As one of Asia’s hottest tourist destinations, more and more travelers visit the Philippines from time to time, creating various opportunities such as additional jobs, extra incomes, and business possibilities not only for Filipinos but for foreigners too. Foreigners who seek business partnerships and investments in the country is starting to find it less difficult as time goes by since foreign investment-related laws are being improved gradually which then serves as an encouragement to other nationals to have their businesses here. Of course, not to mention communication will never be a problem as Filipinos are one of the best English speakers in the world.
If you are (or if you know) a foreigner who is planning to have a partnership, investment, or solely own a business here in the country, there are a few things that you would need to understand and take note of. First of all, the Foreign Investments Act (RA No. 7042) has been created to implement a list of foreign ownership conditions including the type of business or industry and up to how many percent of the investment a foreigner is allowed to have. To give you an overview, in the 11th Regular Foreign Investment Negative List (signed by Pres. Rodrigo Duterte in October of 2018), it is stated that nonnatives are not allowed to have equity of a mass media, while they are allowed to fully own adjustment companies, lending businesses, and financing and investment houses. Naturally, there are other businesses, limitations, and conditions that are listed in the said Act.
Once you have figured out what kind of industry or company you would like to get into, it’s time for you to think about the kind of ownership you’d like to acquire. There are a few types of business ownership and if you are not sure which one to obtain, it is always a good decision to consult a lawyer. Nevertheless, below is a list of your choices:
- Sole Proprietorship. It is the simplest type of business wherein the owner has no legal separate existence from the business. All business returns and losses are taxed under the owner’s personal income tax return. It can operate under its owner’s name or a made-up business name (such as Alex’s Guitar Shop), which can be used as its trade name. In the Philippines, a foreigner cannot establish a solely owned business unless there is a huge investment involved: the capital required is no less than $200,000.00.
- Partnership. The difference between a partnership and sole proprietorship is that this type of business ownership is made up of two or more owners. It could be a general or limited partnership. A general partnership is where all of the owners have the authority to make decisions, manage, control, and run the whole business, basically, all of the owners/partners have even rights and power. This also means that each partner is equally accountable for the debts of the business. A limited partnership, on the other hand, requires a partnership agreement as a general partner and limited partner needs to be specified together with other conditions. The limited partner would serve the same purpose as an investor: he does not have the authority to manage the business. The most he or she can lose is his/her investment and he/she does not have total responsibility for the debts of the company. The general partner (or partners) are the ones responsible for managing the business, has control of running it, and has the right to make lawfully binding business decisions. They also have an unlimited personal obligation for the debts of the company.
- Corporation. A business is deemed a corporation if it consists of 5 to 15 owners (incorporators) who have their own stakes/stocks in the company. Same in a limited partnership, stockholders have limited accountabilities, which equates to their shared investment. If the majority or at least 60 percent of the shareholders are Filipino, then it is considered Filipino-owned.
It is vital to understand that there are certain limitations on foreign ownership when it comes to partnerships and corporations in the country. Under the Foreign Investments Act of 1991, foreign ownership is limited only to a maximum of 40 percent in selected trades and can even be as low as 20 percent in other industries. However, these restrictions are not applicable to export industries where at least 60% of its product is shipped overseas or if it acquires products domestically and export at least 60% of these products.
1. Register your company name. For sole proprietorship: register through the Department of Trade and Industry (DTI) which you can also do online; for partnership and corporation: register through the Securities and Exchange Commission (SEC) i-Register facility.
2. Get the required business permits from local government units where your business will be located. For sole proprietors: get a DTI Business Name Certificate; for corporations and partnerships: secure a SEC Certificate of Incorporation or Partnership.
If you will rent commercial space for the business, you need to secure a Contract of Lease. Otherwise, you need to secure a Land Title. If your business’ location is in a subdivision, condominium complex, or a village, a Homeowner’s Association Certificate is required.
3. Get a mayor’s permit. There are different requirements to get a mayor’s permit (depending on the municipality) nevertheless, the following are the basic requirements:
- Contract of lease
- Barangay clearance
- Occupancy permit
- Sanitary permit
- Fire permit
- Community tax certificate.
4. Secure a Certificate of Registration (COR) from the Bureau of Internal Revenue (BIR).
5. Ensure that your employees are registered with the government-mandated contributions – such as Social Security System (SSS), PhilHealth, Home Development Mutual Fund (HMDF)/PAG-IBIG, and BIR.
Business Registration Services in Manila, Philippines are not hard to find. Yap and Associates Law Office offers this kind of services so if you find registering your business to be confusing or time-consuming, contacting a lawyer is always a great choice.
Read more: Business Registration