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Establishing a firm in the Philippines can prove advantageous over the long haul if aligned with your entrepreneurial objectives and tailored to harness the unique opportunities the nation offers. Located in Southeast Asia, the Philippines boasts a diverse cultural tapestry and a distinct business ethos, influencing its receptivity to various business models and strategic approaches.

The economic landscape of the Philippines is marked by robust growth. Expert projections anticipate a GDP increase of 5.6% by the end of 2023, signalling a fertile ground for foreign investors to initiate or expand their business ventures. Notably, the revised Corporate Code enacted in 2019 aims to streamline company formation processes and minimize bureaucratic hurdles.

Venturing into the Philippine market offers prospects for tapping into the affluent Asian markets. Nonetheless, investment decisions should be grounded on thorough consideration of numerous critical factors, including business objectives, familiarity with local statutes and regulations, market competition, and a balanced evaluation of the risks and rewards linked to establishing a presence in the Philippines.

This guide outlines the primary steps and prerequisites for setting up a business entity in the Philippines.

Advantages of establishing a business in the Philippines

The Philippines is a strategic choice for multinational corporations seeking to broaden their operations in Asia and serve as an outsourcing hub for Western entities. The country presents several compelling attributes:

  • Location: positioned at the heart of Southeast Asia, the Philippines serves as an ideal springboard for accessing regional markets and facilitating business expansion into neighbouring states.
  • Workforce: with an abundant pool of proficient professionals in sectors like IT and healthcare, the Philippines is well-suited for outsourcing various services, including technical support and software development.
  • Cost-effective labour: the relatively low labour costs in the Philippines make it a competitive option for many international firms.
  • Language proficiency: as one of the largest English-speaking populations globally, the Philippines ensures ease of communication and collaboration with Western businesses.

These advantages have positioned the Philippines as a favourable locale for startups and multinational enterprises seeking expansion and operational efficiencies.

Navigating the business landscape in the Philippines

The Philippines features a distinct legal framework that governs business operations. It's essential to understand that legal stipulations may vary based on business type, size, and geographical location. Here is a broad overview of the regulatory climate:

Tax responsibilities:
  • It is crucial to register with the BIR and adhere to regular tax obligations.
  • Special provisions exist for foreign investors, potentially necessitating engagement with the FIPB.
Licensing and approvals:

Various business categories necessitate specific licenses and permits from local and national government bodies.

Intellectual property:

The protection of intellectual property in the Philippines falls under the purview of the IPOPHL.

For a detailed understanding of applicable laws and regulations, consulting experienced legal advisors or business consultants is recommended.

Restrictions on foreign ownership

The business environment in the Philippines includes specific limitations concerning the proportion of foreign equity in certain industries. The nation enforces regulations on foreign investments and limits foreign involvement in select economic sectors. Major restrictions include:

  • Land: foreign entities are prohibited from owning land, although they may form corporations to acquire limited areas for operational use.
  • Media and communications: regulations restrict foreign equity in media and communications enterprises.
  • Education: the education sector maintains constraints on foreign ownership to ensure control by local stakeholders.
  • Transportation: the aviation and maritime sectors impose limits on foreign investments.
  • Pharmaceuticals: investment restrictions may also apply in the pharmaceutical sector.

Foreign investors' participation is typically capped between 25-40% in these areas, and compliance with the regulations set forth by the Philippine Board of Investments is mandatory.

Attention is drawn to the importance of selecting a trustworthy legal representative to provide expert guidance and support for your investment endeavours in the Philippines throughout every phase of your business venture.

Corporate formation in the Philippines in 2024

Prior to establishing a corporate entity in the Philippines, it is crucial to comprehend the variety of available business structures. A thorough understanding of the advantages and limitations of each type will assist in determining the most appropriate corporate form for your business objectives.

Type

Description

Requirements

Capital

Restrictions

National Corporation

A business organization incorporated in the Philippines, with a legal identity separate from its founders. Foreign equity registration allowed.

Minimum of two founders.

 At least one director.

A secretary.

Physical office in the country.

100% Filipino owned or 60% Filipino and 40% foreign (min. capital of $100).

More than 40% foreign ownership requires $200K*.

Subject to ownership restrictions in sectors listed in the FINL**

One Person Corporation (OPC)

Introduced in 2019 to support MSMEs. Has a single shareholder who is also the director.

Single

shareholder.

Registered office address in the country.

$100 if majority of revenue is from abroad.

$200K if majority of revenue is from domestic sources.

Restricted in sectors listed in the FINL if owned by non-residents.

Branch

Extension of a foreign corporation to engage in income-generating activities in the Philippines.

One local agent.

Physical office in the Philippines.

N/A

No separate legal entity from the parent foreign company.

Representation Office

For foreign companies to establish communication, contact, or marketing offices.

Physical office in the Philippines.

N/A

No commercial activities. 

Not eligible for tax credits.

No separate legal entity.

Regional Headquarters (RHQ)

Coordinates administrative functions of subsidiaries worldwide, usually through a back office.

One resident agent.

Registered office in the country.

N/A

Cannot manage or conduct business with local clients.

No income generation.

No separate legal entity.

Regional Operations Headquarters (ROHQ)

Established to perform revenue-generating services for subsidiaries globally.

Physical office in the Philippines.

N/A

Cannot offer services to third parties or sell goods/services on behalf of related organizations.

No separate legal entity.

*Capital reduction to $100K is possible for entities engaging in advanced technology or employing at least 50 local staff.

**FINL: FDI Negative List  — sectors where foreign ownership and participation are restricted or prohibited.

To streamline the business establishment process, engaging professional business consultants specializing in legal support within the Philippines is advisable.

Phases of company incorporation in the Philippines

To establish a corporation in the Philippines, several legal procedures are required:

  1. Selection of the company structure.
  2. Securing approval for a distinct corporate name.
  3. Completion of registration, which involves the preparation of specific documentation and the payment of relevant fees.

Following these initial registration procedures, the entity must proceed to initiate a corporate bank account within the Philippines. Depending on the nature of the business and its location, various local authorizations and licences may be necessary, with stipulations differing across municipalities.

Should you engage local personnel, it is obligatory to register the business as an employer with pertinent governmental bodies, including the DOLE and the SSS.

It is imperative for foreign investors to obtain expert legal guidance regarding the regulations governing foreign investments in the Philippines to ensure adherence to all statutory requirements and to facilitate the corporate establishment process.

Tax framework 

Prior to launching a venture in the Philippines, understanding the local tax environment is essential.

  • Corporate tax stands at 25%, with a potential reduction to 10% under certain conditions.
  • VAT is levied at 12%, although specific transactions may be zero-rated or exempt.
  • Dividend tax is imposed at 15%.

Tax concessions or exemptions may be available under relevant tax agreements. Local business taxes vary by location but generally do not exceed 3%.

Incorporating a business or acquiring an existing entity within one of the Philippines' free economic zones is often more advantageous. These zones offer incentives such as exemption from corporate taxes, absence of export/import duties, and streamlined registration and licensing processes.

Furthermore, the Philippines has designated various types of economic zones including agro-industrial zones, free ports, IT parks, and industrial zones.

The country has established a Strategic Investment Priorities Plan (SIPP), which extends various fiscal and additional incentives to export-driven enterprises and businesses involved in strategic sectors. Such incentives include:

  • Reduction in duties on capital goods, parts, and accessories;
  • Exemption from export taxes and duties;
  • Application of zero VAT rates.

Compliance and financial reporting 

The PFRS, aligned with the IFRS, governs financial disclosures in the country. Entities are required to maintain precise and comprehensive accounting records, including a balance sheet, income statement, and statement of cash flows, among others.

Businesses must also uphold accurate tax reporting and adhere to the requirements set by the Bureau of Internal Revenue (BIR). Audits are mandatory for certain corporations, particularly large entities and publicly traded companies, and auditors must be accredited by the Board of Auditors of the Philippines.

Corporations are also obligated to submit annual reports and financial statements to the Securities and Exchange Commission to comply with capital market regulations. Timely filing of financial and tax reports is crucial to avoid penalties and legal challenges.

Preferred sectors for FDI

Foreign enterprises in the Philippines are predominantly engaged in a select number of industries.

1

IT sector

The Philippines stands as one of the leading global hubs for information technology and outsourcing services. This sector draws significant interest from international firms from the United States, Europe, and beyond for several compelling reasons:

  • Workforce proficiency: the country's large pool of English-speaking professionals makes it appealing to clients and companies from English-speaking nations, enabling high-quality IT services.
  • Cost efficiency: competitive labour costs in the Philippines attract numerous foreign businesses seeking to minimize expenses in IT development and support.
  • Educational infrastructure: the Philippines boasts a robust education system with numerous institutions cultivating skilled IT professionals, thereby enriching the sector's human resources.
  • Government incentives: various incentives, including tax reliefs, are offered to encourage foreign investments in the IT startups.
  • Infrastructure development: continuous improvements in IT infrastructure, including faster internet connectivity and modern office spaces, enhance the attractiveness of the Philippines for IT companies.

These elements position the Philippines as a pivotal player in the global IT and software development outsourcing market.

2

Export-import industry

The Philippines plays an active role in the global trade environment, offering diverse opportunities for export-import operations. Key aspects and advantages include:

  • SEZs: these zones provide special tax and customs advantages, facilitating the export and import of goods.
  • Developed logistics infrastructure: well-established ports, airports, and transport networks support efficient logistics for the export-import business.
  • Modern customs procedures: the country has implemented contemporary customs processes.
  • Access to major markets: free trade agreements with the United States and the European Union offer preferential treatment for exports to these significant markets.
3

Tourism industry

The Philippines, known for its cultural richness, natural beauty, and diverse outdoor activities, attracts tourists globally. FDIs primarily target the hospitality and tourism services sector. The development of infrastructure such as airports, roads, and ports is also prioritized to enhance accessibility and attractiveness for tourists.

Special tax breaks and other incentives are available in tourist economic zones, including income tax exemptions and property tax reductions.

4

Agriculture and renewable energy

Significant foreign investments are also channelled into agriculture and renewable energy. The extensive agricultural sector offers opportunities in food production and agro-processing, with governmental incentives supporting these investments. The renewable energy sector benefits from tax holidays and prioritized access to resources, reflecting its strategic importance.

Philippines investor Visa

The Special Investor's Resident Visa facilitates foreign investors and their families to live, work, and attain permanent residency in the Philippines. Investment options include:

  • Investment in government bonds or stocks approved by the Philippine Internal Revenue Service.
  • Direct capital investment in a Philippine company, typically linked with job creation for locals.
  • Investment in government-identified projects of national significance.

Investment criteria vary, but typically include a minimum investment threshold, job creation, contribution to economic development, the investor's reputation, and compliance with local legal and tax regulations.

Strategically positioned off Southeast Asia’s mainland, the Philippines integrates Eastern and Western business practices effectively. Establishing a business here can be strategically advantageous, aligning with specific entrepreneurial goals and strategies. Expert assistance is available through IQ Decision UK to support every phase of business initiation and company registration in the Philippines.