Before starting a business in the Philippines, you should learn about the different business structures you may form and how each type differs from the others. Each business structure may vary in terms of legal and tax procedures. Business structures in the Philippines are classified under two categories: foreign and local.
- Branch Office (BO)
- A branch office is an extension office of a corporation owned by a company based outside the Philippines that implements the business activities of its parent company from outside the country to the Philippines.
- A Philippine branch office abides not only by the rules and regulations set forth by SEC in the Philippines but also by the rules and regulations of the country where its parent company is based.
- Regional Operating Headquarters (ROHQ)
- A regional operating headquarters is formed to provide services to the foreign-owned company’s affiliates, branches, or subsidiaries in the Philippines, the Asia-Pacific region, and other foreign markets.
- Apart from the preceding parties it engages with, an ROHQ is not permitted to solicit or advertise goods and services on behalf of its parent company or any of its affiliates, branches or subsidiaries, whether directly or indirectly.
- Regional Area Headquarters (RHQ)
- Regional area headquarters are incorporated to manage a multinational company’s affiliates, branches, and subsidiaries in the Asia-Pacific area.
- An RHQ is not permitted to generate revenue or transact business from inside the country.
- A regional area headquarters’ operational expenses are subsidized by its parent company through inward remittances.
- Representative Office (RO)
- A representative office is the office of a multinational company established in the Philippines to boost its corporate presence locally.
- It is typically in charge of information dissemination, product marketing, quality control, and communication.
- A representative office is not separate from its head company in terms of legal personality.
- An RO is prohibited from earning revenue in the country and charges all its operating costs and liabilities to its head office in another country.
Business Structures Under Philippine Laws:
- Sole Ownership
- Sole ownership or sole proprietorship is a business structure owned by only one person. Under Philippine law, it is subject to an eight percent tax imposed on self-employed individuals.
- The Philippine law requires sole ownership businesses to secure registration with the DTI (Department of Trade and Industry).
- One Person Corporation (OPC)
- The difference between a Sole Proprietorship and a One Person Corporation is the chance for more risks with a Sole Proprietorship. Similar to a Domestic Corporation, the sole shareholder in an OPC can only be held liable up to the extent of their share capital.
- Under a One Person Corporation, the company’s assets are segregated from the business owner’s assets, which means that creditors can only come after the company’s assets. OPC’s should follow the rules set by the Securities and Exchange Commission (SEC), while a Sole Proprietorship should abide by the laws of the DTI.
- Domestic Corporation
- Regular domestic corporations have a different juridical character from the stockholders and other corporations involved.
- Domestic corporations may be compared to a Limited Liability Company (LLC) or a Private Limited Company (PLC) because of their similar control and characteristics as provided by the Corporation Code of the Philippines.
- The stockholders of a domestic corporation can only be held liable up to the extent of their share capital. A domestic corporation also has its liabilities and must pay its debts legally the same as an LLC.
- A Partnership is composed of a minimum of two owners.
- All the responsibilities and income are shared between the partners.
- Partnerships are registered with the SEC.
Businesses with Limited Ownership for Foreigners
Last June 2022, the foreign investment negative list was amended to reflect changes pursuant to Philippine laws. The list is split into Lists A and B. List A may be modified anytime to reflect changes made in specific laws. List B shall not be modified more often than once every two years.
Below are the types of business areas that foreigners are not allowed to own or are limited to engage in:
List A: Areas where Foreign Ownership is Not Allowed
- Cooperatives, except investments of former natural-born citizens of the Philippines
- Manufacture of firecrackers and other pyrotechnic devices
- Manufacture, repair, stockpiling, and/or distribution of biological, chemical, and radiological weapons and anti-personnel mines
- Manufacture, repair, stockpiling and/or distribution of nuclear weapons
- Mass media, except recording and internet business
- Organization and operation of private detectives, watchmen, or security guards agencies
- Ownership, operation, and management of cockpits
- Practice of professions, except in cases specifically allowed by law
- Retail trade enterprises with paid-up capital of less than P25 million
- Small-scale mining
- Utilization of marine resources in archipelagic waters, territorial sea, and exclusive economic zone, as well as small-scale use of natural resources in rivers, lakes, bays, and lagoons
Areas Where Up to 25% Foreign Equity Is Allowed
- Private recruitment, whether local or overseas employment; and
- Contracts for the construction of defense-related structures
Areas Where Up to 30% Foreign Equity Is Allowed
List B: Limited Foreign Ownership Due to Security, Defense, Health/Morals, and Protection of Enterprises
Areas Where Up to 40% Foreign Equity Is Allowed
- All forms of gambling except those covered by investment agreements with the state-run Philippine Amusement and Gaming Corp.
- Manufacture, repair, storage, or distribution of products or ingredients requiring police clearance, namely, firearms, gunpowder, dynamite, blasting supplies, ingredients used in making explosives and telescopic sights, sniper scopes, and other similar devices;
- Manufacture and distribution of dangerous drugs;
- Sauna and steam bathhouses, massage clinics, and other similar activities, except wellness centers;
- Micro and small domestic market enterprises with paid-in equity capital of less than the equivalent of US$200,000
- Micro and small domestic market enterprises that involve advanced technology or are endorsed as a start-up or start-up enablers by state agencies
- Those whose majority of direct employees are Filipinos, provided that their Filipino employees should not be fewer than 15, and with a paid-in equity capital of less than the equivalent of US$100,000.
Aside from the industries mentioned above, foreigners may also fully own their businesses or get one hundred percent (100%) foreign equity. There are many ways for you to do this. It’s best to contact us for an initial consultation to see if this can apply to you.
Triple i Consulting Inc. offers professional help in accounting, business registration, business incorporation, FDA licensing, and FDA product registration.
As the first ISO 9001:2008 company in the Philippines to offer business registration services to its clients, Triple i Consulting provides the following services related to starting a business structure in the Philippines:
- Business registration
- Guide in accomplishing requirements
- Securing a Business Permit
- Securing SEC Certificate of Registration
- BIR registration
- Employer registration with Pag-IBIG, Philhealth, and SSS
- And many other various government licenses and permits related to your type of business
Find out more by contacting us here, filling out the form below, calling us at +63 (02) 8540-9623, or emailing us at email@example.com to book an initial consultation with one of our business registration experts.