Guideline: Business Incorporation in the Philippines

Here, you’ll find all the basic guidelines about the requirements and processes you need to incorporate a business in the Philippines.


Table of Contents


Disclaimer: Information validated in September 2019. This content is intended for educational purposes only and should not be taken as legal instructions. You should contact consultants in your target markets before making decisions related to incorporation or service execution.


Domestic Corporation

Although the Philippines does not adopt the legal concept of Limited Liability Company (LLC) or Private Limited Company (PLC), a domestic corporation serves as its closest local equivalent by the Corporation Code of the Philippines.

Similar to LLCs, a domestic corporation acquires its own liabilities and is legally responsible for the payment of its obligations. Its shareholders can also only be held liable to the extent of their share capital.

Basic Requirements of a Domestic Corporation

Organizational Structure

The minimum organizational requirements to establish a domestic corporation are as follows:

  • 2 to 15 directors or incorporators who shall be mentioned in the Articles of Incorporation as originally forming and composing the corporation, each of whom must hold at least one share of the capital stock of the corporation
  • A majority of the incorporators must be residents of the Philippines, but not necessarily citizens
  • For a foreign corporation to be granted a license to operate in the Philippines as a business entity, it is required to appoint one (1) resident agent who shall accept all summons or legal processes served, arising out of any business or transaction which occurred in the Philippines, to the corporation

Officers

Every corporation in the Philippines also requires at least 4 officers:

  • President
  • Corporate Secretary
  • Treasurer
  • Compliance Officer

Out of these three, only the Corporate Secretary must be a citizen of the Philippines. The Treasurer must be a resident in the Philippines. The President can also be a non-resident; however, the President must be a director as well as hold at least one share.

ShareholderDirectorCitizenResident
President
Corporate Secretary
Treasurer
Compliance Officer

Types of Domestic Corporation

According to the Foreign Investments Act of 1991, domestic corporations can be classified as any of the following:

  • Domestic Corporation with 0% Foreign Equity (100% Filipino-owned)
  • Domestic Corporation with <40% Foreign Equity
  • Foreign-Owned Domestic Corporation with >40.01% Foreign Equity

The nationality of the shareholders determines the corporation’s extent of participation in areas of business activity and investment in the Philippines.

Domestic corporations that only consist of Filipino stockholders can freely participate
in any economic activity and industry sector in the country.

Conversely, those that consist of foreign stockholders are restricted to participate in activities that are included in the Negative Investment List.

Minimum Capital Requirement

Minimum Capital Requirement
Applies to
USD 200.000Foreign-Owned Domestic Corporation with > 40.01% Foreign Equity
OR
The general requirement for majority-foreign-owned businesses
USD 100,000Businesses that are considered pioneers in the Philippines; employ at least 50 Filipinos, or use advanced technology
~100 USD (PHP 5,000)Domestic Corporation with 0 - 40% Foreign Equity
OR
Businesses that export at least 60% of their products or have at least 60% of local ownership

Document Requirements

Shareholders’ Information

  • Passport copies of the foreign shareholder
  • Tax Identification Number (TIN) of the local shareholder
  • Two (2) Valid IDs

Articles of Incorporation

  • Corporations Name
  • Purpose of the Corporation
  • The incorporators & number of incorporators (at least 2 incorporators)
  • Amount and share of stocks

By-laws with the internal rules
Written rules for the conduct of corporation or partnership, by-laws generally provide for meetings, elections of a board of directors and officers, types and duties of officers and others.

Treasurer’s Affidavit
The affidavit shows a Treasurer-in-Trust of the proposed corporation has certified at least 25% of the authorized capital stock has been subscribed and at least 25% of the subscription has been paid and received by him/her in cash for the benefit and credit of the corporation.

Proof of Address such as Contract of Lease (if rented) or Certificate of Land Title (if owned)

Steps to Register a Domestic Corporation

1Register company name to obtain name verification slip and Registration Certificate from SEC (Security and Exchange Commission)
2Registration with Local Government Units (LGUs) to obtain the following compliance:
- Barangay Clearance from the Barangay Hall
- Mayor’s Permit form the Mayor’s Office
- Business Permit from the Business Permit and Licensing Office (BPLO) of the Municipal/City Hall
3Obtain Corporate Taxation Registration from the Bureau of Internal Revenue (BIR or Tax Authority)
4Complete employees’ information to obtain the following licensing with other Government Agencies:
- Social Security System (SSS) for employee’s social security;
- Philippine Health Insurance Corporation (PhilHealth) for employee’s health insurance benefits; and
- Home Development Mutual Fund (HDMF or Pag-Ibig Fund) for employee’s housing benefits


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Branch Office

A branch office is an extension of a foreign corporation that carries out the business activities of its head office from abroad into the Philippines. Thus, its liabilities are considered liabilities of the head office.

It is allowed to derive income from its activities in the Philippines and conduct business in the same manner as its head office – under conditions prescribed by Philippines laws and regulations.

Basic Requirements of a Branch Office

Resident Agent

Unlike a Domestic Corporation, a branch office does not need a board of directors but instead, a registered agent should be a Filipino or a Philippine resident. This resident agent will act as the branch office’s special point of contact say, for a summons from government offices or as a signatory for the lease agreement.

If the resident agent is a foreigner, he/she should be the holder of a valid Philippine visa which, at the time of its issuance, entitles the holder thereof to stay in the Philippines continuously for at least one year.

Minimum Capital Requirement

Minimum Capital Requirement
Applies to
USD 200.000Branch office when registered with the Securities and Exchange Commission
USD 100,000Businesses that are considered pioneers in the Philippines; employ at least 50 Filipinos, or use advanced technology
PHP 5,000 and PHP 10,000

Export-oriented branches that exports goods and services amounting to 60% or more of its gross sales

Tax Requirement

A branch office must pay 30% income tax and 12% value-added tax on profit and dividend tax may apply on remitting profits back to the parent company. It will also be subject to a withholding tax related to the compensation paid to the Filipino employee.

Document Requirements

  • Authenticated copy of the Board of Resolution of the parent company authorizing the establishment of the branch office and designating a Resident Agent to receive the summons and legal proceedings (can be a Philippine resident or a domestic corporation)
  • Audited Financial Statements (AFSs) of the parent company
  • Authenticated copies of the Articles of Incorporation of the parent company
  • Certificate of Inward Remittance and Certificate of Bank Deposit of US$200,000.00 or US$100,000.00 as initial capitalization
  • Affidavit of solvency executed by the President or Resident Agent stating that the foreign corporation is solvent and sound in its financial condition
  • Resident Agent acceptance of appointment (if the agent is not the signatory of the application form)

Steps to Register a Branch Office

1Register company name to obtain name verification slip and Registration Certificate from SEC (Security and Exchange Commission)
2Open “Non-Resident” Account with a local bank
3File registration with BIR (Bureau of Internal Revenue) or Tax Authority to obtain Corporate Taxation Registration
4Registration with Local Government Units (LGUs) to obtain the following compliance:
- Barangay Clearance from the Barangay Hall
- Mayor’s Permit form the Mayor’s Office
- Business Permit from the Business Permit and Licensing Office (BPLO) of the Municipal/City Hall


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Representative Office

A representative office in the Philippines is a business structure that acts as a local liaison office for a foreign corporation that seeks to establish a corporate presence in the country without engaging in income-generating activities. It does not derive income from the host country and is fully subsidized by its head office.

A representative office is limited in the activities it can engage in. By law, it can only engage in:

  • disseminating information
  • functioning as a communication center
  • promotion and quality control of products for export.

The representative office is not allowed to offer its services to third parties.

Basic Requirements of a Representative Office

Resident Agent

A representative office may be set up with only one person, also acting as its resident agent.

Minimum Capital Requirement

The initial foreign inward remittance must be at least USD 30.000 with the operations of the representative office fully subsidized by the head office. Every year the parent company must remit at least USD 30.000 to cover operating expenses.

Tax Requirement

Since none of its income is generated in the Philippines, it is exempt from paying income and value-added taxes to the taxing authority in the country – the Bureau of Internal Revenue (BIR). It is, however, subject to withholding taxes on its remittances to its parent company and employee compensation.

A consequence of its tax exemption is that it is not qualified to apply for fiscal and non-fiscal tax incentives from the Board of Investments (BOI) or the Philippines Economic Zone Authority (PEZA).

Document Requirements

  • Authenticated copy of the board resolution authorizing the establishment of the representative office and designating a Resident Agent to receive the summons and legal proceedings (must have Filipino residency)
  • Authenticated copies of the Articles of Incorporation of the parent company
  • Certificate of Inward Capital Remittance and Certificate of Bank Deposit of US$30,000.00 as initial capital
  • Authenticated & Audited Financial Statements (AFSs) of the parent company
  • Affidavit of solvency executed by the President or Resident Agent stating that the foreign corporation is solvent and sound in its financial condition
  • Resident Agent’s acceptance of appointment (if the agent is not the signatory of the application form)

Steps to Register a Representative Office

1Register company name to obtain name verification slip from SEC (Security and Exchange Commission)
2Present accomplished documents to SEC for pre-processing
3Present verification of minimum paid-up capital in non-resident account from the local bank
4Secure Registration from Records Division
5Obtain Corporate Taxation Registration from the Bureau of Internal Revenue (BIR or Tax Authority)
6Register with Local Government Units (LGUs) to obtain the following compliance:
- Barangay Clearance from the Barangay Hall
- Mayor’s Permit from the Mayor’s Office
- Business Permit from the Business Permit and Licensing Office (BPLO) of the Municipal/City Hall
7Complete employees’ information to obtain the following licensing with other Government Agencies:
- Social Security System (SSS) for employee’s social security
- Philippines Health Insurance Corporation (PhilHealth) for employee’s health insurance benefits
- Home Development Mutual Fund (HDMF or Pag-Ibig Fund) for employee’s housing benefits


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Sole Proprietorship

A sole proprietorship is a business structure owned by an individual who generally has full control and authority over the business.

The business owner is referred to as the “sole proprietor” and exclusively owns all assets and profits of the business. He or she is also personally liable for all the debts and losses that the business might incur.

As the simplest form of business in the Philippines, the business registration process for a sole proprietorship is relatively easy.

Sole proprietorships are also the easiest to run since they do not have the same formalities and regulations that corporations and partnerships have, such as board meetings, board elections, share capital, etc.

Basic Requirements of a Sole Proprietorship

Minimum Capital Requirement

There is no minimum capital requirement for setting up a sole proprietorship, and no portion of authorized capital is required to be paid up at the time of incorporation unless a special law or regulation requires otherwise.

Document Requirements

  • 2 Valid IDs
  • Proof of Address such as Contract of Lease (if rented) or Certificate of Land Title (if owned)
  • Three business names (the other two will be alternatives)

Steps to Register a Sole Proprietorship

1Register business name with the Department of Trade and Industry (DTI)
2Obtain Barangay clearance
3Obtain the Mayor’s Business Permit and Licenses
4Register Tax Identification Number from the Bureau of Internal Revenue (BIR)
5Register with the Social Security System (SSS)
6Register with the Philippines Health Insurance Company (Phil Health)

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Disclaimer: This content is intended for educational purposes only and should not be taken as legal instructions. You should contact consultants in your target markets before making decisions related to incorporation or service execution.


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