These are the questions that usually asked by many. Can a foreigner start a business in the Philippines? Can they own 100% of the business? Is it easy for foreigners to start a business in the Philippines?
If you’re a foreigner and have chosen to make the Philippines your next business location, here’s a quick guide on how to get your business opened.
Foreign Equity Restrictions
It’s popular misunderstanding that foreigners are unable to own their businesses in the Philippines. In addition , foreign investment is not only allowed in most sectors, but is encouraged through fiscal and non-fiscal incentives. The Republic Act No. 7042 of the country or the Foreign Investments Act of 1991 (FIA) outlines certain opportunities and their requirements.
That said however, some industries remain that place restrictions on foreign equity in terms of maximum capital investment and all of them can be found in the Foreign Investment Negative List of the Philippines. If your option business falls within the industries listed in the negative list, then you must meet the given limit.
The rules for foreign equity investments are as follows, in situations other than above:
- For domestic market companies (defined as companies deriving at least 40% of their revenue from Philippine sources), foreign equity is limited to 40%. This also means you can’t be president of a corporation. However, if your domestic market business has a minimum capital investment of US$ 200,000 or more, the equity limit can be removed and foreigners can own their businesses in full. In addition, if the company hires 50 or more employees, or works with advanced technologies, the capital associated with the limit will be reduced to only US$ 100,000.
- For export-oriented firms (defined as companies deriving at least 60 percent of revenue from sources outside the Philippines), they may abolish the capitalization requirement and go beyond the 40 percent equity limit held by foreigners.
The Philippines also has an Anti-Dummy Law, officially known as the Commonwealth Act No. 108, which penalizes persons who violate foreign ownership limits and others who break nationalization laws.
The Anti-Dummy Law also prohibits the so-called “dummy deal” in which foreign investors pay for local people to buy a land in the Philippines and register the property under the name of the local. All local and foreign nationals found in breach of this law may be imprisoned for five to fifteen years or forced to pay a huge fine.
Foreign investors have practiced using the name of their marriage partner or partner with a local to work around the restrictions but this strategy often presents some risks.
Want to know on how to start a business in the Philippines (Corporation)? Click here.
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