once a business has been licensed to transact business in the Philippines by the SEC, the company must still register with the local municipality where its principal office is located (Mayors’ Permit), BIR, SSS, HDMF and PhilHealth.
The new Unified Registration Record (URR) touted by the SEC as incorporation made easier and faster does not simplify registration with any government entity as a business will still need to go each and every government office to register and process application forms. Only the government will benefit from the URR as they will use it to insure compliance in filings and payments of fees and taxes.

All businesses registered in the Philippines must comply with BIR (Bureau of Internal Revenue) regulations and file monthly, quarterly and annual reports as well as an audited financial statement. Bookkeeping may only be computerized by submitting a special request with the BIR.

Payroll is quite complicated in the Philippines and it’s essential to have an extensive knowledge of taxation and labor laws to correctly compute it.

Starting a Philippine business, contact Dayanan now, to discover how we can remove the annoyances and exasperation of doing business in the Philippines.

Ways around Philippines Foreign Investment Act

Many people ask how they may circumvent the Philippines laws on foreign ownership as stated in the foreign investment negative list.

Most inquires pertain to foreign ownership of land and foreign ownership of corporations engaged in retail business or where the foreign equity is restricted to 40% or less.

No legal solutions exist for a foreigner to own land in their own name or to own more than the legal percentage of a business allowed to him by law. The use of nominees with side agreements is illegal and is a violation of the Anti-Dummy Law.

The Department of Justice Opinion No. 165, Series of 1984 indicates what may determine that the Anti-Dummy Law is being violated:

•    That the foreign investor provides practically all the funds for the joint investment undertaken by Filipino businessmen and their foreign partner.
•    That the foreign investors undertake to provide practically all the technological support for the joint venture.
•    That the foreign investors, while being minority stockholders, manage the company and prepare all economic viability studies.

Foreign investors may think they are protected by side agreements naming them the beneficial owners, however when the time comes to use the agreement in court, they will discover that the agreement has no value being a document that violates the law.  Another common occurrence is for the foreign investor to find that the nominee has taken over the business or has sold all the business’s assets.

No matter what people may tell you, the best way to do business in the Philippines is to obey the foreign investment act regulations regarding foreign ownership. Shortcuts only equal unnecessary risks.

Foreign Ownership of Corporations in the Philippines

Foreign investors usually have the same rights as Filipino citizens and must register their businesses with the Securities and Exchange Commission (SEC) (corporation, partnership, branch office or representative office) or with the Department of Trade and Industry’s Bureau of Trade Regulation and Consumer Protection (sole proprietorship). Foreign ownership of corporations is defined in the Corporation Code of the Philippines. The Foreign Investment Act (R.A. 7042, 1991, amended by R.A. 8179, 1996) liberalized the entry of foreign investment into the Philippines.

Businesses with Foreign Investment Restrictions

Within the 1991 Foreign Investment Act (FIA) there are two negative lists also known as the “Foreign Investment Negative List” which defines the foreign investments which are limited or restricted by the constitution and specific laws. Negative List A & Foreign ownership is limited for reasons of security, defense, risk to health and morals and protection of small and medium scale enterprises. Negative List B

Domestic Corporations (subsidiary)

A registered company with at least 60% Filipino ownership is considered as having Philippine nationality; if more than 40% foreign-owned, it is considered a foreign owned domestic corporation.

More than 40% and up to 100% foreign ownership of a Domestic Market Enterprise is allowed as long as the paid-in capital is a minimum of USD 200,000.00. Employing a minimum of 50 direct employees or using advanced technology may allow a paid-in capital of less than USD 100,000.00 (R.A. 7042 as amended by R.A. 8179).**

Retail Trade Enterprises

100% foreign ownership is allowed for Philippine retail trade enterprises: (a) with paid-up capital of USD 2,500,000.00 or more provided that investments for establishing a store is not less than USD 830,000.00; or (b) specializing in high end or luxury products, provided that the paid-up capital per store is not less than USD 250,000.00 (Sec. 5 of R.A. 9762). No foreign equity is allowed in Retail Trade Enterprises with less than the above mentioned capital.

Export Businesses

An export enterprise is defined as a business who exports at least 60% of its output.
Export Business Enterprises may be 100% fully foreign owned and may file with the SEC for an exemption of the paid-up capital requirement of USD 200,000.00.
KPO, BPO, Back Office, IT, Web Development and call centers are all considered Philippines Export Enterprises.

** Unless otherwise indicated in the Philippine Foreign Investment Negative List

Foreign ownership of land in the Philippines