Types of business entities in the Philippines for foreign investors

The Philippines has a wide range of business entity types, many of them open to foreign investors and companies. However, they are not all equally popular or practical.

Stock corporations in the Philippines

In the Philippines, a stock corporation is a company that is authorized to issue shares of stock to investors. Shares of stock represent ownership interests in the corporation. Stock corporations are regulated by the Securities and Exchange Commission (SEC).

Domestic corporations

Domestic corporations are companies that have less than 40% foreign ownership. This type of business entity is very popular in the Philippines as it’s relatively easy to set up and manage.

Key requirements:

• A corporate secretary that is a Filipino national living in the Philippines
• A treasures that is a Filipino national and living in the Philippines

Estimated incorporation time: 2 months
Timelines may vary depending on the evaluation and assessment of government institutions per company’s industry.

Corporations under Foreign Investment Act (FIA)

Once a company has at least 40% of its stock owned by foreign investors, it’s considered an FIA or a foreign corporation.

In almost any situation, a foreign investor will go with a domestic or an FIA company (depending on the percentage of shares they wish to own).

Key Requirements:

• Same requirements as a domestic corporation

Estimated incorporation time: 3 months
Timelines may vary depending on the evaluation and assessment of government institutions per company’s industry.

One-person corporation (OPC)

The name is self-explanatory. OPCs are corporations that have only one person as the sole stockholder.

Note that all of those business entities allow foreign ownership but there are additional restrictions based on the business classifications. Some industries allow full foreign ownership while others limit or forbid any foreign investment.

Key requirements:

• Required to have a nominee and alternate nominee
• Requires a local corporate secretary and treasurer

Estimated incorporation time: 3 months
Timelines may vary depending on the evaluation and assessment of government institutions per company’s industry.

Foreign business entities in the Philippines

There are some scenarios where you as a foreign investor would not want to open a stock corporation in the Philippines. This affects mostly larger companies with strict internal regulations about how they should be represented in overseas markets.

Note that the following business entity types take longer to open than a regular stock corporation.

Representative office

A representative office is the local liaison office of a foreign company in the Philippines. It does not have its own shareholders – it just represents the parent company in the Philippines. The representative office is also not allowed to generate any local revenue.

In many countries, representative offices are also used for the purpose of getting a residence permit or hiring employees more easily. This is not the case in the Philippines – opening a representative office takes significantly longer than a domestic corporation and is therefore rather unpopular among foreign investors.

Key requirements:

• A local resident agent (a Filipino national living in the Philippines) who is appointed as the key representative of the company in the Philippines.
• Inward remittance of at least 30,000 USD before registration. This serves as the initial fund from the parent company to fund the operations of the representative office.

Estimated registration time: 4 months
Timelines may vary depending on the evaluation and assessment of government institutions per company’s industry.

Branch office

Similar to representative offices, branch offices don’t have their own stockholders – it’s a local branch of an overseas corporation.

Unlike a representative office, the branch is allowed to generate revenue in the Philippines.

There are two major downsides to branch offices:

• They are more difficult to open than stock corporations
• They are heavily taxed. They have a 30% corporate income tax, plus you’ll pay an additional 15% tax on any profits you send back to your parent company. A security deposit of at least 500,000 PHP.

Estimated registration time: 4 months
Timelines may vary depending on the evaluation and assessment of government institutions per company’s industry.

Regional operating headquarters (ROHQ)

Regional operating headquarters are similar to the branch offices – they are an extension of an overseas parent company rather than a separate legal entity.

There are two main differences between ROHQ and a branch office:

• ROHQ have a lower income tax rate of 10%
• ROHQ are only allowed to conduct specific business activities that qualify them as the regional headquarters.

List of business activities ROHQ are allowed to conduct:

• General administration and planning;
• Business planning and coordination;
• Sourcing/procurement of raw materials and components;
• Corporate finance advisory services;
• Marketing control and sales promotion;
• Training and personnel management;
• Logistics services;
• Research and development services, and product development;
• Technical support and maintenance;
• Data processing and communication; and
• Business development

Key requirements:

• Same as the branch office

Estimated registration time: 4 months
Timelines may vary depending on the evaluation and assessment of government institutions per company’s industry.

Conducting business without a business entity in the Philippines

Registering a business entity in the Philippines is just the first step. The main administrative challenge is keeping it compliant with local laws and regulations.

If your primary business objective in the Philippines is to hire employees, the easier alternatives are to either contract a Business Process Outsourcing (BPO) provider or if you want more control over your employees, use an employer of record provider such as Emerhub.

An Employer of Record is the legal entity that formally employs the employee while they work and are managed entirely by another company. An employer of record handles all the local bureaucracy.