FAQs on Foreign Investment: Starting a Business in the Philippines

Hailed as one of the booming economies among Southeast Asian nations, the Philippines’ economy hit a 7.1% increase in the third quarter of 2016. It is the fastest-growing economy according to National Economic and Development Authority—all thanks to the public and private investments made in the past year. A lot of investors have shifted their eyes to the Philippines to mount their businesses in the country.

Starting a business in the Philippines is easy and has lots of incentives. First, the country is strategically located. Surrounded by powerhouse nations like China, Japan, and Singapore, the Philippines is a member of Association of Southeast Asian Nations (ASEAN).

Second, it is investors-friendly. With rules recognizing the importance of foreign investment, the government assists foreign investors in registering and streamlining their business requirements and other paper works.

Third, the Philippines is an English-speaking nation. Language barrier and miscommunication are not major problems, and transactions will be much faster. Lastly, the Filipino workforce is undeniably hardworking and dedicated.

With these factors to consider, here are the frequently asked questions about investing in the Philippines for you to already start the ground running:

1. What are the organizational structures available for my business?

As a foreign investor, you have the option to set up your business in the following structures: single proprietorship, partnership, corporation, branch office, representative office, regional headquarters, or regional operating headquarters.

2. Do I get to own 100% of my business entity?

Yes. Under the Foreign Investments Act (FIA) R.A. 7042, all areas of investments can be allowed with 100% foreign equity. Take note, though, that this does not apply if a business is included in the Regular Foreign Investment Negative List (FINL).

To know more about the FIA, read here.

3. Where do I process the registration of my business?

There are different registration locations for different types of business. This is to ensure that foreign investors will be prioritized no matter what type of business they want to set up.

For single/sole proprietorship, everything’s online to register your business name. You can go here.

For corporations/partnerships, branch and representative offices, bring all the necessary applications and submit them to the Securities and Exchange Commission (SEC). For more information about the location and operating hours, you can go to their official website.

For regional headquarters and regional operating headquarters, submit your application form with the required documents at the Board of Investments.

4. What requirements should I accomplish first before I enjoy the tax benefits?

To qualify for the incentives, the Investment Priorities Plan should have you listed under the domestically-incorporated enterprise, along with the business’ proposed activity. Further, the business must register with the appropriate investment promotion/agency depending on the business’ location.

5. What incentives do I get as a registered business?

There are numerous incentives for registered foreign investments in the Philippines. First, the Board of Investments gives the following incentives:

• Income Tax Holiday (ITH)
• Tax credit on raw materials, supplies, and semi-manufactured products (for export producers only)
• Additional deduction from taxable income for labor expense
• Additional deduction from taxable income for necessary and major infrastructure works
• Exemption from wharfage dues and export tax, duty, impost and fees
• Modified Duty Rate for Capital Equipment by Executive Order No. 528

Non-fiscal incentives include employment of foreign nationals, guaranteed repatriation of foreign investments and earnings, and importation of consigned equipment for an unlimited period subject to the posting of re-export bond.

Second, your business can benefit from other incentives when it’s under the Philippine Economic Zone Authority (PEZA). The incentives are as follows:

• Income Tax Holiday
• The Build-Transfer-Operate Law includes the government support for Official Development Assistance and other financing sources
• Provision of vital off-site infrastructure facilities
• 5% tax option to pay from Gross Income earned (aside from all national and local taxes)
• Granted permanent residence for foreign investors and immediate family members
• Employment of foreign nationals
• Local and foreign locator enterprises can ask for assistance in the promotion of the economic zones

For other types of business like Regional Headquarters and Regional Operating Headquarters, there is a different set of incentives for their activities.

6. What types of visa can be issued to me and my business?

There are a lot of different visas which can be issued to a foreign investor such as:

• Special Investor Resident Visa (SIRV)

A visa-holder of this kind is freely allowed to reside in the Philippines as soon as he already invested. He/she may apply for an SIRV if he complies with the following requirements: no crime record that involves immoral actions, no infection of a contagious disease, no institutionalization due to mental disorder or disability, and willing and able to invest amounting to US$75,000.00.

• Special Visa for Employment Generation (SVEG)

This is a special type of visa given to qualified non-immigrant foreigner who can employ at least 10 Filipinos in his investment. He is allowed to multiple entries and a conditional extended stay.

The benefits of this visa can extend to the foreigner’s qualified spouse and dependent unmarried child/children as long as they are below 18 years old (legitimate, illegitimate, or adopted).

• Special Resident Visa

Foreigners with this type of visa are the would-be retirees. They are entitled to different benefits like permanent retirement in the Philippines, the privilege to enter the Philippines multiple times, and certain exemptions like income tax over pension and annuities.

To know more about the benefits, the Philippine Retirement Authority (PRA) website has all the information.

• Treaty Traders Visa

With a validity of one year, the visa-holder is entitled to work in the country per contract basis. As soon as his contract expires, he is expected to leave the country. This visa is only applicable to Japanese, Germans, and Americans. Moreover, he should be employed by a registered company.

For American applicants, there should be proof that his activities in the country are under the commerce agreements of the Philippines and the United States, his stay in the country should only last upon his contract, his employer must be a foreigner, his position in the executive level, and if underage, his position must be holding special qualifications for a supervisor or executive officer.

These visas have different benefits and allowed activities for the investor, and you can see which one would work best for your business structure.

7. What are my basic rights and guarantees for investment safety purposes?

As an investor, here are the basic rights and guarantees as stated in the Philippine constitution:

• Right to Repatriation of Investments

This refers to the right to repatriate the entire proceeds of liquidated investments in the currency in which the investment was originally made at the exchange rate prevailing at the time of repatriation.

• Right to Remittance of Earnings

This refers to the right to remit earnings from the investments in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance.

• Right to Foreign Loans and Contracts

This refers to the right to remit, at the exchange rate prevailing at the time of remittance, such as may be necessary to meet the payment of interest and the principal on foreign loans and foreign obligations arising from technological assistance contracts.

• Right to Freedom from Expropriation

There shall be no expropriation by the government of the property represented by the investments or of the property of the enterprises except for public use or in the interest of national welfare and defense and upon payment of just compensation. In such cases, foreign investors of enterprises shall have the right to remit sums received as compensation for the expropriated property in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance.

• Right to Non-requisition of Investment

There shall be no requisition of the property presented by the investment or of the property of enterprises, except in the event of war or national emergency and only for the duration of such. Just compensation for the requisitioned property may be remitted in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance.

All you have to do now is take all of this information to be one step further in fulfilling that timely investment in the Philippines. The presented benefits and positive effects of establishing a business in the Philippines should be enough reason for you to call it the next home of your business.

Source: Board of Investments: Frequently Asked Questions [Brochure]. (n.d.) Makati City, Philippines: Department of Trade and Industry