How to Set Up a Business in the Philippines as a Foreigner: A Step-by-Step Guide

The first step in setting up a business in the Philippines as a foreigner is to determine whether the intended activity is open to foreign equity. Under Republic Act No. 11647, which amended the Foreign Investments Act of 1991, the Foreign Investment Negative List identifies areas of economic activity where foreign ownership is limited to a maximum of forty percent (40%) of the equity capital. If the activity is not on the list, a foreigner may generally own up to 100% of a domestic corporation. Once cleared, the incorporators reserve a corporate name with the Securities and Exchange Commission (SEC), file articles of incorporation, and secure the certificate of incorporation.

Determine whether the business is open to foreign ownership

The Foreign Investment Negative List is the starting point. Under Republic Act No. 11647, it is a list of areas of economic activity whose foreign ownership is limited to a maximum of forty percent (40%) of the equity capital of the enterprises engaged therein. Activities outside the list are generally open to full foreign ownership.

The law also defines a domestic market enterprise as one that produces goods for sale or renders services to the domestic market entirely, or that does not export sixty percent (60%) or more of its output. An export enterprise, by contrast, exports sixty percent (60%) or more of its output.

A Philippine national is a citizen of the Philippines or a domestic partnership or association wholly owned by citizens of the Philippines; or a corporation organized under Philippine laws of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines. This definition matters because many activities require the enterprise to be a Philippine national.

Understand what counts as doing business

Under Republic Act No. 11647, doing business includes soliciting orders, service contracts, opening offices whether liaison offices or branches, appointing representatives or distributors operating under the full control of the foreign corporation, participating in the management, supervision or control of any domestic business, and any other act that implies a continuity of commercial dealings.

The same law lists acts that are not deemed doing business, including mere investment as a shareholder in duly registered domestic corporations, having a nominee director or officer, appointing a representative or distributor who transacts business in their own name and account, and collecting information in the Philippines.

Choose the right vehicle

A foreign corporation may operate through a branch office, which carries out the business activities of the head office and derives income from the host country, or a representative or liaison office, which deals directly with the clients of the parent company but does not derive income from the host country and is fully subsidized by its head office.

Foreigners may also incorporate a domestic corporation. Under the Revised Corporation Code, any person, partnership, association or corporation, singly or jointly with others but not more than fifteen (15) in number, may organize a corporation for any lawful purpose. Incorporators who are natural persons must be of legal age, and each incorporator of a stock corporation must own or be a subscriber to at least one (1) share of the capital stock.

A corporation with a single stockholder is considered a One Person Corporation. Stock corporations are not required to have a minimum capital stock, except as otherwise specifically provided by special law.

Register the corporation with the SEC

Under the Revised Corporation Code, a person or group of persons desiring to incorporate submits the intended corporate name to the SEC for verification. If the name is distinguishable, not protected by law, and not contrary to law, rules and regulations, it is reserved in favor of the incorporators.

The incorporators then submit their articles of incorporation and bylaws. If the SEC finds the documents fully compliant, it issues the certificate of incorporation. A private corporation organized under the Code commences its corporate existence and juridical personality from the date the SEC issues the certificate of incorporation.

The articles of incorporation must contain specified matters, including the corporate name, the specific purpose or purposes, the place of the principal office within the Philippines, the names, nationalities, and residence addresses of the incorporators, and the number of directors, which shall not be more than fifteen (15).

Comply with post-registration requirements

After incorporation, the directors must formally organize and elect a president, who must be a director; a treasurer, who must be a resident; and a secretary, who must be a citizen and resident of the Philippines. No one shall act as president and secretary or as president and treasurer at the same time, unless otherwise allowed in the Code.

Within thirty (30) days after the election of the directors, trustees and officers, the secretary or any other officer must submit to the SEC the names, nationalities, shareholdings, and residence addresses of the directors, trustees and officers elected.

A corporation must formally organize and commence its business within five (5) years from the date of its incorporation, or its certificate of incorporation shall be deemed revoked as of the day following the end of the five-year period.

Frequently asked questions

Can a foreigner own 100% of a Philippine corporation? Yes, if the intended activity is not on the Foreign Investment Negative List. Under Republic Act No. 11647, the Negative List covers areas where foreign ownership is limited to a maximum of forty percent (40%) of the equity capital.

What is the minimum number of incorporators? Under the Revised Corporation Code, not more than fifteen (15) persons may organize a corporation. A corporation with a single stockholder is considered a One Person Corporation.

Does a corporation need a minimum capital stock? Stock corporations are not required to have a minimum capital stock, except as otherwise specifically provided by special law.

Practical takeaways

• Check the Foreign Investment Negative List first: if the activity is listed, foreign ownership is limited to a maximum of forty percent (40%) of the equity capital.
• Reserve the corporate name with the SEC, then file the articles of incorporation and bylaws.
• Elect a president who is a director, a resident treasurer, and a secretary who is a citizen and resident of the Philippines.
• Report the elected directors, trustees and officers to the SEC within thirty (30) days after election.
• Commence business within five (5) years of incorporation, or the certificate of incorporation may be deemed revoked.

Primary sources

The rules discussed above are drawn from the following primary sources, as published in the Official Gazette and the national statute book.

• REPUBLIC ACT NO. 11232 - AN ACT PROVIDING FOR THE REVISED CORPORATION CODE OF THE PHILIPPINES

• IRR OF REPUBLIC ACT NO. 11647 - IMPLEMENTING RULES AND REGULATIONS OF REPUBLIC ACT NO. 11647 OR AN ACT PROMOTING FOREIGN INVESTMENTS, AMENDING THEREBY REPUBLIC ACT NO. 7042, OTHERWISE KNOWN AS THE "FOREIGN INVESTMENTS ACT OF 1991", AS AMENDED, AND FOR OTHER PURPOSES

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.