Expat’s Guide to Owning a Business in the Philippines
Doing business in the Philippines is seen by many as enticing. There are a lot of opportunities for business that most locals cannot take advantage of, mostly due to financial limitations. As an expat, you will feel the urge to take advantage of these opportunities before they go to waste.
Investing in a business is a good idea, but there are certain things that will hold you back, especially if you want to do it within the country. This is the general rule according to Republic Act 70421, known as the Foreign Investments Act of 1991:
“There are no restrictions on extent of foreign ownership of export enterprises. In domestic marketing enterprises, foreigners can invest as much as 100% equity except in areas included in the negative list. Foreign owned firms catering mainly to the domestic market shall be encouraged to undertake measures that will gradually increase Filipino participation in their businesses by taking in Filipino partners, electing Filipinos to the board of directors, implementing transfer of technology to Filipinos, generating more employment for the economy and enhancing skills of Filipino workers.”
While it does summarize the Foreign Investments act, most expats will still be surprised by what businesses they can actually own. It’s best to talk to lawyers if you want a full explanation of the Foreign Investments Act, but here are a few facts you can arm yourself with beforehand:
• Make sure your business activities doesn’t fall into the Foreign Investment Negative List2, or “Negative List”. The Negative List is a list of activities which limit foreign ownership to a certain cap. It is made up of two lists:
· List A is where you can find Filipino-only activities as mandated by the Philippine Constitution or any Special Laws.
· List B consists of activities that are related to matters of national defense, public health, and morals.
• Remember the 60-40 rule. The 60-40 rule is how the Philippine government aims to monitor foreign investments. While an expat can technically own 100% of any business venture, it’s best to give 60% of the ownership to a Filipino partner.
• You must have a paid-in capital of the peso equivalent of at least US$ 200,000 to own 100% of a small or medium-sized domestic enterprise. Anything less and that business becomes off-limits for foreigners.
· This can be brought down to a peso equivalent of US$100,000 provided you meet the following conditions: (a) it involves advanced technology as determined by the Department of Science and Technology (DOST), or (b) you employ at least 50 direct employees.
• Know the Anti-Dummy Law. Formally known as Commonwealth Act No. 108, the Anti-Dummy Law seeks to punish anyone who violates limitations on foreign ownership. Simply put, you, as an expat, cannot have someone who’s not qualified to represent you in the country.
There are many more things to consider, but these are best explained by lawyers. Remember that as an expat, you are only allowed to do business in the country via sole proprietorship, partnership, or corporation. Other corporate vehicles are also allowed, like having a representative office or regional operating headquarters, but those are better left to the experts.
Source: bakermckenzie.com, Department of Foreign Affairs, Securities and Exchange Commission, gtalawphil.com, The LAWPHiL Project, JLP Law Offices
1 Republic Act 7042, 2 The Tenth Regular Foreign Investment Negative List
