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Establishing a Presence in the Philippines

Restrictions

Foreign companies are only permitted to invest in certain sectors, as other sectors are either closed to foreign investment, or subject to certain investment restrictions. Examples of restricted investment are provided below, but it is advisable to refer to Foreign Investment Negative List (FINL) for full details – the 10th list was amended in May 2015, with amendments limited to once every two years.

No foreign ownershipOwnership of between 20-40%
Mass mediaAdvertising
Retail trade enterprises with less than US$2.5 million investedExploration, development and utilisation of natural resources
Practising certain professions (e.g. pharmacy, law, radiology)Operation of public utilities and private lands
Manufacture, repair, stockpiling and/or distributing of nuclear weapons, biological, chemical and radiological weapons and anti-personal minesContracts for the supply of materials, goods and commodities to government owned or controlled corporation, company, agency or municipal corporation
 Manufacture, repair, storage and/or distribution of products and/or ingredients requiring Philippine National Police or Department of National Defence clearance

In the Philippines, there is the Anti-Dummy Law which penalises those who violate foreign equity restrictions and evade nationalisation requirements. It prohibits dummy or proxy arrangement to accomplish a transaction not allowed under Philippine law.

How to Establish a Presence

Numerous agencies regulate business registration and the indicates that it takes on average 28 days to start a business in the Philippines, ranking the country 171st out of 190 economies in that category.

The Securities and Exchange Commission (SEC) is the primary agency for administering the registration and operation of domestic corporations under the Corporation Code. The table below provides an overview of the different methods that a Hong Kong company can adopt and establish itself in the Philippines. However, it is also recommended that the following guides are also read for further information:

 RequirementsRegistration procedure
Corporation (stock or non-stock)
  • Form a Board of Directors comprising at least five members and not exceeding 15. The majority of members must be an ordinary resident of the Philippines and each member must hold at least one share.
  • Investment of between US$200,000 of share capital (or US$100,000 for employment of more than 50 people). To engage in retail business, the minimum investment capital is US$2.5 million.
  • Profits subject to Corporate Income Tax (CIT).
  • Registration with the SEC. A corporation becomes a separate legal entity from the date of issuance of a certificate of incorporation by the SEC.
  • Upon receipt of the incorporation certificate, a company must register with:
    • Bureau of Internal Revenue (BIR)
    • DTI
    • Social Security Authority (SSA)
Partnership
  • Can be either general partnerships (where partners have unlimited liability), or limited partnerships (where one or more general partners have unlimited liability. The liability of limited partners is capped at the amount of their capital contributions.
  • Most commonly used by professionals such as accountants and lawyers.
  • Profits subject to CIT.
  • Home Development Mutual Fund
  • Barangay Unit of the City or Municipality where the entity will operate 
  • BSP to facilitate the repatriation of investment and profits through the Philippine banking system
Sole Proprietor
  • One individual, who acts as the owner and director, and there is no nationality restriction.
  • No share capital required. 
  • Profits are subject to Personal Income Tax (PIT).
Registration with:
  • Bureau of Trade Regulation and Consumer Protection (part of the DTI)
    • BIR 
    • SSA
    • Barangay Unit of the City or Municipality where the entity will operate
Branch
  • Treated as an extension of the overseas head office
  • Requires the appointment of a country representative, who must be ordinary resident in the Philippines. 
  • Investment of US$200,000 (or US$100,000 for employment of more than 50 people).
  • Investment of US$2.5 million for engagement in retail business.
  • Profits from the Branch are subject to CIT.
  • Needs SEC registration as a Branch.
Representative Office
  • Not allowed to derive income in the Philippines and must be fully covered by its head office.
  • Only allowed to take part in market research and business promotion.
  • An initial inward remittance of US$30,000 needed to fund its operations.

Regional/Area Headquarters
  • An administrative branch not allowed to derive any income in the Philippines.
  • Expenses must be financed by the overseas head office. 
  • Requirement of an initial US$50,000 and the same amount in each subsequent year.
  • Exemption from all taxes and fees, including export and import duties.
  • Endorsed by the BOI to SEC. Registration with SEC must then follow.
Regional Operating Headquarters
  • Can derive income in certain qualifying services (e.g. marketing, general administration, business planning, logistics), but is not allowed to solicit or market goods/services.
  • Requirement of an initial US$200,000, but is not subject to annual remittance requirements.
  • Subject to a preferential 10% CIT.
  • Exemption from all taxes and fees, including export and import duties.

Upon registration, all companies must comply with the Philippines’ accounting standards (Philippine Financial Reporting Standards, which are IFRS with limited modifications) and must present Audited Annual Financial Statements and an Annual Return. These must be filed with the BIR and SEC.

Business Incentives

The Philippines offers a number of incentives to encourage investment in specific areas, and Hong Kong companies may be able to take advantage of these incentives. The Investment Priority Plan (IPP) details the investments in which incentives are available [latest IPP 2017]. To benefit from these incentives, a Hong Kong company is required to register with the relevant organisations, and a full list of these organisations can be found on the Government’s Invest in Philippines website. The key organisations to be aware of however, are:

  • Board of Investments (BOI) – provides incentives to companies independent of their locations within the Philippines.
  • Philippine Economic Zone Authority (PEZA) – provides incentives to companies located in special economic zones to promote investments in export-oriented manufacturing and service facilities.

The incentives offered are similar under the BOI or PEZA with fiscal and non-fiscal benefits available as follows:

Fiscal
  • Tax holiday (i.e. no CIT payable) for up to eight years
  • Upon expiry of the tax holiday – 5% Special Tax on Gross Income
  • Exemptions from taxes, duties and fees
Non-fiscal
  • Employment of foreign nationals
  • Simplified customs procedures
  • Privilege to operate a bonded warehouse

BOI

The BOI offers incentives to companies in the following projects:

  • Business Process Outsourcing (BPO)
  • Electronics Industry
  • Renewable Energy
  • Shipbuilding

A Hong Kong company can register for BOI incentives through the BOI website, with the turnaround time of around 5-21 days. However, certain conditions must be met, which vary depending on whether the company established is export orientated or focused on the domestic market.

Company is export orientatedDomestic market
  • Whether pioneer or non-pioneer, the company must be 60% Filipino and 40% foreign, exporting at least 50% of sales.
  • If more than 40% foreign owned, the company must export at least 70% of sales.
  • The concerned economic activity must be listed as a priority investment.
  • If the company has pioneer status the company can be 100% foreign owned. 
  • If not pioneer status, the company can only be 40% foreign owned.

PEZA

Economic activities eligible for investment are detailed on the PEZA website and include export manufacturing, IT service export, tourism and logistics and warehouse services. Registration for PEZA incentives is submitted through a PEZA application form, which is evaluated and reviewed by the PEZA board. The turnaround time varies and is dependent on the availability of the PEZA board. Before making registration, companies should ensure they are eligible and the following conditions must be met:

  • 100% export regardless of ownership
  • If selling to the domestic market, the company must obtain approval from PEZA, with sales to the domestic market pay mostly limited to 30% to 50%
  • Located in the special economic zones

 

A Practical Guide to Doing Business in the Philippines

  1. Regulatory Environment
  2. Establishing a Presence
  3. Intellectual Property Protection
  4. Staff Recruitment
  5. Tax Considerations
  6. Import/Export Procedures
  7. Further information


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