Foreign Investments and Doing Business in the Philippines

There are a number of ways for foreigners to invest directly in a Philippine company doing business in the Philippines, or directly conduct business in the Philippines. Here are some of them:

Equity in a Philippine company

As a general rule, foreigners can invest as much as one hundred percent (100%) in equity in domestic market enterprises, except in areas included in the negative list. This is provided in Republic Act No. 7042, also known as the “Foreign Investments Act of 1991” (FIA). The Eleventh Regular Foreign Investment Negative List (Executive Order No. 65) was issued pursuant to the FIA. These companies are called foreign-owned domestic companies.

Export company

The FIA also provides that, as a general rule, there are no restrictions on extent of foreign ownership of an export enterprise or a service enterprise that exports sixty percent (60%) or more of its output.  Entities engaged in outsourcing operations may be covered under this exception. The company must be registered with the Securities and Exchange Commission (SEC) and the Board of Investments (BOI). These government agencies are tasked to ensure that the ratio of output (40% domestic and 60% non-domestic) is maintained every year.

Foreign company doing business in the Philippines

A foreign company may establish a branch office in the Philippines and, as such, may conduct business in the country pursuant to the Corporation Code.  After registration in the Philippines, the foreign company shall file a bond with the SEC in the amount of at least One Hundred Thousand Pesos (P100,000).  However, R.A. 7042 does not distinguish between a foreign entity which seeks ownership in a Philippine company and a foreign entity which seeks to do business directly in the Philippines. The law covers “a non-Philippine national” who shall “do business . . . or invest in a domestic enterprise up to one hundred percent (100%) of its capital, unless participation of non-Philippine nationals in the enterprise is prohibited or limited to a smaller percentage by existing law and/or under the provisions of this Act.”

Regional or Area Headquarters (RHQ)

The allowed scope of work of RHQs  is merely “to supervise, superintend, inspect or coordinate its own affiliates, subsidiaries or branches in the Asia Pacific Region and other foreign markets” (Republic Act No. 8756, which amends Executive Order No. 226, also known as the “Omnibus Investment Code of 1987”). In other words, RHQs cannot do business in the Philippines. They are also required to remit into the Philippines at least Fifty Thousand United States Dollars ($50,000.00).

Regional Operating Headquarters (ROHQ)

ROHQs are allowed to derive income in the Philippines but only from “its affiliates, subsidiaries or branches in the Philippines, in the Asia-Pacific Region and in other foreign markets.”  ROHQs are also required to remit at least Two Hundred Thousand United States dollars ($200,000.00).

Other laws

a. R.A. 6957, as amended by R.A. 7718, also known as the “Build-Operate-and-Transfer Law,” which covers the financing, construction, operation of infrastructure projects by the private sector.

b. R.A. 7916, also known as “The Special Economic Zone Act of 1995,” which provides incentives to industries and enterprises operating in Special Economic Zones.

c. R.A. 7227, also known as the “Bases Conversion and Development Act of 1992,” which provides incentives to industries which establish their plants and offices in the Subic Bay Freeport Zone.

d. R.A. 7844, or “The Export Development Act of 1994,” which provides incentives to business enterprises in the export industry.

Atty.Fred

14 thoughts on “Foreign Investments and Doing Business in the Philippines

  1. AvatarBitster

    I have a question concerning Foreign National considering Investment in the Philippines.

    Consider this example:-

    A Motorcycle company has been trying to make profits selling Motorcycles in the Philippines.

    Clearly this is a BIG Market judging by the number of outlets displaying Motorcycles for sale and the increasing number of Motorcycles on Philippine roads (especially as the economic crises deepens). But this also means it is a very competitive market, and a difficult one for a small Motorcycle Business to survive in. They struggled by for 5 years or so.

    Buying motorcycles direct from a Manufacturer in China meant that a consignment of 2000 Motorcycles might be bought for Php25M?

    The Proprietor of that Company decided the way to obtain big money for such large consignments, was to entice Foreigners to invest money into the company. They could expand the business with many more showrooms competitively priced motorcycles, giving excellent profits, and the supply of Spare Parts.

    To make the sale of the Motorcycles even easier, Rural Bank offer Micro-finance loans over 3 Years making it available for about Php100/day.

    For an investor (or group) putting up Php6M the offer was 100%pa paid monthly of 1 Year Term then return of ones investment.

    So how can this Company legally offer such Investment to Foreigners?

    Selling Shares in the Company might be the ‘normal’ route but complicate, time consuming and expensive.

    Selling ‘Securities’ requires SEC Secondary License.

    How about offering Sub-Dealerships Contracts?

    The First Party offers the Second Party a DEALERSHIP and INVESTMENT Proposal;

    It is clearly understood by the Second Party that the First Party shall have the full authority to manage the business operation of the DEALERSHIP, so as not to burden the Second Party with the operational direction .

    The First Party shall take charge of all operating expenses of the business such as, Showroom and Office rentals, Telephone, Electric, Water bills and salaries of Employees and Staffs.

    The First Party covenants to free the Second Party of any and all liabilities and warranties as a result from the operation of the DEALERSHIP area Including employment issues and furthermore, the First Party shall defend the Second Party on all cases arising as such.

    Would such an MOA bearing these Contractual terms, require any Investors Visa?

    How about such Foreigner requiring appropriate Visa and/or Alien Employment Permit?

    The reason I ask, is because I was conned out of my money by such enticement of 100%pa ROI.

    It was basically a Ponzi scheme masquerading as a Motorcycles Company becuse they never paid that Chinese Manufacturer for the 1 one only consignment they ordered, so not all parts supplied to complete assembly, this no sales and no profits.

    Payments stopped after 5 months.

    We files a case of Syndicated Estafa since there was a Bank Guarantee by the Bank offering the Micro-finance Loans to cover Chattel Mortgage. The clause stipulating that the funds be spent exclusively on the motorcycle expansion business was not enforced or complied with.

    Now they filed a complaint with the BI, requesting the Foreigners, be deported for not having appropriate Work Permits and Investment Visa.

    So she steals our funds then tries to get us deported with trumped up charges, so we cant continue the Syndicated Estafa against her.

    Now others named in the Estafa Complaint Affidavit, say they will file cases of Malicious prosecution againt those who filed, naming them.

    I would like to learn what is the legal bottom line position on this situation?

  2. Avatarmalditangbendita

    I have a question about having busines in the philippines, i would like to know where does the bond which is 100,000 goes and what would be the best thing to do to be able to have a good business aside from the articles said above.

  3. Avatarnolan

    I have a query on whether the term “paid-in equity capital” mentioned in section 15 (Negative List B #3) refers to initial paid-in capital or net equity (paid-in capital +/- results of operation?

  4. AvatarCebuExpat99

    For small investors there is practically no safety in the Philippines. The law is very complicated and represents not even 1% of the people who are willing to invest up to 50000 US Dollars in this country. I lost about 300000 dollars here and have a case of deportation now because I invested not according to the law. I appointed myself as the president of my own company which is against the law. This is enough to start a long case against me and close down the business while I still pay the rent for the place and also all related taxes and government fees. Any foreigner who is dreaming of investing in the Philippines must be very careful. Apart of the law, a big majority of the population is not trustful. Especially a foreigner should not trust blindly his business to his Filipina wife and put all in her name. As soon as there is money to get, many Filipina wives will send the husband to hell and get all the money.

  5. AvatarKay

    cebuexpat, although I do see this all the
    Time after living here in the philippines for a decade I must say when it comes to filipina wifes stealing, this is because
    Many of the foreigners make dumb decisions such as 60 year old undesirable guys everywhere thinking that their model like 21 year old wife who many met in Clark/Angeles areas or online dating sites actually loves them for them. This is just
    Being unrealistic and dumb. My neighbour (in his 70’s from America) had a Wife who was a 29 year old massage parlor girl (the naughty kind), and he was suprised when she left him and stole all the money that he had stupidly put into her bank accounts.

    Meet a normal filipina under normal circumstances, of
    Similar age and physical and emotional attraction levels (just like you would back home) and you won’t have any
    Problems.

  6. AvatarMike

    Just wondering, on the law of export companies required to have maximum 40 percent of output as domestic….what is the definition of output…is that monetarily, or number of products produced? Or profit? Or percentage of sales? Or percentage of sales dollars?

  7. AvatarJosephine

    Hi, I would like to ask. Is there such a law which prohibits Foreign Textbook Publishing company to sell directly to the end users in the Philippines? Thank you so much for the answer.

  8. Avatarrose

    Under RA 7042
    do we need to pay taxes where in, we only work as back office,
    the only expense we have here in the philippines is the rent and the salary.
    will just comply and nil in amount.
    I would know if we are on the right track for the compliance.

    Thank you

  9. AvatarAnurag

    Hi , I am operating my company in India as well as in various countries and I would like to know that we can do business directly from India in Philippines without opening Branch Or Subsidiary ?

  10. AvatarKen T

    Hello,

    Is there have any way to put a business in philippine ?
    I may illegal or against law if i hire a filipino under his/her name and i have to manage he/she because business is not under my name.
    Oher ways, If i use filipino name in my business and have this agreement of “affidavit of true ownership” between me and he/she.
    Please give me advise. Thank You

  11. AvatarMarchel

    Hi! I knew a foreign man who accepts big projects in constructing and rebuilding houses,resorts,and hotels in our place. Is he required to pay taxes to our government?

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