Share Transfer in a Philippine Company to a Foreign Buyer: Rules and Steps

A foreign buyer may acquire shares in a Philippine corporation, but only within the limits set by the Constitution and special laws. Under the Revised Corporation Code, shares of stock may be transferred, and the corporation's articles of incorporation must carry a restriction where the corporation engages in a business reserved for Filipino citizens. The transfer itself is a private act between seller and buyer, but the corporation must record it in its stock and transfer book before the buyer is recognized as a stockholder. Tax consequences also attach, particularly the capital gains tax on shares not traded in the stock exchange.

Who may buy shares in a Philippine company

Philippine law does not prohibit foreigners from owning shares in a domestic corporation. The Revised Corporation Code allows corporations to be organized by any person, and stockholders may be natural or juridical persons.

The limit is not on the act of buying but on the nationality mix of the corporation's capital. Where a corporation engages in a business or activity reserved for Filipino citizens, the articles of incorporation must contain a restriction that no transfer of stock or interest may reduce Filipino ownership below the percentage required by existing laws. This restriction must also appear on all stock certificates issued by the corporation.

The Revised Corporation Code also directs corporations to classify shares when needed to comply with constitutional or legal requirements. This is how companies in partly nationalized industries — such as those covered by the Foreign Investments Act of 1991 and the Anti-Dummy Law — keep Filipino ownership at the required level while still allowing foreign equity in the permitted portion.

The ownership thresholds that apply

The Revised Corporation Code itself does not set a single foreign ownership percentage. Instead, it defers to the Constitution and special laws. The Code provides that the Securities and Exchange Commission may disapprove articles of incorporation or amendments where the required percentage of Filipino ownership of capital stock under existing laws or the Constitution has not been complied with.

In practice, this means the allowable foreign shareholding depends on the industry. Some activities are fully reserved to Filipinos; others permit minority or majority foreign participation. A foreign buyer should confirm the applicable threshold before signing any transfer document, because a transfer that breaches the limit cannot be validly recorded in the corporation's books.

How the transfer is documented and recorded

A share transfer in a Philippine corporation generally follows these steps:

1. Confirm the ownership limit. Determine the maximum foreign participation allowed for the corporation's business.
2. Check the articles of incorporation and stock certificate. Look for the Filipino ownership restriction and any other transfer restrictions, including rights of first refusal.
3. Execute a deed of sale or transfer covering the shares, stating the number of shares, the consideration, and the parties.
4. Surrender the old stock certificate and have the corporation issue a new certificate in the buyer's name.
5. Record the transfer in the corporation's stock and transfer book. The corporation's records are what establish the buyer as a stockholder of record. Directors are elected from among holders of stock registered in the corporation's books.

A corporation may also issue shares without par value, which are deemed fully paid and nonassessable, provided they are issued for a consideration of at least Five pesos (P5.00) per share. This affects how the consideration is stated in the deed.

Tax treatment of the sale of shares

The National Internal Revenue Code, as amended by Republic Act No. 10963, imposes a final tax of fifteen percent (15%) on the net capital gains realized during the taxable year from the sale, barter, exchange, or other disposition of shares of stock in a domestic corporation — except shares sold or disposed of through the stock exchange. The same fifteen percent (15%) final tax applies to domestic corporations under Section 27(D)(2) of the Code.

This is a tax on the seller's gain, not on the buyer. The buyer's role is generally to withhold and remit where required. Shares listed and traded through the stock exchange are governed by a separate regime and are expressly excluded from this provision.

Because the tax is computed on net capital gains, the seller's acquisition cost matters. Records of the original purchase should be kept to establish the cost basis.

Frequently asked questions

Can a foreigner own 100% of a Philippine company? Only if the corporation's business is not reserved to Filipinos by the Constitution or a special law. Where the activity is partly or wholly reserved, foreign ownership is capped, and the articles of incorporation must carry the corresponding restriction.

Does the buyer or the seller pay the tax on the share sale? The fifteen percent (15%) final tax on net capital gains from shares not traded in the stock exchange is imposed on the seller. The withholding and remittance mechanics may place the administrative duty on the buyer or the withholding agent.

When does the foreign buyer become a stockholder of record? Only upon recording of the transfer in the corporation's stock and transfer book, and issuance of a new stock certificate in the buyer's name.

Practical takeaways

• A foreign buyer may acquire shares in a Philippine corporation, subject to the ownership limits in the Constitution and special laws.
• Where the corporation engages in a nationalized or partly nationalized activity, the articles of incorporation must contain a restriction on transfers that would reduce Filipino ownership below the required percentage.
• The transfer must be recorded in the corporation's stock and transfer book to make the buyer a stockholder of record.
• A fifteen percent (15%) final tax applies to net capital gains from the sale of shares in a domestic corporation not traded in the stock exchange, and this burden falls on the seller.
• Verify the industry-specific foreign ownership ceiling before executing any deed of transfer, since a prohibited transfer cannot be validly recorded.

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.

RR No. 17-2003 — Amends further pertinent provisions of RR Nos. 2-98, 8-98 and 13-99, as amended, by providing for additional transactions subject to Creditable Withholding Tax and re-establishing the policy that the Capital Gains Tax on the sale, exchange or other disposition of real property classified as capital assets shall be collected as a Final Withholding Tax (published in Manila Bulletin Open in Law LibraryDownload PDF

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

• REPUBLIC ACT NO. 10963 - AN ACT AMENDING SECTIONS 5,6, 24,25, 27, 31, 32, 33, 34, 51, 52, 56, 57, 58, 74, 79, 84, 86, 90, 91, 97, 99, 100, 101, 106, 107,108,109,110,112,114,116,127,12S, 129, 145, 148,149,151,155,171,174,175,177,178,179,180, 181, 182, 183,186,188,189,190,191,192, 193,194,195, 196, 197,232, 236,237,249, 254, 264,269, AND 288; CREATING NEW SECTIONS 51-A, 148-A, 150-A, 150-B, 237-A, 264-A, 264-B, AND 265-A; AND REPEALING SECTIONS 35,62, AND 89; ALL UNDER REPUBLIC ACT NO. 8424, OTHERWISE KNOWN AS THE NATIONAL INTERNAL REVENUE CODE OF 1997, 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.