Foreign Ownership in Philippine Business: Complete Guide to Rules and Restrictions

The Philippines welcomes foreign investment but maintains certain restrictions to protect national interests. This guide explains the rules, limitations, and opportunities for foreign nationals wanting to do business in the Philippines.

Constitutional Framework

The Philippine Constitution limits foreign ownership in certain areas:

• General Rule: Maximum 40% foreign equity in corporations
• Exceptions: 100% foreign ownership allowed in many sectors
• Prohibited Areas: Complete restriction in specific industries

The Foreign Investment Negative List (FINL)

The FINL specifies industries with foreign ownership restrictions, updated every two years.

List A: Constitutional and Legal Restrictions

No Foreign Equity (0%)

• Mass media (except recording)
• Practice of licensed professions*
• Retail trade (with exceptions)
• Cooperatives
• Private security agencies
• Small-scale mining
• Marine resources utilization
• Ownership of private lands
• Operation of cockpits
• Nuclear weapons manufacturing
• Biological/chemical weapons

*Exceptions for certain professions under reciprocity agreements

Up to 20% Foreign Equity

• Private radio communications network

Up to 25% Foreign Equity

• Private recruitment agencies
• Construction contracts for defense-related structures

Up to 30% Foreign Equity

• Advertising

Up to 40% Foreign Equity

• Natural resources exploration/development
• Private lands ownership
• Public utilities operation
• Educational institutions
• Culture, production of rice and corn
• Government procurement contracts
• Public utility franchises
• Ship ownership and operation

List B: Security, Defense, Health, and Moral Reasons

Up to 40% Foreign Equity

• Manufacture of firearms and explosives
• Manufacture of dangerous drugs
• Sauna and massage clinics
• Gambling (except PAGCOR)
• Domestic market enterprises with paid-up capital < $200,000
• Domestic enterprises with advanced technology or employ 50+ with capital < $100,000

Industries Open to 100% Foreign Ownership

Good news: Many sectors allow full foreign ownership!

• Export enterprises (at least 60% revenue from exports)
• IT and Business Process Outsourcing (BPO)
• Manufacturing (except restricted items)
• Renewable energy projects
• Tourism enterprises
• Most services sectors
• E-commerce (with conditions)
• Regional headquarters/offices

Legal Structures for Foreign Investment

1. Domestic Corporation (40% Foreign Equity)

Most common structure when sector has restrictions.

Requirements:

• Minimum 5 incorporators
• Maximum 40% foreign ownership
• Filipino majority in board of directors
• SEC registration required

2. 100% Foreign-Owned Domestic Corporation

For allowed sectors only.

Requirements:

• Minimum paid-up capital: $200,000
• SEC registration
• Can own land through lease (max 75 years)
• Subject to nationality restrictions

3. Branch Office

Extension of foreign corporation.

Requirements:

• Minimum capital: $200,000
• SEC license required
• Limited to parent company activities
• Cannot own land
• 30% branch profit remittance tax

4. Representative Office

For non-income generating activities.

Allowed Activities:

• Information dissemination
• Quality control
• Liaison activities
• Market research

Requirements:

• Minimum capital: $30,000
• Cannot generate income
• SEC registration

5. Regional Headquarters (RHQ)

Supervisory and support services to affiliates.

Benefits:

• Tax exemptions available
• Can earn income from services
• Multiple entry visas for expats

Requirements:

• Minimum capital: $50,000
• Cannot earn from Philippine sources

6. Regional Operating Headquarters (ROHQ)

Can earn income from qualified services.

Benefits:

• 10% preferential tax rate
• VAT exemption
• Tax-free importations

Requirements:

• Minimum capital: $200,000
• Services to affiliates only

7. One Person Corporation (OPC)

Newest option for solo foreign investors.

Advantages:

• Single stockholder allowed
• 100% foreign ownership (if allowed)
• No board of directors
• Simpler compliance

Special Investment Areas

PEZA (Economic Zones)

• Income tax holiday (4-8 years)
• 5% tax on gross income after
• VAT zero-rating
• Duty-free importations
• Simplified procedures

BOI (Board of Investments)

• Pioneer status incentives
• Income tax holidays
• Additional deductions
• Employment incentives

Clark and Subic Freeports

• Liberal foreign ownership
• Tax incentives
• Developed infrastructure
• Streamlined procedures

Capital Requirements

| Structure | Minimum Capital | |-----------|----------------| | Domestic corp (40% foreign) | None specified | | 100% Foreign corp | $200,000 | | Branch office | $200,000 | | Representative office | $30,000 | | RHQ | $50,000 | | ROHQ | $200,000 |

Note: Lower capital allowed for:

• Export enterprises (60%+ exports)
• Advanced technology companies
• Companies employing 50+ workers

Work Visa Requirements

Foreign investors and employees need proper visas:

9(g) Pre-Arranged Employment Visa

• For foreign employees
• Valid 1-3 years
• Requires ACR I-Card
• Can bring dependents

Special Investor's Resident Visa (SIRV)

• For investors ($75,000 minimum)
• Indefinite stay allowed
• Multiple entry privileges
• Can include family

PEZA Visa

• For economic zone workers
• Simplified process
• Shorter processing time

Banking and Finance

Opening Bank Accounts

Foreign-owned companies can open accounts with:

• Proof of SEC registration
• Board resolution
• Valid IDs of signatories
• Proof of address

Remittances and Repatriation

• Capital repatriation allowed
• Profit remittance permitted
• Register investments with BSP
• Follow foreign exchange rules

Common Pitfalls to Avoid

1. Nominee Arrangements

   • Using Filipino nominees illegally
   • Anti-dummy law violations
   • Severe penalties apply

2. Incorrect Structure

   • Choosing wrong entity type
   • Violating ownership limits
   • Operating outside scope

3. Visa Violations

   • Working on tourist visa
   • Expired permits
   • Improper conversions

4. Tax Issues

   • Not understanding obligations
   • Missing treaty benefits
   • Transfer pricing problems

Step-by-Step Process

For 100% Foreign-Owned Corporation:

1. Check FINL - Ensure business is allowed
2. Prepare capital - $200,000 minimum
3. Name reservation - With SEC online
4. Incorporate - File with SEC
5. Deposit capital - In Philippine bank
6. Obtain permits - Local and national
7. Register with BIR - Get TIN
8. Secure visas - For foreign workers

Timeline: 4-6 weeks

Success Stories

Many foreign companies thrive in the Philippines:

• BPO giants (Accenture, Convergys)
• Manufacturing (Texas Instruments, Intel)
• Renewable energy (numerous players)
• IT companies (global firms)

Practical Tips

1. Get Legal Advice

   • Philippine law is complex
   • Regulations change frequently
   • Avoid costly mistakes

2. Choose Location Wisely

   • Consider economic zones
   • Check local government efficiency
   • Assess infrastructure

3. Build Relationships

   • Understand Filipino culture
   • Hire local talent
   • Engage with community

4. Plan for Growth

   • Start with right structure
   • Consider future needs
   • Build scalable systems

Recent Developments

Liberalization Efforts

• Retail Trade Liberalization Act (2022)
• Foreign Investment Act amendments
• Public Service Act amendments
• CREATE Law tax reforms

Upcoming Changes

• Further FINL revisions
• Digital economy regulations
• Ease of doing business reforms

Conclusion

While the Philippines maintains some foreign ownership restrictions, opportunities abound for international investors. Success requires understanding the rules, choosing the right structure, and navigating requirements properly.

The key is preparation and compliance. With proper guidance, foreign investors can establish thriving businesses that benefit from the Philippines' strategic location, skilled workforce, and growing economy.

Need help with foreign investment registration? Philfile specializes in assisting foreign investors with Philippine business registration, from structure selection to complete SEC filing. Contact us for expert guidance!