Can Foreigners own 100% of a Company in the Philippines?
By: Noel C Ducusin
You may have heard or spoken to some consultants in the past that you are only allowed up to 40% foreign ownership in your local company and the remaining 60% must be owned by a Filipino national. Most likely, you have come across this assertion several times in your own personal research about setting up your local company in the Philippines.
But is that really the case? In this article, we will show you how to set up your local company with 100% foreign ownership by you.
Liaison or Representative Offices
It is very important to be clear about your objectives in setting up your local office. Probably, you set up the local office so that you can open local bank accounts or higher local workers without having to go through the overseas recruitment government regulatory body.
But do you really need your local company to do the selling?
For instance, if your company has offices in multiple countries and so does your customer, there is no need that the sale transaction to be done locally. For sure, coordinating with your local customer is required either before or after the sale. Such coordination may take the form of getting preliminary information regarding product specifications before the sale or providing technical support after the sale. Strictly speaking, this is not selling but merely coordinating.
In other words, since you and your local customers are both transnational companies, the sale can happen anywhere in the world even though the local coordinating is done in the Philippines.
Because they are not competing in the local market, liaison or representative offices are allowed to be 100% foreign-owned. The purpose of the representative company is not to make sales but rather to facilitate them only.
If this situation applies to you, you can most definitely own your local company 100%.
Foreign Branch Offices
Sometimes the purpose of your local office is to explore possible opportunities for doing business in the country.
In instances like these, you may not want to go through the process of setting up your local office just yet. Instead, you could simply just register your foreign company as a foreign branch office with the simple expedient of using your existing company charter and applying for a license to act as a foreign branch office with the SEC regulator.
Yes, you will have to post a bond in a minimal amount to secure local creditors and any local sales will be subjected to a percentage withholding on the gross amount. Nevertheless, at this stage, it's most likely that you're just exploring and not even looking to do some sales. Later on, you can always set up an independent local company once you see that there's sufficient demand for your products or services.
Unlike a liaison/representative office, your foreign branch office is actually an extension of your offshore company and there is no patent–subsidiary relation as is the case in liaison/representative offices, the latter being a separately incorporated domestic entity.
For more information on how to set up your branch office, you can click here.
Export or Outsourcing
If your business is that of servicing customers abroad using local manpower such as customer service, software development, engineering and architectural design, or financial or legal backroom operations, then technically, you're not selling domestically.
In this case, you will be considered an export company.
Thus, you will have all the advantages of having a local company like that of the local bank accounts, being able to avail of local credit, being able to hire domestically without having to go through the overseas employment regulator, and the like and still own your company 100%.
Again, it is very important to be clear about your objectives because if you do not intend to compete in the local market, then the likelihood is really that you can own your company 100%.
Infusing the Required Minimum Capital for Domestic Sale
Finally, if you really must sell domestically, then the workaround is to make sure that you meet the minimum capital requirement to qualify as a domestic market enterprise. As of this writing, the minimum capitalization is US$250,000.
It is important to note, however, that unlike in foreign branch offices where this capital is idle and kept as a bond for the satisfaction of local creditors, this capital can be deployed for any commercial purpose including the purchase of assets, company payroll, company leases, and any other kind of business expense.
Finally, please note that the type of sale here is domestic sale through distributors or partners and not retail sale which is direct to the end customer wherein the goods are consumed or destroyed. That will be the subject of a separate article as retail sales have significantly much higher capitalization requirements.
We will have a separate article on how to maximize the return of capital back to the parent company and the various options on how to do that.
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About the Author
Atty. Noel C. Ducusin is the senior and founding partner of the N. Ducusin & Partners Law Offices - a law firm based in Metropolitan Manila, Republic of the Philippines that specializes in Corporate Advisory, Cross Border Regulatory Matters, Mergers & Acquisitions, and Commercial Litigation.
Atty. Ducusin is also the President & Sole Director of DoingBusinessPH OPC - a company dedicated to empowering foreign investors to do business in the Philippines through online executive education programs, digital books, seminars, as well as online and offline events.
His mission for this Community is to help foreign investors, business owners, and managers by breaking down complex legal concepts and dense technical material into simple, straightforward, and actionable legal information for better business decisions. For easy reading, articles and briefs will be in simple everyday language without legal jargon.
This is not the place for academic writing and legalese will not be tolerated here.
The simpler and the more practical the better.
“Everything should be made as simple as possible, but no simpler.” – Albert Einstein