For years, the Philippines has ranked in the top 3 of the fastest-growing economies in Southeast Asia. With its competitive workforce driven by its large English-speaking citizens, particularly excelling and a regional hub for Global Capability Centers (GCCs), the Philippines is a strong country of choice for foreign entities and corporations looking to invest or establish their business.
Establishing business in the Philippines has proven to be advantageous for foreign entities and corporations. This includes tax reliefs and incentives which can potentially reduce tax dues if a tax treaty exists between the Philippines and the parent company’s home country; access to a vast domestic market for goods and services; employment of Filipino staff known for their skilled labor; qualification for government incentives where applicable; and enhanced credibility among customers, partners, and government agencies.
If you’re a foreign corporation interested in doing business in the Philippines, this is your ultimate guide!
What is a foreign corporation?
In Section 140 of the Republic Act No. 11232, or the Revised Corporation Code, a foreign corporation is one formed, organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. It shall have the right to transact business in the Philippines after it shall have obtained a license to transact business in this country in accordance with this Code and a certificate of authority from the appropriate government agency.
What does it mean to do business in the Philippines?
Under the Republic Act No. 7042, or the Foreign Investments Act (FIA), “doing business” shall include:
a. Soliciting orders, service contracts, opening offices, whether called “liaison” offices or branches;
b. Appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling 180 days or more;
c. Participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and
d. Any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization.
How to establish a foreign corporation in the Philippines?
Foreign corporations may establish their business in the Philippines through:
a. Representative office. Office of the foreign corporation that deals directly with the clients of the parent company, but does not derive income from the host country and is fully subsidized by its head office
b. Branch office. A foreign company carries out the business activities of the head office and derives income from the host country.
c. Subsidiary corporation. A corporation more than 50% of the voting stock of which is owned or controlled directly or indirectly through one or more intermediaries by another corporation, which thereby becomes its parent corporation
d. Independent domestic corporation. The corporation in this case is a separate, or ‘independent’ entity altogether that is partly owned by the foreign corporation, with the general rule being: foreign ownership does not exceed 40% of the domestic corporation’s capital stock, and while the 60% is allocated for Filipino entities.
The entity must be registered in accordance with Philippine laws and regulations. A foreign corporation may transact business in the Philippines only after obtaining:
- A License to Transact Business from the Securities and Exchange Commission (SEC)
- A Certificate of Authority from the appropriate government agency, if required for its particular line of business
- A foreign corporation must file an application for the license to transact business in the Philippines (with SEC)
- An application for License under oath;
- A copy of its Articles of Incorporation and by-laws, certified in accordance with law, and their translation to an official language of the Philippines, if necessary;
- Attached to the application for license shall be a duly executed Certificate under oath by the authorized official, attesting to the fact that the laws of the country allow Filipino citizens and corporations to do business therein:
- The application shall be accompanied by a Statement under oath of the President of the corporation, showing that applicant is solvent and in sound financial condition, and stating its assets and liabilities as of the date not exceeding 1 year immediately prior to the filing of the application;
- Corporations governed by Special laws (such as banks and insurance companies) shall also submit a previously issued authority from the appropriate government agency as may be required by law for corporations in its line of business; and
- Appointment of a Resident Agent
Why is a Resident Agent needed?
A resident agent is designated by the corporation, on whom summons and other illegal processes may be served in all actions or other legal proceedings against such corporation, and consenting that service upon such resident agent shall be admitted and held as valid as if served upon the duly authorized officers of the foreign corporation at its home address.
A resident agent should be:
- An individual who must be of good moral character and of sound financial standing, residing in the Philippines; or
- A domestic corporation lawfully transacting business in the Philippines, designated in a written power of attorney by a foreign corporation authorized to do business in the Philippines.
What are the capital requirements for establishing a foreign corporation doing business in the Philippines?
- Representative office. An inward remittance of Thirty Thousand (USD 30,000.00) is required for the registration
- Branch office. As a fully foreign-owned entity, a branch must have a capitalization of at least Two Hundred Thousand Dollars (USD 200,000)*, unless the branch will be exporting goods or services or generating revenue from abroad amounting to more than sixty percent (60%) of its gross sales. It can be fully foreign-owned, as it is considered an Export Enterprise under the Foreign Investment Act.
*A branch is required initially to deposit with the SEC, for the benefit of present and future creditors, acceptable securities with market value equivalent to at least Philippine Pesos: One Hundred Thousand (PHP 100,000.00) plus an annual additional deposit of Two Percent (2%) of the amount by which the branch office’s gross income exceeds Philippine Pesos: Five Million (PHP 5,000,000.00).
When is the foreign entity considered “doing business” in the Philippines?
A foreign corporation must be formally registered and licensed with the SEC before it can legally conduct business in the Philippines. Then, the foreign corporation will be considered doing business in the country once it:
- Engages in repeated commercial transactions;
- Maintains an office, branch, liaison, or representative in the Philippines;
- Appoints representatives or agents domiciled in the Philippines or staying for more than 180 days to solicit, secure orders, or transact business;
- Participates in the management, supervision, or control of a local company;
- Performs acts that imply continuity of commercial dealings or the performance of acts normally incident to business.
Tests are applied to determine whether a corporation is doing business in the Philippines, namely:
- Substance test. Whether the foreign corporation is maintaining or continuing in the Philippines, the body or substance of the business for which it was organized, or whether it has substantially retired from it and turned it over to another
- Continuity test. Whether there is continuity of commercial dealings and arrangements, contemplating to some extent the performance of acts or works or the exercise of some functions normally incident to and in progressive prosecution of the purpose and object of its organization
What happens when an entity does not have a license?
Foreign corporations without such a license cannot “maintain or intervene in any action, suit, or proceeding in any court or administrative agency of the Philippines.” A foreign corporation that fails to secure a license cannot initiate legal proceedings, as it lacks the requisite personality to sue. However, it can still be sued.
Exceptions are cases of isolated or sporadic transactions or activities of a foreign corporation that do not constitute “doing business” in the Philippines, but only incidental, occasional, or undertaken for a one-time or non-repetitive purpose
The foreign corporation may sue or be sued in Philippine courts with respect to such isolated transactions
In view of the principles of due process and fair play…
A foreign corporation, regardless of whether it holds a license to do business, can be sued in the Philippines because when it actively engages in business activities or has any presence in the Philippines, it subjects itself to local jurisdiction and can thus be impleaded in suits before Philippine courts.
If you are interested in doing business in the Philippines, our Firm can guide you through the legal process, whether you are a local or international client.
Disclaimer: The content of this blog is intended for general informational and educational purposes only and does not constitute legal advice. Laws and regulations may vary by jurisdiction, and the applicability of the information herein may differ depending on specific facts and circumstances. Accessing or reading this content does not create an attorney–client relationship. For legal concerns or tailored guidance, please consult a qualified lawyer licensed in your jurisdiction.
Whether you are based in the Philippines or overseas, STLAF offers legal services to both local and international clients. Our team is equipped to assist with cross-border matters, provide jurisdiction-specific guidance, and help you navigate complex legal challenges with confidence.
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Author/s: Kyzyl Kate Mendoza, Corporate Department and Patricia Minimo