Setting Up a Business in the Philippines as a Chinese Investor: A Step-by-Step Guide

A Chinese investor may set up a business in the Philippines by incorporating a domestic corporation with the Securities and Exchange Commission (SEC), observing foreign ownership limits under the Foreign Investments Act, and registering inward investments with the Bangko Sentral ng Pilipinas (BSP) through an authorized agent bank. A corporation may be formed by up to fifteen incorporators, each of whom must own or subscribe to at least one share. Corporate existence begins on the date the SEC issues the certificate of incorporation.

Step 1: Determine Whether the Investment Is Allowed

The Foreign Investments Act, as amended, governs foreign equity in Philippine enterprises. The Foreign Investment Negative List (FINL) lists areas of economic activity where foreign ownership is limited to a maximum of forty percent (40%) of equity capital. A Chinese investor should first confirm whether the intended activity falls under the Negative List.

Where an activity is open to full foreign participation, the investor may hold up to 100% of the shares. Where it is not, the corporation must meet the required Filipino ownership percentage. Under the law, a Philippine national includes a corporation organized under Philippine laws of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned by Filipino citizens. The control test applies: full beneficial ownership of stocks, coupled with voting rights, is essential, and voting rights transferred to aliens cannot be counted as Filipino-held.

Step 2: Incorporate with the SEC

A corporation is an artificial being created by operation of law, with the right of succession and powers expressly authorized by law or incidental to its existence. Under the Revised Corporation Code, stock corporations are not required to have a minimum capital stock, except as otherwise specifically provided by special law.

To incorporate, the intended corporate name is first submitted to the SEC for verification. If the name is distinguishable and not contrary to law, it is reserved in favor of the incorporators. The incorporators then submit the articles of incorporation and bylaws.

The articles of incorporation must state, among others:

• The corporate name;
• The specific purpose or purposes, indicating the primary and secondary purposes where there is more than one;
• The place of the principal office, which must be within the Philippines;
• The term of existence, if the corporation has not elected perpetual existence;
• The names, nationalities, and residence addresses of the incorporators and of the initial directors or trustees;
• For stock corporations, the authorized capital stock, number of shares, par value, and the names, nationalities, and residence addresses of the original subscribers, with the amount subscribed and paid by each.

The number of directors shall not be more than fifteen (15). Each incorporator of a stock corporation must own or be a subscriber to at least one share.

If the SEC finds the documents fully compliant, it issues the certificate of incorporation. A private corporation commences its corporate existence and juridical personality from the date the SEC issues that certificate.

Step 3: Register the Inward Investment with the BSP

Foreign investment means an equity investment made by a non-Philippine national in the form of foreign exchange or the monetary equivalent in Philippine pesos of other assets actually transferred to the Philippines and duly registered with the BSP.

Registration matters because it allows the investor to access foreign exchange resources of, or purchase foreign exchange from, authorized agent banks (AABs) for servicing and settlement of the investment. The Bangko Sentral Registration Document (BSRD) evidences BSP registration of investments.

Under BSP Circular No. 1192, certain inward investments are registered with the BSP through AABs upon reporting by the registering AAB, provided the applicable guidelines and supporting documents are complied with. These include equity securities issued onshore by residents that are listed at an onshore exchange, and peso time deposits with an AAB with a maturity of at least 90 days. Other investments, such as equity securities issued onshore by residents that are not listed at an onshore exchange, are registered directly with the BSP.

A registering AAB is a bank with authority to operate a foreign currency deposit unit that has been designated by the non-resident investor to report and monitor the investments. Foreign exchange inwardly remitted to fund investments registered through AABs must be converted to pesos, except where the investment is required to be funded by foreign exchange.

Repatriation of Capital and Remittance of Earnings

AABs may sell to the non-resident investor, or an authorized representative, the equivalent foreign exchange of peso sales or divestment proceeds and related earnings from BSP-registered investments, upon submission of a duly accomplished Application to Purchase FX and the required documents. For investments registered with the BSP, the BSRD is required; for investments registered through AABs, proof of receipt of the registering AAB's report or a Letter Advice from the registering AAB is required, depending on whether the selling bank is also the registering bank.

Frequently asked questions

Can a Chinese citizen own 100% of a Philippine corporation? Only if the intended business activity is not restricted under the Foreign Investment Negative List. If the activity is on the Negative List, foreign ownership is capped, generally at forty percent (40%) of equity capital.

How many incorporators are needed to set up a corporation in the Philippines? Any person, partnership, association, or corporation, singly or jointly with others but not more than fifteen (15) in number, may organize a corporation. A corporation with a single stockholder is considered a One Person Corporation.

Do I need to register my investment with the Bangko Sentral ng Pilipinas? Registration is what allows the investor to later purchase foreign exchange from authorized agent banks for repatriation of capital and remittance of earnings. Without it, servicing the investment through the banking system becomes difficult.

Practical takeaways

• Confirm first whether the target activity is on the Foreign Investment Negative List, because this determines the maximum foreign equity allowed.
• Incorporate with the SEC: reserve the corporate name, file the articles of incorporation and bylaws, and wait for the certificate of incorporation, which marks the start of corporate existence.
• Observe the share and board requirements: each incorporator must subscribe to at least one share, and the board may not exceed fifteen directors.
• Register the inward investment with the BSP, either directly or through a registering AAB, and keep the BSRD or proof of reporting for future repatriation and remittance.
• Structure the equity mix carefully where Filipino ownership is required, since only full beneficial ownership with voting rights counts toward the Filipino equity requirement.

Primary sources

The rules discussed above are drawn from the following primary sources. Where the firm's library holds the document as a PDF it is embedded here in full; the rest are cited by title.

Amendments to foreign exchange regulations covering foreign investmentsOpen in Law LibraryDownload PDF

• 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.