There are a number of ways for foreigners to invest directly in a Philippine company doing business in the Philippines, or directly conduct business in the Philippines. Here are some of them:
Equity in a Philippine company
As a general rule, foreigners can invest as much as one hundred percent (100%) in equity in domestic market enterprises, except in areas included in the negative list. This is provided in Republic Act No. 7042, also known as the “Foreign Investments Act of 1991” (FIA). The Seventh Regular Foreign Investment Negative List (Executive Order No. 584) was issued pursuant to the FIA. It provides that the foreign participation in a Philippine-registered company shall be limited to forty percent (40%) if the “paid-in equity capital” is “less than the equivalent of Two hundred thousand US dollars (US$200,000.00)”. Otherwise stated, a non-Filipino national need not pay the amount of US$200,000.00 if his ownership does not exceed forty percent (40%) of a Philippine-registered company’s “paid-in equity capital”.
The FIA also provides that, as a general rule, there are no restrictions on extent of foreign ownership of an export enterprise or a service enterprise that exports sixty percent (60%) or more of its output. Entities engaged in outsourcing operations may be covered under this exception. The company must be registered with the Securities and Exchange Commission (SEC) and the Board of Investments (BOI). These government agencies are tasked to ensure that the ratio of output (40% domestic and 60% non-domestic) is maintained every year.
Foreign company doing business in the Philippines
A foreign company may establish a branch office in the Philippines and, as such, may conduct business in the country pursuant to the Corporation Code. After registration in the Philippines, the foreign company shall file a bond with the SEC in the amount of at least One Hundred Thousand Pesos (P100,000). However, R.A. 7042 does not distinguish between a foreign entity which seeks ownership in a Philippine company and a foreign entity which seeks to do business directly in the Philippines. The law covers “a non-Philippine national” who shall “do business . . . or invest in a domestic enterprise up to one hundred percent (100%) of its capital, unless participation of non-Philippine nationals in the enterprise is prohibited or limited to a smaller percentage by existing law and/or under the provisions of this Act.”
Regional or Area Headquarters (RHQ)
The allowed scope of work of RHQs is merely “to supervise, superintend, inspect or coordinate its own affiliates, subsidiaries or branches in the Asia Pacific Region and other foreign markets” (Republic Act No. 8756, which amends Executive Order No. 226, also known as the “Omnibus Investment Code of 1987“). In other words, RHQs cannot do business in the Philippines. They are also required to remit into the Philippines at least Fifty Thousand United States Dollars ($50,000.00).
Regional Operating Headquarters (ROHQ)
ROHQs are allowed to derive income in the Philippines but only from “its affiliates, subsidiaries or branches in the Philippines, in the Asia-Pacific Region and in other foreign markets.” ROHQs are also required to remit at least Two Hundred Thousand United States dollars ($200,000.00).
a. R.A. 6957, as amended by R.A. 7718, also known as the “Build-Operate-and-Transfer Law,” which covers the financing, construction, operation of infrastructure projects by the private sector.
b. R.A. 7916, also known as “The Special Economic Zone Act of 1995,” which provides incentives to industries and enterprises operating in Special Economic Zones.
c. R.A. 7227, also known as the “Bases Conversion and Development Act of 1992,” which provides incentives to industries which establish their plants and offices in the Subic Bay Freeport Zone.
d. R.A. 7844, or “The Export Development Act of 1994,” which provides incentives to business enterprises in the export industry.