Types of business entities for foreign investors in the Philippines

Known for its strategic location, strong workforce, and openness to new ideas, the Philippines is a gold mine for business opportunities. That’s why many investors are looking to take advantage of the country’s dynamic market and set up their own business here.
 
Foreign investors are more than welcome to start their own business in the Philippines, provided that the nature of the activity and the amount of paid-up capital isn’t on the Foreign Investment Negative List. According to the Foreign Investments Act of 1991, “Foreign investments shall be encouraged in enterprises that significantly expand livelihood and employment opportunities for Filipinos” and “transfer relevant technologies in agriculture, industry and support services.”
 
Here’s a look at the types of businesses that foreign investors can form in the Philippines.

Local or domestic business

 
Foreign investors who are planning to start a local business may do so in two ways: by setting up a domestic corporation or a one-person corporation.

1. 1. Domestic Corporation Registered under Philippine laws, a domestic corporation has its own judicial personality and its own liabilities. As the Philippines does not provide for the creation of a Limited Liability Company (LLC) or Private Limited Company (PLC), a domestic corporation is the closest in concept to these two company types. There are three types of domestic corporations:
      • • Domestic corporation with 0% foreign equity – These corporations are 100% Filipino-owned and can freely operate in any economic activity and industry.
      • • Domestic corporation with less than 40% foreign equity
      • 100%Foreign-owned domestic corporation – This type of corporation is only allowed if the business meets the minimum required paid-in capital or number of direct employees, or brings in an advanced technology to the country. Establishing a foreign-owned domestic corporation is still subject to the Foreign Investment Act.

       
      Among the requirements of starting a domestic corporation is the number of incorporators. A domestic corporation must have at least two incorporators and at most 15, with each one having a share in the corporation’s capital stock.
       
      Domestic corporations require a certain amount of paid-up capital before it can be established. This amount, which depends on the level of foreign ownership, is the money invested by stockholders in return for shares in the company.

1. One-Person Corporation Another company structure that allows foreign investors to establish a business in the Philippines is a one-person corporation (OPC). The single stockholder who forms the OPC must be a natural person, trust, or estate. Since an OPC does not require a board of directors and shareholders, the single-stockholder becomes the director, president, and sole shareholder. Unlike a domestic corporation, there is no minimum capital stock required when forming an OPC. However, foreign nationals who establish an OPC may be subject to the applicable capital requirement and are limited to allowed business activities for foreigners

Expanding operations in the Philippines

 
For existing foreign corporations, there are several ways to bring your business to the country.

1. 1. Branch Office If you’re looking to expand your business in the Philippines without registering as a domestic corporation, a branch office is the best route. This company structure allows the ownership of the branch to remain with the foreign entity while carrying out the same business activities as the parent company. Income from the business may be earned inside and outside the Philippines. Foreign corporations that want to put up a branch office in the Philippines must register with the SEC (Securities and Exchange Commission), provide authenticated copies of the Articles of Incorporation, and submit financial statements for the preceding year at the time of filing the application.

1. 1. Representative Office Similar to a Branch Office, a Representative Office is also organized and exists under foreign laws. The difference lies in the income earned. A Representative Office isn’t allowed to earn from the host country, in this case, the Philippines. It is fully subsidized by its parent office or company instead.

1. 1. Regional Headquarters Foreign corporations that are engaged in international trade in the Asia-Pacific region can set up Regional Headquarters in the Philippines. Since Regional Headquarters are only meant to supervise its branches, subsidiaries, and affiliates in the Asia-Pacific region, it is not allowed to earn income or manage the operations.

1. Regional Operating Headquarters Regional Operating Headquarters are allowed to earn income from its services. Just like Regional Headquarters, Regional Operating Headquarters must be established by a foreign corporation with business in the Asia-Pacific region. Regional Operating Headquarters can earn income only from services rendered to entities owned by the parent company. It cannot make money from selling goods or services to any other entity or market. The allowed income-generating services include:
   • General administration and planning
   • Logistics
   • Technical support
   • Marketing and sales
   • Research and development
   • Business development

 
Do you need assistance in registering a corporation in the Philippines? FilePino offers a wealth of experience, access to extensive local resources, and the highest quality of service to help set up your business. Give us a call today at +1.806.553.6552 or contact us here.