Home to one of the best performing economies in Southeast Asia in the recent years, the Philippines is attracting a lot of interest from investors. As a foreigner, here are some of the things you should know if you’re planning on starting a new business in the Philippines.
Different types of corporate entities
Before you open your business in the Philippines, it’s important to understand the difference between corporate entities in the country.
Your business is a sole proprietorship if there is only one individual (you) who fully owns and control the company. You reap the full benefits of the business and is responsible for all its liabilities and responsibilities. The law does not make a distinction between a sole proprietor’s personal affairs and business transactions; meaning that creditors may go after the properties and assets of the business, and as well as your own personal assets and property. However, if you are a foreigner starting a business as a sole proprietor in the Philippines, you may put up a business in industries where the Constitution and other laws do not put a restriction or limitation on ownership equity. In addition, for a foreigner to be able to start his own sole proprietorship business, he must be able to have a minimum paid in capital equal to USD$200,000.00. Otherwise, a setting up a corporation may be the only alternative method to do business, a foreigner can have up to 40% ownership in a corporation.
Unlike a sole proprietorship, a business partnership involves two or more individuals. It could be a general partnership, which entails unlimited liability, or a limited partnership, in which some of the business partners only have limited liability on par with their investment.
Partnerships are registered with the Securities and Exchange Commission if the capital exceeds three thousand pesos (3,000.00.)
Note that partnerships that are considered general professional partnerships (partnerships formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business) are subject to income tax as partners in a general professional partnership are be liable for income tax only in their separate and individual capacities.
A business is considered a corporation if it has 5 to 15 incorporators, each with their own stakes in the company. Like in a limited partnership, stockholders in a corporation have limited liability that is equal to their share capital.
If majority (60 percent) of the shareholders are Filipino, the corporation is considered Filipino-owned. Meanwhile, if the majority are foreigners, the corporation will then be classified as foreign-owned.
There are two types of corporations: stock and non-stock, the main difference being non-stock corporations do not issue shares. Corporations are regulated by the Securities and Exchange Commission (SEC).
Setting up a business as a foreigner in the Philippines can be a complicated process, which is why contacting your local chamber of commerce could be a big help. They can provide you with local market insight and set up networking opportunities.
Some of the national and international chambers of commerce in the Philippines include:
As a foreigner, there are several restrictions to owning and starting a business in the Philippines. Some of the restrictions are as follows:
For more information about foreign investment and ownership in the Philippines, check out this article.
A common route for plenty of foreign nationals is to partner with Filipino friends to start a Filipino-owned corporation (60-percent Filipino, 40-percent foreign in terms of ownership). Others marry a Filipino, who can either fully own the company, become their partner, or own 60 percent of the corporation.
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