Helping You Establish Your Business Entity in the Philippines Efficiently and Compliantly
The economy in the Philippines has rapidly grown in the last few years. Additionally, regulatory changes made the process of establishing a legal entity in the Philippines simpler. These important changes have motivated foreign investors to expand their business to the Philippines.
Companies seeking to enter the Philippines often elect to set up a legal entity in the country so that they can establish their legal presence and expand their business on their timeline. The local experts at New Horizons Global Partners help with every aspect of the company formation process. We consult with you on which business type will best fulfill the objectives of your business. You can rely on our industry knowledge to launch into new markets and expand your global reach.
Company Formation Options in the Philippines
You can choose from the following options to establish a legal entity in the Philippines:
Domestic Corporation with Foreign Shareholders
This is the most popular option for foreign businesses. A domestic corporation with foreign shareholders can be established by one shareholder who is an individual, partnership, association or corporation. Domestic corporations are required to provide a minimum capital investment. They are also prohibited from performing activities included in the Foreign Investment Negative List.
Corporations in the Philippines must have a minimum of three corporate officers who serve the following roles: president, corporate secretary and treasurer. The corporate secretary is required to be a citizen of the Philippines but the other officers do not need to be. The treasurer must be a resident of the Philippines. The president must be a director and must have one or more shares in the business.
The minimum capital requirement for establishing a corporation in the Philippines is based on business activity and how much foreign ownership there is. For domestic corporations with an excess of 40% of foreign shareholding, the minimum capital requirement is USD $200,000. 25% of the minimum capital must be paid up.
Domestic corporations that have less than 40% of foreign shareholding have a paid-up capital requirement that starts at about USD $100.
There are sometimes ways to reduce minimum capital requirements, such as employing a certain number of Filipino workers, using certain technology or exporting a certain percentage of your products.
Paid-up capital must be deposited once you have a corporate bank account in the Philippines and before you submit your audit of the financial statement for your first year.
The Foreign Investment Negative List establishes the percentage of the allowed foreign ownership. Five industries can be established with 100% foreign ownership, including the following:
- Internet businesses
- Teaching in higher education
- Training centers distinct from the formal education system
- Wellness centers
- Lending companies, investment institutions and financing companies
A joint venture is necessary if foreign equity limitations are in place. A joint venture is a partnership between a domestic and foreign partner. The joint venture is established by an agreement between corporations. Each of the partners contributes to a single project.
Like with a foreign corporation, the required minimum capital is USD $200,000 if the foreign percentage of ownership is more than 40%. The minimum capital requirement is USD $100,000 if the percentage of foreign ownership is more than 40% but one of the following conditions applies:
- Advanced technologies are used
- The business directly employs at least 50 employees in the Philippines
- The business exports at least 60% of its goods
Joint ventures are taxed at 30% on income received. Dividends are also usually taxed at 30%, but in some cases it is reduced to 15% if the foreign country receives tax benefits on dividends.
Regional Headquarters/Regional Operating Headquarters
A regional headquarters or regional operating headquarters is established to serve as an administrative branch of a foreign company that is engaged in international trade. It supervises, communicates and coordinates its subsidiaries and branches. It does not earn or generate income in the Philippines. This type of entity is not allowed to perform business that earns income from the Philippines.
This type of business engages in the following type of activity:
- General administration
- Business planning
- Finance activity
- Logistical services
- Managing personnel
- Control of marketing plan
- Promotions and sales
- Research and development services
- Business development
- Data processing
- Technical support
The required minimum capital for a regional headquarters is USD $50,000. These funds are used for salaries, fringe benefits, rental of offices, communication fees, transportation expenses and other costs to maintain the headquarters. The required minimum capital for a regional operating headquarters is USD $200,000.
A branch office is an extension of a foreign company. Branch offices are permitted to perform business activities and generate income. However, they cannot perform activities prohibited by the Foreign Investment Negative List. Because the branch office is an extension of the parent company, separate directors or corporate officers are not necessary.
Branch offices must have a resident agent. If the agent is a foreign national, the agent must have a work permit in the Philippines. Additionally, the branch office must obtain a license to du business in the Philippines.
Branch offices are subject to 30% income tax and 12% VAT taxes on local sales. It is also subject to withholding taxes on income payments and other forms of compensation. The required minimum capital for branch offices are USD $200,000.
A representative office establishes a legal presence in the Philippines. However, these offices cannot engage in commercial activities or earn revenue or other income in the Philippines. As such, the representative office is not liable for income tax. This type of office is fully subsidized by its head office.
This type of office cannot perform the following activities:
- Market research
- Promotion of the company’s products
- Customer service
This type of entity is sometimes used by companies that want to register their products in the Philippines but not handle local distributors.
If you set up a representative office in the Philippines, you must establish a corporate bank account in the country and transfer USD $30,000 to cover the expenses of their representative office. This amount must be submitted each year to maintain the representative office.
Assisting Foreign Businesses with All Aspects of Setting Up a Company in the Philippines
Establishing a legal entity in the Philippines is a complex process that involves many steps, such as:
- Verifying the company name
- Preparing incorporation documents
- Preparing a list of the names and addresses of all owners, directors and managers
- Registering the business with Philippine government agencies, including taxing and labor authorities
- Acquiring a community tax certificate
- Obtaining a business permit
- Registering employees with the social security system, home development fund and health insurance fund
- Submitting financial statements
- Providing required minimum capital investments
Our local experts can explain the requirements and guide you through the incorporation process.
Alternatives to Setting Up a Legal Entity in the Philippines
If you are not yet ready to establish a separate legal entity in the Philippines or do not have the minimum amount of capital investment required to establish a legal entity, there are alternative solutions that are more affordable and less cumbersome.
One option is to use a Professional Employer Organization. This option allows you to launch your business in the Philippines without having to set up a separate legal entity. Because New Horizons is the Employer of Record, you do not have to worry about local labor laws. We take on all of the liability associated with the employment relationship while you can direct the activities of your local staff. This allows you to launch into a new market without having to establish the required minimum investment or go through the lengthy incorporation process.
You can also outsource human resources and payroll activities. This allows you to decrease your administrative expenses and focus on the core business.
Contact New Horizons for help setting up your company or taking advantage of our PEO services. Our consultants will assist you in choosing the best solution for your business.