How to Get a 100% Foreign Ownership Business in the Philippines

September 5, 2024

partnership-business-philippines-e1704433188205-1

Understanding the role of local partners is essential for expatriates seeking to navigate the regulatory environment when setting up a business in the Philippines. Local partnerships can impact the business’s structure, ownership rights, and operational strategies, especially given the foreign ownership limitations imposed by law. Let’s explore the key considerations for expats regarding ownership percentages, types of businesses that allow for 100% foreign ownership, business registration processes, and the role of local partnerships.

Ownership Percentages: Foreigners vs. Filipinos

In the Philippines, the ownership structure of expat-owned businesses is governed by the Foreign Investments Negative List (FINL), which outlines industries where foreign participation is restricted. Generally, foreigners can own up to 40% of most businesses, while Filipino citizens must hold at least 60% of the company’s shares. However, there are exemptions to this rule for export-oriented businesses and specific sectors.

Types of Businesses Allowing 100% Foreign Ownership

Certain types of businesses allow for 100% foreign ownership under Philippine law:

Export Enterprises: To qualify for 100% foreign ownership, these businesses must derive at least 60% of their revenue from overseas sales. This includes online service businesses.
PEZA-registered Companies: Companies registered with the Philippine Economic Zone Authority (PEZA) and primarily engaged in manufacturing, IT services, or other export-oriented activities can enjoy full foreign ownership.
Board of Investments (BOI): BOI-registered enterprises engaged in activities promoted under the Investment Priorities Plan (IPP) can also be fully owned by foreigners, provided they meet the necessary criteria.
Business Process Outsourcing (BPO): The BPO sector is open to 100% foreign ownership because it is a key export industry.
Businesses in Special Economic Zones: Foreigners can own 100% of a company registered with the Subic Bay Metropolitan Authority (SBMA) and other special economic zones.

For other industries, the FINL dictates restrictions on foreign equity based on national interests, such as land ownership, natural resources, and specific service sectors.

Business Registration Process for Foreigners: SEC or DTI

When registering a business in the Philippines, the process will vary depending on the type of entity:

DTI Registration: You must register with the Department of Trade and Industry (DTI) for sole proprietorships. However, only Filipino citizens can register as sole proprietors, meaning foreigners would need to enter a partnership with a local citizen to operate in this structure.
SEC Registration: You must register with the Securities and Exchange Commission (SEC). This applies to partnerships, corporations, and joint ventures. In particular, foreign investors can establish either a domestic corporation with at least 40% foreign ownership or, if meeting the criteria for an export enterprise, a wholly foreign-owned corporation. SEC registration requires documentation such as the Articles of Incorporation and proof of capital infusion.

Is It Mandatory for Expats to Have a Local Partner?

For industries restricted under the FINL, expats are required to have a local Filipino partner who must own at least 60% of the business. However, for industries that are export-oriented or registered with PEZA, BOI, or special economic zones, foreigners can fully own the business without a local partner.

How Local Partnerships Affect Business Operations for Expats

Having a local partner can affect decision-making, profit sharing, and overall business control. Filipino partners typically hold majority shares, giving them control over board decisions and other significant corporate matters. You must establish clear agreements with their local partners to avoid conflicts and ensure smooth business operations.

Legal Implications of Having a Filipino Partner

Local partnerships have legal implications, particularly concerning company control, corporate governance, and financial matters. Filipino partners often influence company policies significantly and may also share liability for business obligations. Expats must ensure their partnership agreements are legally sound to protect their rights and interests.

Board of Directors Composition

For corporations, the board of directors must consist of at least five and no more than 15 members. At least 25% of the authorized capital stock must be subscribed, and 25% of the subscribed shares must be paid upon incorporation. Foreigners can serve on the board, but a majority of the board members should be Philippine residents, depending on the industry and ownership structure.

Tax Breaks for Expat-Owned Businesses

Businesses that are registered with agencies like PEZA, BOI, and SBMA can benefit from various tax incentives, such as:

Income Tax Holidays (ITH): Exemptions from corporate income tax for up to six years.
Zero VAT on Importation: Duty-free importation of capital equipment, spare parts, and raw materials.
Exemption from Local Government Taxes: Registered enterprises may also be exempt from certain local taxes and fees. These incentives are available to both fully foreign-owned and partially foreign-owned enterprises engaged in export-oriented activities or operating in priority sectors.

Foreigner Work Visas

Expats managing or working in a business in the Philippines must secure the proper work visas, such as:

9g Pre-arranged Employment Visa: Required for foreigners employed in a Philippine-based company.
Special Work Permit (SWP): For short-term assignments of up to six months.
Alien Employment Permit (AEP): Issued by the Department of Labor and Employment (DOLE) and required for long-term employment.
Special Investor’s Resident Visa (SIRV): Available to foreign nationals investing a minimum of USD 75,000 in a qualified enterprise in the Philippines.

These visas are necessary to ensure legal employment and business operations for expats in the Philippines.

Is Assistance Available?

Navigating the complexities of foreign ownership and local partnerships in the Philippines can be challenging for expats. Triple i Consulting offers trusted corporate services, including Corporate Secretary, Resident Agent, Corporate Treasurer, and Nominee Director services. These services ensure businesses remain compliant with Philippine laws and regulations while enabling expats to focus on growing their businesses.

Contact us to schedule an initial consultation with any of our business registration experts to begin your journey on doing business in the Philippines through any of the below channels: