• What requirements are there for starting a company in the Philippines as a foreigner?
• Which kinds of companies are available and what are their characteristics?
• How much is a company taxed in the Philippines?
• Which requirements are there regarding accounting (IFRS)?
• Which rights and obligations do companies have towards hiring employees?

According to the FOREIGN INVESTMENTS ACT OF 1991 (Republic Act No. 7042) AN ACT TO PROMOTE FOREIGN INVESTMENTS, PRESCRIBE THE PROCEDURES FOR REGISTERING ENTERPRISES DOING BUSINESS IN THE PHILIPPINES AND FOR OTHER PURPOSES, foreigners (Non-Philippine Nationals) may register their planned business to the Securities and Exchange Commission (SEC), or withthe Bureau of Trade Regulation and Consumer Protection (BTRCP) of the Department of Trade and Industry in the case of single proprietorship. Foreigners can do business or invest in a domestic enterprise up to one hundred pervent (100%) of its capital. However, there are still some limitations and restrictions. Foreigners can not invest on or put up a business that is included in the "Negative List."

Former natural-born Filipinos are granted the same investment rights of a Philippine citizen based on existing investment and related laws. However, former natural-born Filipinos are restricted in some areas such as defense-related activities, exercise of profession, activities covered by the Retail Trade Act, Small Scale Mining Act, Rice and Corn Industry Act and other laws. Also, all industrial enterprises, regardless of the citizenship of owners, are required to comply with existing environmental standards.

The Foreign Investment List was released on August 11, 1998. The list defines the areas of restriction or limitations of ownership of foreigners as well as areas of industries which are closed to foreigners. The term "Foreign Investments Negative List" shall mean list of economic activity whose foreign ownership is limited to a maximum of 40% of the equity capital of the business. It has two components lists, List A shall include areas of activity that are reserved to Phlilippine Nationals by mandate of the Constitution or specific laws. List B inlcludes activities and enterprises, in defense-related activities such as the manufacture, repair, storage and/or distribution of firearms, ammunition, lethal weapons, military ordinance, explosives, pyrotechnics and similar materials, unless such manufacturing or repair activity is authorized by the Secretary of National Defense. And also manufacturing and distributing dangerous drugs and ownership and operation of cockpits, gambling halls, nightclubs, beer houses, or any business that have implications on public health and morals are also prohibited.

Small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent of Two hundred thousand US dollars [US$200,000.00], are reserved to Philippine nationals: Provided, That if: [1] they involve advanced technology as determined by the Department of Science and Technology; or [2] they employ at least fifty [50] direct employees, then a minimum paid-in capital of One hundred thousand US dollars [US$100,000.00] shall be allowed to non-Philippine nationals

According to the Department and Trade and Industry up to 25% foreign ownership is allowed for private recruitment, whether for local or overseas employment; locally-funded public works, except for infrastructure/development projects and foreign-funded or assisted projects. Up to 30% foreign equity is allowed in advertising while a maximum of 40% is granted for exploration, development and utilization of natural resources; ownership of private lands; operation and management of public utilities, educational institutions; rice and corn administration; contracts to supply materials, good and commodities to government-owned or controlled corporations, and government agencies; project proponent of a BOT project in public utilities; deep-sea commercial fishing vessels operation and condominiums.

The law also allows 60% ownership in financing companies regulated by the Securities and Exchange Commission (SEC) and investment houses.

Any idea of what includes "advertising"? Suppose I own a website with Adsense on it which provided 25% of the company income, do affiliate marketing which provides 50% and also do webhosting which provides another 25%. Would this be an advertising company, meaning I could only own 30% of the shares personally?

I would like to further guide you on the list of businesses or enterprises that are limited to foreigners. I will provide below a much more specific list.

LIST A: FOREIGN OWNERSHIP IS LIMITED BY MANDATE OF THE CONSTITUTION AND SPECIFIC LAWS


NO Foreign Equity is allowed in

1. Mass Media except recording

2. Practice of all professions such as:
a. Engineering
b. Medicine and all allied profession
c. Accountancy
d. Architecture
e. Criminology
f. Chemistry
g. Customs brokerage
h. Environmental Planning
i. Forestry
j. Geology
k. Interior Design
l. Landscape architecture
m. Law
n. Librarianship
o. Marine deck officers
q. Master plumbing
r. Sugar technology
s. Social work
t. Teaching
u. Agriculture
v. Fisheries

3. Retail Trade enterprises with paid up capital of less than US$2,500,000
4. Cooperatives
5. Privates security agencies
6. Small scale mining
7. Utilization of marine resources
8. Ownership, operation and management of cockpits
9. Manufacture, repair, stockpiling and/or distribution of nuclear weapons
10. Manufacture, repair, stockpiling and/or distribution of biological, chemical and radiological weapons and anti-personnel mines (various treaties to which the Philippines is a signatory and conventions supported by the Philippines)
11. Manufacture of firecrackers and other pyrotechnic devices


Up to Twenty-Percent (20%) Foreign Equity
12. Private radio communications network (RA 3846)

Up to Twenty-Five Percent (25%) Foreign Equity
13. Private recruitment, whether for local or overseas employment
14. Contracts for the construction and repair of locally-funded public works
15. Contracts for the construction of defense-related structures

Up to Thirty Percent (30%) Foreign Equity
16. Advertising

Up to Forty Percent (40%) Foreign Equity
17. Exploration, development and utilization of natural resources
18. Ownership of private lands
19. Operation and management of public utilities
20. Ownership/establishment and administration of educational institutions
21. Culture, production, milling, processing, trading excepting retailing, of rice and corn and acquiring, by barter, purchase or otherwise, rice and corn and the by-products thereof
22. Contracts for the supply of materials, goods and commodities to government-owned or controlled corporation, company, agency or municipal corporation
23. Project proponent and facility operator of a BOT Project requiring a public utilities franchise
24. Operation of deep sea commercial fishing vessels
25. Adjustment companies
26. Ownership of condominium units where the common areas in the condominium project are co-owned by the owners of the separate units or owned by a corporation

Up to Sixty Percent (60%) Foreign Equity
27. Financing companies regulated by the Securities and Exchange Commission (SEC)
28. Investment houses regulated by the SEC


LIST B: FOREIGN OWNERSHIP IS LIMITED FOR REASONS OF SECURITY, DEFENSE, RISK TO HEALTH AND MORALS AND PROTECTION OF SMALL- AND MEDIUM-SCALE ENTERPRISES
Up to Forty Percent (40 %) Foreign Equity

1. Manufacture, repair, storage, and/or distribution of products and/or ingredients requiring Philippine National Police (PNP) clearance:
a. Firearms (handguns to shotguns), parts of firearms and ammunition therefor, instruments or implements used or intended to be used in the manufacture of firearms
b. Gunpowder
c. Dynamite
d. Blasting supplies
e. Ingredients used in making explosives:
f. Telescopic sights, sniper scope and other similar devices

However, the manufacture or repair of these items may be authorized by the Chief of the PNP to non-Philippine nationals; Provided that a substantial percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership allowed shall be specified in the said authority/clearance.

2. Manufacture, repair, storage and/or distribution of products requiring Department of National Defense (DND) clearance:
a. Guns and ammunition for warfare
b. Military ordnance and parts thereof (e.g., torpedoes, depth charges, bombs, grenades, missiles)
c. Gunnery, bombing and fire control systems and components
d. Guided missiles/missile systems and components
e. Tactical aircraft (fixed and rotary-winged), parts and components thereof
f. Space vehicles and component systems
g. Combat vessels (air, land and naval) and auxiliaries
h. Weapons repair and maintenance equipment
i. Military communications equipment
j. Night vision equipment
k. Stimulated coherent radiation devices, components and accessories
l. Armament training devices
m. Other as may be determined by the Secretary of the DND

However, the manufacture or repair of these items may be authorized by the Secretary of National Defense to non-Philippine nationals; Provided that a substantial percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership allowed shall be specified in the said authority/clearance

3. Manufacture and distribution of dangerous drugs
4. Sauna and steam bathhouses, massage clinics and other like activities regulated by law because of risks posed to public health and morals
5. All forms of gambling, e.g. race track operation
6. Domestic market enterprises with paid-in equity capital of less than the equivalent of US$200,000
7. Domestic market enterprises which involve advanced technology or employ at least fifty (50) direct employees with paid-in-equity capital of less than the equivalent of US$100,000

That's a bit more information than I bargained for, though I still can't find an answer because I don't know what the content of "Art. XVI, Sec. 11 of the Constitution" is...

Business

A foreign company may operate in the Philippine markets through agents or representatives, but also by founding a legal entity. The most important thing related to separate legal entity is liabilty. The company has a separate legal spere from the of its foreign owner, if a foreign inverstor is incorporated in the Philippines. However, the corporate veil can be lifted in some cases and the foreign owner can be made liable for its subsidiary's liabilities. This kind of piercing of the liability has been used even in the Philippines.

Always take note that incorporators should be natural persons not companies. Further, the activities carried out by representative offices and regional headquarters are limited. These can't derive any income from the Philippines. Dissemination of information, promotion of products, and facilitation of orders from its head office's customers are the only allowed activities/responsibilities of a represenative office. On the other hand, Regional headquarters can and should not participate in the management of other entities of the same corporation in the Philippines. They can only do the coordinating, communicating, and supervising for its affiliates, branches or subsidiaries in the region.


GUIDELINES IN THE DIFFERENT TYPES OF BUSINESS ENTERPRISE

I. ORGANIZED UNDER PHILIPPINE LAWS

CORPORATION
Corporations are juridical persons established under the Corporation Code and regulated by the Securities and Exchange Commission (SEC) with a personality separate and distinct from that of its stockholders. The shareholders liability is limited to the amount of their share capital. A corporation must have at leat five to fifteen incorporators. Each of them must atleast have one share and must be registeres with SEC. Five thousand pesos (Php5,000) is theminimum pais uc capital.

A corporation can either be stock or non-stock company regardless of nationality. If a corporation/company is 60% Filipino-40% foreign-owned, it i sthen considered a Filipino corporation. On the otherhand, if more that 40% of the company is owned by foreigners, it is already considerd as a domestic foreign-owned corporation.

PARTNERSHIPS
A partnership is treated as juridical person, having a separate legal personality from that of its members. Partnerships may either be general or limited partnerships. General partnerships is where the partners have unlimited responsibility for the debts and obligation of the partnership, whereas limited partnerships is where one or more general partners have unlimited liability and the limited partners have liability only up to the amount of their capital contributions. Partnerships must consist of atleast two (2) or more partners. If a partnership's capital is more that three thousand pesos (Php3000), they must register with Securities and Exchange Commission (SEC) instead with the Department of Trade and Industry (DTI).

SOLE PROPRIETORSHIPS
Sole Proprietorship is a business structure owned by an individual. The owner has full control and authority over his/her business. He/She owns all the assets and personally owes and answers all the responsibilites or suffers all the losses but enjoys fully all the profits of the company. However, this is only advisable for small scaled business.


> II. ORGANIZED UNDER FOREIGN LAWS

REPRESENTATIVE OFFICES
A Representative Office is foreign corporation organized and existing under foreign laws. It does not derive income from the host country and is fully subsidized by its head office. It deals directly with clients of the parent company. Its role is to disseminate information, act as a communication center, and promote the prosucts of the company, as well as contol the quality of export rpoducts. Representatve Offices must register with SEC.

REGIONAL HEADQUARTERS
An RHQ should only act as the supervisory, communication, and coordinating center for its subsidiaries, affiliates, and brances in the Asia-Pacific region. It acts as an administrative branch of a multinational company engaged in international trade.
RHQ does not derive income from sources in the Philippines. It should not, in any way participate in the management of any subsidiary or branch office it might have in the country.

REGIONAL OPERATING HEADQUARTERS
An ROHQ derives income in the Philippines and performs the following qualifying services to its affiliates, subsidiaries, and branches in the Philippines.

• General administration and planning
• Business planning and coordination
• Sourcing/procurement of raw materials components
• Corporate finance advisory services
• Marketing Control and sales promotion
• Training and personnel management
• Logistic services
• Research and development services and product development
• Technical support and communications
• Business development

BRANCH OFFICE
A Branch office is a foreign corporation organized and existing under foreign laws that carries out business activities of the head office and derives income from the host country.

Sorry about that. I also thought foreigners could simply put up businesses in the Philippines. It is actually more complicated than I thought. I'll try to make it as simple as possible in my next post. Sorry again forthe information over load, I myself was flooded with a lot of legalities and information.

REQUIREMENTS AND PROCEDURE FOR STARTING A COMPANY IN THE PHILIPPINES

1. Establish a Business name and have it registered at the Security and Exhange Commission.
2.Obtain bank certificate of deposit of the paid-in capital from the Authorized Agent Bank (AAB)
3.Register the company with the SEC and receive pre-registered taxpayer's identification number (TIN)

The following documents are required for SEC registration:
a. Company name verification slip;
b. Articles of incorporation and bylaws;
c. Treasurer's affidavit;
d. Statement of assets and liabilities;
e. Bank certificate of deposit of the paid-in capital;
f. Authority to verify the bank account;
g. Registration sheet with particulars on directors, officers, stockholders, and so forth;
h. Written undertaking to comply with SEC reporting requirements.

To obtain the TIN, the company has to file:
a. Barangay clearance;
b. Mayor's permit;
c. Copy of the SEC issued registration certificate.

The company must still register with the Bureau of Internal Revenue (BIR) in order to identify applicable tax types, pay an annual registration fee, obtain and stamp sales invoices, receipts and the books of accounts.

4. Obtain the community tax certificate (CTC) from the City Treasurer's Office (CTO)
5. Obtain Barangay clearance (Town Clearance)
6. Obtain the business permit to operate at the Business Promotion and Development Office (BPDO)
7. Receive inspection from the BPDO
8. Buy special books of account at bookstore
9. Register for value added tax (VAT) at the Bureau of Internal Revenue (BIR)
10. Pay the documentary stamp taxes
11. Obtain the authority to print receipts and invoices from the BIR
12. Print receipts and invoices
13. Have receipts, invoices and books of accounts stamped by the BIR
14. Register with the Social Security System (SSS)

CORPORATE TAXATION

Foreign corporations are taxed only on Philippine-source income. The corporate tax rate increased to 35% with effect from 1 July 2005 to help address budget concerns, but will reduce to 30% with effect from 1 January 2009.

Resident foreign corporations are essentially subject to the same tax treatment as domestic corporations. Most Philippine treaties also contain a Non-Discrimination Article, reinforcing the principle of equivalent taxation for branches and domestic corporations.

What taxes are domestic corporations subjected to? Is this also 30% similar to the foreign corporations?

Generally, Corporate Income Taxes for Domestic Corporation and Resident Foreign Corporation has a rate of 32% of the net taxable income. While Non- Resident Corporation Reguar Income Tax is 32% of the gross amount of Philippine-Source income like dividends, rents, royalties, compensation, and remuneration of technical services. The 30% tax will take effect on January 9, 2009.

Again, except for certain passive incomes and incomes of domestic non-profit proprietary educational institutions and hospitals, a domestic corporation is taxed at thirty two per cent (32%) of its taxable income; that is, its gross income from all sources within and without the Philippines less allowable deductions.

I have to be honest, I am not an expert on this matter but ill try my best to answer the question the best way I can. First, we should first establish the amount of the capital of your business. If it will fall under the "small scale business" (Small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent of Two hundred thousand US dollars [US$200,000.00], are reserved to Philippine nationals: Provided, That if: [1] they involve advanced technology as determined by the Department of Science and Technology; or [2] they employ at least fifty [50] direct employees, then a minimum paid-in capital of One hundred thousand US dollars [US$100,000.00] shall be allowed to non-Philippine nationals) then your comapany can't be registered in the Philippines.

If it does not fall under the "small scale business" then we should continue assesing on which kind of business it falls under. Based on my readings, your company might fall under "marketing" since majority of your income is from your affiliate marketing business. It gets quite tricky for advertising usually is a part of marketing. So I suppose, that yes, you could only own 30% of the shares if you plan to put up a business here in the Philippines.

But on the other hand, the Security and Exhange Commisson (SEC), a government agency where you have to file the registration of your business, will be the one to assess where your business will fall under. They tend to consider a lot of factors before they categorize a company into a certain industry. But to further help you or answer your question, I would give them a call in the morining or during their office hours to clarify this matter, for I myself got curoius.

An advertising company or agency is a service business that plans, creates and handles advertising and promotion of products or sevices of its client. An ad agency can be or is usually independent from the client. For most of the advertising companies, they handle overall marketing and branding strategies and sales promotions for its clients. They use media such as television, print, the internet, radio, billboards, etc.

They include everything from one or two-person shops or companies, small to medium sized agencies, large independents, and multi-national, multi-agency conglomerates. Differenent Advertising Companies or agencies include Interactive Advertising Agencies. They may differentiate themselves by offering a mix of Web Design/Development, Search Engine Marketing, Internet Advertising/Marketing, or E-Business/E-Commerce consulting. Lately, Search Engine Marketing (SEM) and Search Engine Optimization (SEO) firms have been classified by some as 'agencies' because they are creating media and implementing media purchases of text based (or image based in some instances of search marketing) ads.

Ok, thanks for the help. It's unfortunate though that the system is restricted in this way.

Are you refering to the rights of the employers/business owners during the recruitment and hiring process of an applicant? Or the rights and obligations of the employer/business owners to its current employees or workers?

I am glad to help. I would have to agree with you on that note. Anyways, maybe that is why, a lot of foreigners tend to have "underground businesses" or unlicensed corporations.