Doing Business in The Philippines

  1. How can foreign corporations engage in business in the Philippines?

A foreign corporation may transact business in the Philippines after obtaining a license to transact business from the Securities and Exchange Commission (SEC), provided its country of origin allows Filipino citizens and corporations to do business in its own country. A foreign corporation transacting business in the Philippines without a license is not permitted to maintain or intervene in any proceeding in any court or administrative agency of the Philippines. It can, however, be sued before any court or agency in the Philippines.

The most common local forms of business enterprises used by foreign corporations are domestic subsidiary corporations, branch offices, representative offices, or regional headquarters, or regional operating headquarters.

  • Domestic Subsidiary Corporation

A domestic subsidiary corporation is one where at least 51% of its equity is owned by a foreign corporation or a foreign national. It is, however, considered as a legal entity separate and distinct from the parent corporation. It is incorporated in the same manner and procedure as that of any domestic corporation established under Philippine laws.

  • Branch

A branch office of a foreign corporation is established by obtaining a license to operate from the SEC, which requires the inward remittance of USD200,000.00. The establishment of the branch office also requires the appointment of a qualified resident agent to represent the foreign corporation.

The branch is considered as extension of the foreign corporation’s legal identity. The branch may, however, engage in the same line of business as the foreign corporation and is authorized to engage in profit generating activities.

  • Representative Office

A representative office must be registered with the SEC, which requires an initial inward remittance of at least USD30,000.00. Thereafter, the parent company may remit such amounts as may be necessary for the representative office’s operating expenses. A representative office acts as a liaison between the parent company abroad and its clients in the Philippines. It undertakes activities such as promoting company products, conducting market studies or surveys, and providing technical support for the company’s products. It cannot derive income from and solicit orders or sales in the Philippines.

  • Regional or Area Headquarters (RHQ)

An RHQ is a branch established in the Philippines by a multinational company which does not earn or derive income from the Philippines and which acts as supervisory, communications, and coordinating center for its affiliates, subsidiaries, or branches in foreign markets.

  • Regional Operating Headquarters (ROHQ)

An ROHQ is also a branch of a multinational company but can derive income from the Philippines by providing limited services exclusively to its affiliates, branches or subsidiaries. It cannot solicit goods and services on behalf of any company.

  1. What are the taxes imposed on entities operating in the Philippines?

Philippine taxes are imposed by both the national government and local government units (LGUs).

The national government imposes income taxes on corporations and individuals, as well as particular taxes for specific industries, while business tax is imposed by LGUs. The income tax rates depend upon the classification of the taxpayers. Domestic corporations are taxed at 30% of annual taxable income from worldwide sources with option for 15% tax on gross income subject to certain conditions. A foreign corporation, whether or not engaged in trade or business in the Philippines, is taxable on Philippine-sourced income at the rate of 30%. A resident foreign corporation is taxed based on net income with the same option to pay 15% tax on gross income. A non-resident foreign corporation is taxed based on gross income received. ROHQs pay taxes at the rate of 10% of its taxable income, while RHQs are exempt as these are not designed to be income-generating.

When the minimum income tax of a domestic corporation or a resident foreign corporation is greater than the regular corporate income tax, a Minimum Corporate Income Tax Rate (MCIT) of 2% of the gross income is imposable on the fourth taxable year immediately following the year in which such corporation commenced its business operations. Any excess of the minimum corporate income tax over the normal income tax shall be carried forward and credited against the normal income tax for the three (3) immediately succeeding taxable years.

The LGUs impose local business taxes at varying rates depending on the nature of the business; they also impose real estate taxes, local transfer taxes, and community taxes.

  1. Are there available tax incentives to companies operating in the Philippines?

Companies that are engaged in a preferred project listed in the Investment Priorities Plan (such as manufacturing, agribusiness and fishery, services, economic and low-cost housing, hospitals, energy, public infrastructure and logistics, and public-private partnership projects) or whose at least 50% of total production is for export may avail of tax incentives. These tax incentives include income tax holidays, exemption from taxes and duties on imported capital equipment, exemption from taxes and duties on spare parts, exemption from wharfage dues and export taxes/duties/impost/fees, exemption from contractor’s tax, tax credits and additional deductions from taxable income.

Incentives – by way of special tax rates, among others – are also available to business establishments operating within designated economic zones (Ecozones). In lieu of all other taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the Ecozones are remitted to the national government.

Rsegistered tourism enterprises and operators within the Tourism Economic Zones (TEZ) are granted income tax holidays, gross income taxation, exemptoin from taxes on capital investment and equipment, exemption from taxes on transportation equipment and spare parts, and exemption from taxes on importation of goods and services.

  1. Is there any limitation on foreign ownership of Philippine corporations? What limitations exist in the participation of foreigners in corporate management?

Foreign nationals and/or foreign corporations are generally allowed to hold as much as 100% equity ownership in domestic corporations (subject to minimum investment amounts), except in corporations engaged in certain businesses specified under the Foreign Investment Negative List (FINL) where foreign equity may be completely prohibited or limited to certain percentages (or those known as nationalized or partly-nationalized activities). For instance, the law limits to 40% the foreign equity ownership in public utilities.

Foreign nationals may also act as incorporators and directors of a domestic corporations provided majority of the incorporators and directors are residents of the Philippines. Foreigners may also serve as officers of the corporation, except as corporate secretaries as these should be Philippine residents and citizens. Treasurers are required to be Philippine residents.

For corporations engaged in nationalized or partially nationalized activities, foreign directors should not exceed the proportion of actual and allowable foreign equity ownership. In such industries, all of the executive and managing officers must be Filipino citizens.

  1. Are foreign nationals allowed to enter and stay in the Philippines without an entry visa?

A non-restricted foreign national whose country of origin has diplomatic ties or bilateral agreement with the Philippines is not required to secure an entry visa and may be allowed to enter and stay in the Philippines not exceeding twenty-one (21) days or seven (7) days, subject to extension, provided:

  • He/she holds a valid ticket for his/her return journey to port of origin or next port of destination; and
  • His/her passport is valid for a period of not less than six (6) months beyond the contemplated period of stay.

Immigration Officers at ports of entry may, however, exercise their discretion to admit holders of passports valid for at least sixty (60) days beyond the intended period of stay.

  1. What are the common visas available to foreign investors and expatriate personnel?

Foreign investors or expatriate personnel may avail of an Employment Visa, a Treaty Trader’s Visa, a Special Investor’s Resident Visa (SIRV) or a Special Resident Retiree’s Visa (SRRV).

An Employment Visa may be issued to foreigners who are engaged in lawful occupation in the Philippines with bona fide employer-employee relationship with a Philippine employer. The duration of this visa is co-terminus with the Alien Employment Permit issued by the Department of Labor and Employment. An Alien Employment Permit authorizes the foreign national to work in the Philippines

A Treaty Trader’s Visa may be issued to a foreigner who is entering the Philippines solely to carry on trade or commerce between the Philippines and the country of which he is a national pursuant to a treaty of commerce and navigation.

The SIRV entitles the holder to reside in the Philippines for an indefinite period as long as the required qualifications and investments are maintained. It is issued to any qualified foreigner, except for restricted nationals, at least 21 years old, who follows the prescribed rules and is willing and able to invest at least USD75,000.00 in the Philippines.

The SRRV may be issued by the Bureau of Immigration in connection with the Philippine Retirement Authority’s Retirement Program for all foreign nationals with entry visas and former Filipino citizens who are holders of foreign passports, both of whom are at least 35 years old. The SRRV is a special non-immigrant resident visa that provides its holders with multiple-entry and indefinite stay status in the Philippines. It is valid for so long as one remains a member of good standing of the Program.

Monalisa C. Dimalanta

Monalisa C. Dimalanta

Partner at PJS Law

Email: [email protected]
Tel: +632 840 5025

Mona received her Bachelor of Laws (Ll.B.) degree from the University of the Philippines in 1997, and her Bachelor of Arts (Journalism) in the same University in 1993 where she graduated cum laude. She obtained her Master of Laws (Ll.M.) degree from the University of Michigan where she attended as a DeWitt fellow in 2000-2001. In the UP College of Law, she was a member of the Editorial Board of the Philippine Law Journal. She also belonged to the honors society and the debating team that participated in the ASEAN Varsities Debate in Malaysia. She was admitted to the Philippine Bar in 1998 and has completed a course on Negotiation of Financial Transactions by the United Nations Institute for Training and Research (UNITAR) and attended various seminars in the Philippines and abroad on negotiating power purchase agreements. In 2005, Mona has acted as legal counsel to the Secretary the Department of Energy.

As head of PJS Law's Energy Practice Group, Mona has been continuously cited as “Leading Lawyer” by several leading financial and legal publications. She has likewise led the group in winning several international awards and recognitions. Mona also acts as President of PJSLaw Foundation and is a Professor at the Ateneo de Manila Law School.

Sheryl F. Balot

Sheryl F. Balot

Partner at PJS Law

Email: [email protected]
Tel: +632 840 5025

Sheryl received her Juris Doctor (J.D.) degree from the University of the Philippines in 2011 and was admitted to the Philippine Bar in 2012. She obtained her Bachelor of Science (Economics) degree in the same University in 2002 where she graduated cum laude. She served as a project officer of the Public-Private Partnership (PPP) Center of the Philippines for 8 years prior to joining PJS Law.

As member of the of the Infrastructure and Energy group of the Firm, Sheryl had advised on several major transactions of the Firm including Modernization of the Philippine Orthopedic Hospital project, the joint venture project on the development of a 500MW coal power plant, among others.

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About Monalisa C. Dimalanta

Email: [email protected] Tel: +632 840 5025
Mona received her Bachelor of Laws (Ll.B.) degree from the University of the Philippines in 1997, and her Bachelor of Arts (Journalism) in the same University in 1993 where she graduated cum laude. She obtained her Master of Laws (Ll.M.) degree from the University of Michigan where she attended as a DeWitt fellow in 2000-2001. In the UP College of Law, she was a member of the Editorial Board of the Philippine Law Journal. She also belonged to the honors society and the debating team that participated in the ASEAN Varsities Debate in Malaysia. She was admitted to the Philippine Bar in 1998 and has completed a course on Negotiation of Financial Transactions by the United Nations Institute for Training and Research (UNITAR) and attended various seminars in the Philippines and abroad on negotiating power purchase agreements. In 2005, Mona has acted as legal counsel to the Secretary the Department of Energy.
As head of PJS Law's Energy Practice Group, Mona has been continuously cited as “Leading Lawyer” by several leading financial and legal publications. She has likewise led the group in winning several international awards and recognitions. Mona also acts as President of PJSLaw Foundation and is a Professor at the Ateneo de Manila Law School.