Ways To Reduce the Required Minimum Paid-Up Capital in the Philippines

The Philippines, with its robust economy and over 110 million consumers, is a hot spot for foreign investments. However, starting a business here requires an understanding of the local regulations, particularly the financial prerequisites. One such prerequisite is the minimum paid-up capital in the Philippines.

Understanding paid-up capital

Before discussing how to reduce the paid-up capital, it’s crucial to understand what it is and why it’s required. Paid-up capital is the money that shareholders contribute to a company in exchange for shares. It’s used to finance the company’s operations and demonstrates its financial stability. 

For a wholly foreign-owned business in the Philippines, the law requires a minimum paid-up capital of $200,000. However, there are strategies to lower this minimum paid-up capital. Let’s explore a few of these.

Ways to reduce the required minimum paid-up capital in the Philippines when starting a company as a foreign investor

Following are some of the ways by means of which you can reduce your minimum paid-up capital requirements:

Reducing paid-up capital through local partnership

The percentage of local partnerships significantly influences the paid-up capital requirement. A locally-owned corporation (where Filipino citizens hold at least 60% of shares) only needs a minimum paid-up capital of PHP 5,000 ($90). Foreigners can partner with locals to start a business and reduce the minimum paid-up capital.

Example: If a U.S. entrepreneur wishes to start a digital marketing firm, they could partner with a Filipino investor, ensuring that Filipino ownership remains above 60%. This way, the minimum capital required would be $90 instead of $200,000.

Reducing paid-up capital through Special Economic Zones

Investing in Special Economic Zones (SEZs) allocated by the Philippines Economic Zone (PEZA) is another strategy to reduce the paid-up capital requirement. These zones are to attract foreign investment and offer incentives like lower capital requirements. Companies inside SEZs need a minimum paid-up capital of only $100,000 – half of the standard requirement.

Example: If a Japanese manufacturing firm wants to set up a plant in the Philippines, choosing to establish it in an SEZ like the Clark Freeport Zone could reduce their required capital from $200,000 to $100,000.

Reducing paid-up capital by exporting your services

In the Philippines, businesses can lower their required initial investment, or paid-up capital, by exporting their services. According to Philippine law, foreign-owned businesses usually require a paid-up capital of $200,000. However, if a company exports at least 60% of its services then there is no minimum paid-up capital.

Example: A foreign software development company in the Philippines that exports services (making software for foreign clients) abroad are exempt from the minimum paid-up capital requirement. 

Reducing paid-up capital by using advanced technology

Another strategy to reduce the minimum capital requirement in the Philippines is by focusing on advanced technology for your business. This means using innovative methods or systems that elevate efficiency and product quality. However, the technology must be approved by the Department of Science and Technology (DOST)  for its true value and relevance to the business.

The Philippine government supports tech innovation, allowing businesses that plan to utilize advanced technology to start with a lower initial investment. For such businesses, the minimum capital can be lowered from US$ 200,000 to US$ 100,000.

Reducing paid-up capital by entering the retail sector of the Philippines

According to Republic Act (RA) 11959 foreign investors can pay a reduced paid-up capital in the Philippines by entering the retail sector. It refers to foreign investors establishing brand stores or chains, whether local or international, in the Philippines to offer consumer goods to end-users directly.

This legislation significantly reduces the required investment from the previous US$2.3 million to a much less US$0.5 million, thereby lowering the financial hurdle for entry into the dynamic Philippine retail sector.

Minimum paid-up capital amount on the basis of business classification

The table below provides a list of business classifications, foreign ownership allowances, and the minimum paid-up capital required for each ownership category. 

Business Classification	Foreign Ownership Allowed (%)	Minimum paid-up capital
		Foreign investment (41% to 100%)	60/40Foreign investment (1% to 40%)	All Filipino
Accommodation and Food Service Activities	100	$200,000	$5,000	$90
Information and Communication	100	$200,000	$90	$90
Professional and Scientific	100	$200,000	$90	$90
Financial and Insurance Activities	100	$200,000	$90	$90
Recruitment	25% Based on the updated Negative List	N/A	$92,000	$92,000
Real Estate	40	N/A	$90	$90
Transportation and Storage	100	N/A	$90	$90
Education	40	N/A	$90	$90
Construction	100	$200,000	$90	$90

Using Emerhub to reduce paid-up capital

Emerhub is a valuable guide for businesses looking to set up their business in the Philippines and reduce their required paid-up capital amount. Leveraging our deep knowledge of Philippines regulations and local market expertise, we offer comprehensive services, including company registration, tax and accounting, as well as assistance in importing and customs clearance. 

Reach out to us to know more about setting up a company in the Philippines and reducing the paid-up capital cost.

FAQs regarding the paid-up capital

What does the paid-up capital requirement depend on? 

The requirement for paid-up capital depends on the industry your business operates in. It must be 25% of your subscribed capital, and at least 25% of that total needs to be paid-up capital. Keep in mind that in the Philippines, the minimum amount of paid-up capital is PHP 5,000, which is approximately US$90.

When am I required to invest the paid-up capital? 

You need to invest the paid-up capital into your corporate bank account upon registration or before your first annual audit. This means you must inject your paid-up capital into your corporate bank account before the conclusion of your first fiscal year.

Can I use non-cash assets as paid-up capital? 

Absolutely, the required minimum capital doesn’t have to be exclusively in the form of cash. You can use other valuable assets like property and equipment as your paid-up capital.

Can I later use the paid-up capital for operating expenses? 

Yes, you can use the paid-up capital for various operational costs, including expenses related to your business operations and payments required by the government.