Corporate Compliance100% Foreign Ownership Company in the Philippines

Understanding the Role of Local Partners in Expat-Owned Businesses in the Philippines

Starting a business in the Philippines as a foreigner involves several legal considerations, including ownership restrictions and requirements for local partnerships. Understanding the role of local partners and the regulations surrounding foreign ownership is crucial to ensure compliance and successful business operations.

Ownership Percentages for Foreigners and Filipinos

In the Philippines, the general rule under the Foreign Investments Act (FIA) is that foreigners may own up to 100% of a business, except in industries listed in the Foreign Investment Negative List (FINL). The FINL restricts foreign equity in sectors such as mass media, natural resources, and public utilities. For businesses not included in the FINL, foreigners may own up to 100% equity, provided the business primarily exports its goods and services or does not fall under a restricted category.

For businesses engaged in domestic market activities, the maximum allowable foreign ownership is 40%, with the remaining 60% owned by Filipino citizens. However, if a business derives at least 60% of its revenue from exports, it may be considered an export company, allowing up to 100% foreign ownership.

Types of Businesses Allowing 100% Foreign Ownership

The Philippine government permits 100% foreign ownership in businesses categorized under:

• Export-oriented businesses (with 60% of revenue from overseas sales)
• BPO (Business Process Outsourcing)
• IT-enabled services
• Manufacturing for export
• Enterprises registered with economic zones, such as PEZA (Philippine Economic Zone Authority), which offers tax incentives to 100% foreign-owned export companies

However, restrictions remain for certain industries, such as land ownership, media, and utilities, and foreigners must partner with Filipino nationals for a maximum 40% equity stake.

Business Registration Process for Foreigners

Foreigners looking to establish a business in the Philippines must register with either the Securities and Exchange Commission (SEC) or the Department of Trade and Industry (DTI), depending on the type of business structure.

1. Sole Proprietorship—Registration with the DTI is required for a sole proprietorship. However, sole proprietorship businesses must be owned by Filipino citizens, making this structure inaccessible to foreigners.
2. Partnership or Corporation – Foreigners can engage in either a partnership or a corporation, which requires registration with the SEC. The SEC regulates entities with foreign ownership to ensure compliance with equity restrictions, particularly in industries listed under the FINL.

A minimum of five board members is required for corporations, with at least one Filipino director to represent local ownership. However, for wholly foreign-owned corporations (where allowed), the board can comprise all foreign nationals, provided the company meets the requirements for export businesses or other exempt industries.

Local Partnerships and Their Effect on Operations

While expats are not required to have a local partner, it is necessary for certain industries where foreign ownership is limited to 40%. Local partnerships can offer strategic advantages by leveraging local knowledge, navigating bureaucracy, and enhancing market presence. However, these partnerships should be carefully structured to maintain operational control and protect the interests of foreign investors.

Legal Implications of Having a Filipino Partner

Having a Filipino partner means complying with the equity structure required by law, directly affecting business control, profit-sharing, and decision-making. Filipino partners may hold a majority stake in certain businesses, which can influence corporate governance. It is vital to have well-drafted shareholder agreements to ensure clear terms on voting rights, roles, and profit distributions.

Tax Incentives and Special Economic Zones

Foreign-owned businesses registered under PEZA, BOI (Board of Investments), or SBMA (Subic Bay Metropolitan Authority) enjoy various tax incentives, including:

• Income tax holidays for a specified period
• Exemption from certain local taxes and duties
• Simplified import and export procedures
• VAT zero-rating on local purchases for PEZA-registered companies

These benefits make it attractive for foreigners to invest in export-driven or BPO operations in the Philippines.

Foreign Work Visas

Foreigners intending to work in their own businesses must obtain the appropriate visas and permits. Common options include:

• 9g Work Visa – For foreign employees working in Philippine companies, including foreign-owned entities.
• Special Work Permit (SWP) – For short-term assignments, valid for up to six months.
• PEZA Visa – Available for foreign nationals employed by PEZA-registered companies.
• Special Investors Resident Visa (SIRV) – For those making significant investments in the Philippines.

Securing the right visa is critical for expats to ensure legal residency and work eligibility in the Philippines.

Corporate Services and Board of Directors

Corporate governance in a corporation requires a board of directors with at least five members. Having local directors or officers may be necessary for foreign-owned businesses, especially in industries with ownership restrictions. To assist foreign businesses, we also offer corporate services, including:

• Corporate Secretary
• Resident Agent
• Corporate Treasurer
• Nominee Director

These services ensure businesses comply with local laws and facilitate smooth corporate operations.

Is Assistance Available?

Yes, we can help. The role of local partners in expat-owned businesses is pivotal in industries with foreign ownership restrictions. While expats can fully own certain export-oriented companies, partnering with Filipinos can offer strategic advantages and compliance with the law. Understanding ownership percentages, the business registration process, and legal implications will ensure that expat entrepreneurs successfully navigate the complexities of doing business in the Philippines.

With the right local partnerships and compliance measures, expats can build profitable enterprises and leverage opportunities in a dynamic and growing market.

Schedule an initial consultation with one of our business registration experts. Contact us through any of the following methods below: