Philippines – Selecting the Appropriate Business Enterprise
Choosing the appropriate type of investment vehicle is the first step to starting and opening a business in the Philippines. There are several forms of business enterprises a foreign investor can choose from when establishing operations in the Philippines. K&C will assist in selecting the correct type of business enterprise for your company, while taking factors into consideration such as taxes, income, startup cost, ownership, and jurisdiction.
|Organized under Philippine Law||Organized under Foreign Laws|
Organized under Philippine Laws
A Sole Proprietorship is a business structure owned by an individual who generally has full control/authority over the business and owns all its assets, personally owes and answers all liabilities, and suffers all its losses but enjoys profits exclusively. Sole Proprietorships must apply for a Business Name and be registered with the Department of Trade and Industry-National Capital Region (DTI-NCR). In the provinces, application may be filed with the extension offices of the DTI.
Under the Civil Code of the Philippines, a Partnership is treated as juridical person, with a separate legal personality from its members. Partnerships may be classified as general partnerships, where the partners have unlimited liability for the debts and obligation of the partnership, or limited partnerships, where one or more general partners have unlimited liability and the limited partners have liability only up to the amount of their capital contributions. It consists of two (2) or more partners. A partnership with more than three thousand pesos (P3,000.00) capital must register with Securities and Exchange Commission (SEC).
Corporations in the Philippines are juridical persons established under the Corporation Code and regulated by the Securities and Exchange Commission with a personality separate and distinct from that of its stockholders. The liability of the shareholders of a corporation is limited to the amount of their share capital. It consists of at least five (5) to fifteen (15) incorporators each of whom must hold at least one share and must be registered with the Securities and Exchange Commission (SEC). The minimum paid up capital is five thousand pesos (P5,000.00).
A corporation can either be a stock or non-stock company regardless of nationality. Such company, if 60% Filipino-40% foreign-owned, is considered a Filipino corporation; if more than 40% foreign-owned, it is considered a domestic foreign-owned corporation.
- Stock Corporation
- This is a corporation with capital stock divided into shares and authorized to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of the shares held.
- Non-stock Corporation
- It is a corporation organized principally for public purposes such as charitable, educational, cultural, or similar purposes and does not issue shares of stock to its members.
Organized under Foreign Laws
A Branch Office is a foreign corporation organized and existing under foreign laws that carries out business activities of the head office and derives income from the host country. A Branch Office in the Philippines is required to put up a minimum paid up capital of US$200,000.00, which can be reduced to US$100,000.00 if (a) activity involves advanced technology, or (b) company employs at least 50 direct employees. Registration with the SEC is mandatory.
Branch Office – Export Enterprise
Under the Foreign Investments Act, there is an exception to the $100,00 and $200,000 requirement for businesses that are classified as export enterprises – those who have 60% export sales whether these are sales of goods or services. Foreign-owned branches in the Philippines that will essentially be an outsourcing operation may qualify under the exception. The company would need to prove the export sales meet the ratio by reporting this to the SEC. Export sales in the case of services means that the company’s clients are non residents and the services are paid for in foreign currency.
A Representative Office is a foreign corporation organized and existing under foreign laws. It does not derive income from the host country and is fully subsidized by its head office. The Representative Office deals directly with clients of the parent company as it undertakes such activities as information dissemination, acts as a communication center and promote company products, as well as quality control of products for export. A Representative Office in the Philippines is required to have an initial minimum inward remittance in the amount of US$30,000.00 to cover its operating expenses and must be registered with SEC.
Under RA 8756, any multinational company may establish an RHQ or ROHQ as long as they are existing under laws other than the Philippines, with branches, affiliates, and subsidiaries in the Asia Pacific Region and other foreign markets.
Regional Headquarters (RHQs)
- An RHQ undertakes activities that shall be limited to acting as supervisory, communication, and coordinating center for its subsidiaries, affiliates, and branches in the Asia-Pacific region.
- It acts as an administrative branch of a multinational company engaged in international trade.
- It does not derive income from sources within the Philippines and does not participate in any manner in the management of any subsidiary or branch office it might have in the Philippines.
- Required capital: US$50,000.00 annually to cover operating expenses.
Regional Operating Headquarters (ROHQs)
An ROHQ performs the following qualifying services to its affiliates, subsidiaries, and branches in the Philippines.
- General administration and planning
- Business planning and coordination
- Sourcing/procurement of raw materials components
- Corporate finance advisory services
- Marketing Control and sales promotion
- Training and personnel management
- Logistic services
- Research and development services and product development
- Technical support and communications
- Business development
- Derives income in the Philippines
- Required capital: US$200,000.00 one-time remittance