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Everything you need to know about domestic corporations in the Philippines

Everything you need to know about domestic corporations in the Philippines

Registered under Philippine laws, a domestic corporation is the ideal business ownership structure for small- to medium-sized companies. As a domestic corporation, the company becomes its own legal entity. It will be responsible for its own debts and liabilities.
 
If you’re planning to start a domestic corporation, here’s what you need to know about company formation in the Philippines:
 

There are different types of domestic corporations

 
A domestic corporation can be classified as any of the following depending on its ownership as per the Foreign Investment Act of 1991:
 

  • 100% Filipino-owned domestic corporations – Such corporations can operate freely in any industrial sector or economic activity in the Philippines.

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  • Domestic corporations that have less than 40% of foreign equity and foreign-owned domestic corporations with less than 40.01% foreign equity – Corporations with foreign ownership have limited participation in the Philippine economy. They’re only allowed to operate in certain business fields including construction and repair of locally funded public works, schools, advertising, and exploration of natural resources.

 
Read more about the Philippine Negative Investment List here.
 

The minimum capital requirement depends on the foreign ownership

 
Before you can start a domestic corporation, you must have a certain amount of paid-up capital. This minimum capital requirement refers to the money received from shareholders in return for shares of your company’s stock. The amount of paid-up capital depends on the level of foreign ownership:
 

  • Domestic corporations that are 100% Filipino-owned or have less than 40% foreign equity have a minimum paid-up capital of P5,000 or $100. This also applies if your business exports 60% of your products.

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  • Domestic corporations with more than 40% of foreign ownership have a minimum capital requirement of $200,000.

 
Domestic corporations that have at least 50 Filipino citizens, are considered pioneers in their fields, or use advanced technology only need a minimum capital requirement of $100,000. This is regardless of the level of foreign ownership.
 

A domestic corporation must have a minimum of two incorporators

 
One of the most essential requirements to establish a domestic corporation is the number of incorporators. According to the Revised Corporation Code of the Philippines (Republic Act No. 11232), a domestic corporation must have at least two incorporators and a maximum of 15. The old Corporation Code stated that there needed to be at least 5 individual directors.
 
Each incorporator must have at least a share of the corporation’s capital stock. And while they don’t have to be Philippine citizens, the majority of the incorporators must be local residents.
 

A domestic corporation should have at least four officers

 
The following positions need to be filled: President, Corporate Secretary, Treasurer, and Compliance Officer. Each position, except the Compliance Officer, has its own set of requirements:
 

  • The President must be both a director and shareholder with at least one share.

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  • The Corporate Secretary must be a Filipino citizen that also resides in the Philippines.

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  • The Treasurer, who is in charge of managing the finances of the business, can be a foreigner but must also reside in the Philippines.

 

A domestic corporation must be registered with the Securities and Exchange Commission (SEC)

 
Unlike a sole proprietorship, which must be registered with the Department of Trade and industry), a domestic corporation must be registered with the Securities and Exchange Commission (SEC). The process can take around two to three months due to the required documents and forms.
 
The first step to establishing your domestic corporation is to register your business name with the SEC. You can even check the SEC website if your proposed business name is available.
 
Once approved, you’ll be given a Registration Certificate and a name verification slip. After your registration, obtain barangay clearance from the barangay of your business’ location and a business permit from the Mayor’s office.
 
The documents required are the following:
 

  • Articles of Incorporation and By-laws
  • Treasurer’s Affidavit
  • Proof of paid-up capital (Bank certificate)
  • Proof of address

 
For more information about how to register your corporation in the Philippines, click here.
 

Domestic corporations pay corporate income tax

 
The corporate income tax for domestic corporations amounts to 30% if the worldwide net taxable income.
 
Domestic corporations are also taxed differently, paying monthly or quarterly value-added tax (VAT). They can also pay monthly other-percentage tax (OPT or non-VAT).
 

FilePino is your go-to guide for starting a business in the Philippines

 
Let FilePino help you navigate the Philippine business landscape. Get in touch with us today at +63.917.892.2337 or contact us here for more information about starting a business in the Philippines.