Business RegistrationLegal Requirements for Doing Business in the Philippines

Starting a business in the Philippines as an expatriate involves navigating a complex web of legal requirements, registration processes, and compliance with local laws. This comprehensive guide covers the essential steps, documentation, and considerations for foreign nationals looking to register a business in the Philippines. It delves into business structure types, the registration process with various government agencies, and other critical aspects like opening a bank account and securing an office space.

Understanding the Legal Framework for Expats

The legal landscape for business registration in the Philippines is shaped by several key laws and regulations that govern foreign ownership and business operations. The most notable of these are the Foreign Investments Act of 1991 (Republic Act No. 7042) and the Philippine Constitution, which limit foreign ownership in specific industries and outline the conditions under which foreigners can engage in business in the country.

Key Restrictions and Incentives

• Foreign Ownership Limits: Certain sectors are restricted to full or partial Filipino ownership. For instance, retail trade businesses generally require at least 60% Filipino ownership unless the paid-up capital is more than USD 2.5 million. Other industries, such as mass media, are entirely restricted to Filipino nationals.
• Incentives for Foreign Investors: The Philippine government offers several incentives to attract foreign investments, such as tax holidays and duty exemptions under the Board of Investments (BOI) and the Philippine Economic Zone Authority (PEZA). Understanding these incentives and the industries that qualify is crucial for expat entrepreneurs.

Choosing the Right Business Structure

The first critical step in registering a business in the Philippines is choosing the appropriate business structure. The choice of structure affects everything from ownership rules to taxation and reporting requirements. Below are the primary business structures available to foreign nationals:

1. Sole Proprietorship
   1. Ownership: 100% owned by a single individual.
   2. Eligibility: Sole proprietorship is generally not available to foreigners unless they are married to a Filipino citizen and the business is registered under the Filipino spouse’s name.
   3. Registration: Registered with the Department of Trade and Industry (DTI).
2. Partnership
   1. General Partnership: All partners have unlimited liability for the debts of the partnership. At least 60% of the partnership must be owned by Filipino citizens for the partnership to be considered domestic.
   2. Limited Partnership: Includes both general partners (with unlimited liability) and limited partners (with liability only up to the amount of their investment). The foreign ownership ratio is also restricted based on the industry.
   3. Registration: Registered with the Securities and Exchange Commission (SEC).
3. Corporation
   1. Domestic Corporation: Requires at least five incorporators, each holding at least one share. Foreign ownership is capped at 40% in most sectors, though there are exceptions where 100% foreign ownership is allowed.
   2. One Person Corporation (OPC): An option for foreigners, especially in industries where 100% foreign ownership is permitted. This structure allows a single person to own and run a corporation.
   3. Registration: Registered with the SEC. The minimum paid-up capital for foreign-owned corporations generally starts at USD 200,000, though this can be lower under certain conditions, such as the employment of at least 50 Filipinos or the introduction of advanced technology.
4. Branch Office
   1. Ownership: 100% owned by the foreign parent company.
   2. Scope: Can engage in the same business activities as its parent company.
   3. Registration: Registration with the SEC is required, and a minimum inward remittance of USD 200,000 is required as capital.
5. Representative Office
   1. Ownership: 100% owned by the foreign parent company.
   2. Scope: Cannot generate income in the Philippines; it is limited to non-revenue generating activities like market research or acting as a liaison office.
   3. Registration: SEC registration is required, and a minimum inward remittance of USD 30,000 is required.

Documentation and Government Registration Process

Once the business structure is selected, the next step is to prepare the necessary documentation and register with the relevant government agencies. The process involves multiple steps and coordination with various authorities.

1. Business Name Registration
   1. For Sole Proprietorship: Register the business name with the Department of Trade and Industry (DTI). The business name must be unique and not already registered by another entity.
   2. For Partnerships and Corporations: Reserve the business name with the SEC. The name should comply with SEC’s guidelines and should not infringe on existing trademarks.
2. Securities and Exchange Commission (SEC) Registration
   1. Articles of Incorporation: Draft the Articles of Incorporation, which outlines the business’s purpose, share distribution, and other corporate governance matters. This document is crucial for corporations and partnerships.
   2. Bylaws: Corporations are required to submit bylaws, which govern the corporation’s internal management.
   3. Inward Remittance Certificate: For foreign-owned corporations and branches, a certificate of inward remittance from a local bank is necessary to prove the required capital has been brought into the country.
   4. Treasurer’s Affidavit: A document signed by the treasurer of the company confirming the sufficiency of the capital stock subscribed and paid.
3. Barangay Clearance and Mayor’s Permit

After SEC registration, the next step is to secure a Barangay Clearance from the local Barangay where the business will operate. Following this, apply for a Mayor’s Permit from the city or municipal office. The Mayor’s Permit is essential for legally operating within a specific locality and requires compliance with local zoning laws, fire safety regulations, and sanitation requirements.

4. Tax Identification and BIR Registration

• BIR Registration: All businesses in the Philippines must register with the Bureau of Internal Revenue (BIR) to obtain a Tax Identification Number (TIN). During this process, the business must also register its books of accounts, which are essential for maintaining accurate financial records.
• Official Receipts: The BIR also requires businesses to print official receipts and invoices from accredited printers. These are used for tax reporting and compliance.

5. Registration with Government Agencies

• Social Security System (SSS): All employers must register with the SSS to provide social security coverage to employees.
• PhilHealth: Registration with PhilHealth is mandatory for employers to provide health insurance coverage for their employees.
• Pag-IBIG Fund: Employers must also register with the Pag-IBIG Fund, a national savings program that provides members housing loans and other benefits.

Opening a Corporate Bank Account

Opening a corporate bank account in the Philippines is a crucial part of the business registration process for foreign nationals. This step is necessary for depositing the paid-up capital required by the SEC and facilitating day-to-day financial transactions.

Requirements for Opening a Corporate Bank Account:

• Articles of Incorporation and Bylaws: These documents are needed to establish the corporation’s legitimacy.
• SEC Certificate of Registration: Proof that the business entity is legally registered with the SEC.
• Board Resolution: A resolution from the board of directors authorizing the opening of the account and specifying the signatories.
• Inward Remittance Certificate: If applicable, this document shows that capital investment has been made in the Philippines.
• Valid IDs of Signatories: The bank will require identification documents from all authorized signatories.

Different banks may have varying requirements, so checking it’s with the chosen bank for their specific process is advisable.

Securing Office Space and Business Address

Having a physical office space is not only a requirement for securing local permits and complying with zoning laws, but it also establishes the business’s presence in the Philippines. When choosing an office space, foreign entrepreneurs should consider the following:

• Zoning Requirements: Ensure that the chosen location complies with local zoning laws, which dictate what types of businesses can operate in specific areas.
• Lease Agreement: A lease agreement is required when applying for the Mayor’s Permit and Barangay Clearance. It should be in the business’s name, and the duration and terms of the lease should be specified.
• Virtual Office: A virtual office can serve as the registered address for businesses that do not require a physical office. However, this may limit the business’s ability to secure certain permits and licenses.

Is Assistance Available?

Registering a business in the Philippines as an expat involves thoroughly understanding the legal requirements, careful planning, and compliance with multiple regulatory agencies. Each step requires attention to detail and adherence to local laws, from selecting the appropriate business structure to securing the necessary permits and opening a corporate bank account.

Streamlining time, effort, and cost is crucial when handling application processes, business registrations, and related requirements. Our specialty is in optimizing these processes, allowing our clients to meet their business needs efficiently while focusing on the core aspects of their operations and growth.

To schedule a free initial consultation with one of our registration experts, please reach out to us through the following channels:

• Contact Us Here
• Fill out the form below
• Call us at: +63 (02) 8540-9623